Unit 1
What is opportunity cost?
The cost of a choice
If supply shifts left what will happen to the price?
Increase
A firm is producing the allocatively efficient level of output if...
P = MC
What is a mixed economy?
An economy that mixes free-market economy with government intervention
What type of graph shows the efficiency of production?
PPC
What does it mean if the point is outside the PPC?
Inefficient use of resources
What happens when the total surplus decreases?
Deadweight loss
Productive efficiency occurs when a firm produces output at a level at which
average total cost is at a minimum
What is the name of a market with government intervention and public ownership of resources?
Command economy
What does the difference between AVC and ATC represent?
AFC
Which of the following is associated with a command economy?
Public ownership of resources
The difference between the price a consumer would be willing to pay and the actual market price
Consumer surplus
What MUST be true in the long run?
All resources are variable
What is a quota?
A limit on the number of imports
In a short run graph, what do MC, ATC and AVC look like?
MC curves at the bottom then increases continuously, AVC and ATC are U-shaped curves that begin to rise when crossing with MC
Resources in a market economy are commonly allocated by
Price System
What is the income effect?
If the price for a product decreases, the consumer's purchasing power increases
A merger of two firms may increase economic efficiency by
Decreasing ATC
What are excise taxes?
Per unit tax on producers
What are the 3 possible categories for points in a PPC graph?
Efficient, inefficient, impossible
If a firm produces a good for which it has a comparative advantage, what determines the amount it trades with other countries?
The terms of trade
What would cause the demand for a normal good to increase?
A decrease in the price of a complementary good
If a firm experiences economies of scale over the entire range of output, the long-run average cost curve will be
downward sloping
What is productive and allocative efficiency?
Productive efficiency: Production at the lowest possible cost, P = minimum ATC
Allocative efficiency: Production at point most desired by consumers, P = MC
If the supply in a supply-demand graph increases, what will happen in the short-run graph?
MR will decrease, firms will leave, eventually go back to equilibrium