Foundations of Economics
This occurs when quantity supplied exceeds quantity demanded.
Surplus
A measure of how much quantity demanded or supplied responds to price changes.
Elasticity
Total Revenue ÷ Quantity
Price (P) or Average Revenue (AR)
The principle that trade can benefit all parties involved due to differences in opportunity costs.
Comparative advantage.
List the four (4) basic market models
Pure Competition, Monopolistic competition, Oligopoly, Monopoly
What causes a movement along the demand curve?
Change in price
What is the loss of total surplus due to market inefficiency?
A deadweight loss
Price - Average Total Cost
Profit Margin
An uncompensated cost that an individual or firm imposes on others.
External Cost
What is the main characteristic of monopolistic competition?
Product differentiation
As a rule, one should purchase a good or engage in an activity if...?
The marginal benefit is greater than or equal to the marginal cost
The government is setting a price control on chicken for $2.99 a pound; equilibrium is at $3.99 a pound. What is this price control called and what will result from it?
Price Ceiling, Shortage
Private Cost + External Cost
Social Cost
This type of good is non-excludable and non-rivalrous, meaning people cannot be prevented from using it, and one person’s use doesn’t reduce its availability to others.
Public good
A firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment.
Implicit opportunity costs
The graphical representation of all possible combinations of two goods that can be produced given resources and technology.
Production Possibilities Frontier
Externalities, Monopolies, Information Problems, Irrationality, and Government Regulations—what do all these concepts have in common in the context of economics?
Types of Market Failure
Total Cost - Total Fixed Cost
Total Variable Cost (TVC)
If the output effect is greater than the substitution effect, what will happen to the demand for labor?
Demand for labor will increase
What is indicating that the firm could earn more by using its resources elsewhere?
Economic profit is negative
What happens to Supply and Demand and the Equilibrium Price and Quantity in the market for Potato Chips when new labeling machines speed up the packaging process AND when Pretzels go on sale?
Supply Shift Right, Demand Shift Left, Price Falls (both shifts push price down), Quantity Uncertain (depends on which shift is stronger)
When demand elasticity is equal to three (3), what does an increase in price cause?
A decrease in total revenue
Percentage change in Quantity Demanded of Good X ÷ Percentage change in Price of Good Y
Cross Price Elasticity of Demand
What happens when a minimum wage is introduced?
More unemployment and higher wages for the few low-skilled workers who keep their jobs
What is a strategy a firm with market power might use to maximize its profit?
Engage in price discrimination based on willingness to pay