PPC & Supply/Demand
What happens to the equilibrium price and quantity when supply decreases?
Price rises and quantity falls.
Demand for Compose coffee would be relatively _________ because there are many substitutes such as Starbucks, Ediya, and etc.
elastic
If marginal utility is decreasing, total utility must also be decreasing.
True/False? Explain
False. Total utility could be increasing at a decreasing rate as long as marginal utility is (+).
What is opportunity cost?
The value of the best alternative given up when making a choice.
Perfectly competitive firms are _________ because price at which they can sells their goods/services is determined in the market.
price-takers
Any points outside of PPC/PPF are __________.
unattainable
When an excise tax is imposed, who pays more tax between between producers and consumers? Explain.
Depends on their relative elasticity.
The party that is relatively less responsive to higher price will bear more tax burden.
What is the utility-maximization rule? (formula)
MUx/Px = MUy/Py
Which cost curve continuously decreases as output produced increases?
AFC
What are the four characteristics of perfect competition?
- Many sellers & buyers
- Price-takers
- Goods are homogeneous(identical)
- Free entry/exit
Luke buys fewer pairs of Nike shoes when the price goes up because Adidas shoes become relative cheaper. This illustrates ____________effect.
substitution
When the price of coffee increases from $4 to $5, the quantity of coffee consumed decreases form 100 cups to 70 cups.
This indicates the demand for coffee is ______.
elastic
Total utility is maximized when marginal utility is ____________.
zero
In a typical graph of a perfectly competitive firm, _________ must be greater than _________ for the firm to earn economic profits.
Price (or MR or AR), ATC
When should a perfectly competitive firm shut down in the short run?
When the price is lower than their AVC
Sugar is an important ingredient in making chocolate. If the price of sugar decreases, what do you think will happen to the price of chocolate?
Increase in supply of chocolate will decrease the price of chocolate.
At a restaurant that allows you to eat unlimited breadsticks, you choose to eat 4. Assuming you are a rational consumer, your choice indicates that for you the marginal benefit of the 5th bread stick is _________than the marginal cost.
less
Which of the cost curves would change when wages of workers increase?
MC, AVC, ATC
A perfectly competitive firm is operating with the following production costs:
MR=MC at $16, AVC=$12, ATC = $20
i) Is the firm breaking even, making losses, or making profits?
ii) Explain what happens in the industry in the long run? What happens to firms' profits?
i) Making losses
ii) In the long run, some firms will leave the market causing the market supply to decrease. This drives the price up and firms in the market will break even in long run equilibrium.
If individuals expect the price of gasoline to fall, today's demand for gasoline will ________, and the supply for gasoline will _______.
When these changes occur simultaneously, the market price will ___________, and the market quantity will be _________.
decrease, increase, fall, indeterminate.
Nate is currently spending his entire budget on two goods: food and entertainment. He was willing to pay $2 for the last unit of food he purchased and $2,000 for the last unit of entertainment he purchased.
Why he is willing to pay so much more for entertainment?
Because the marginal utility of the last unit of entertainment is much greater than the marginal utility of the last unit of food.