Chapter 1-4
Economics is best defined as the study of _______.
how society manages its scarce resources
What makes a price floor binding?
A price floor is binding if it is above the equilibrium...
Diego, Emi, and Finn are available to work as tutors for the semester. The opportunity cost of tutoring is $400 for Diego, $200 for Emi, and $100 for Finn. The university is hiring tutors at a price of $300. Producer surplus in this market is ______
300
Both public goods and common resources are_______.
not excludable, but only public goods are not rival in consumption
Why do Monopolies Exist?
Monopoly resources: A single firm owns a key resource required for production.
Government regulation: The government gives a single firm the exclusive right to produce a good or service.
The production process: A single firm can produce output at a lower cost than a larger number of firms can.
A point inside the production possibilities frontier is _______.
feasible but not efficient
The Determinants of Price Elasticity of Demand are:
Availability of close substitutes, necessities and luxuries, defining the market broadly v narrowly, time horizon
When the government intervenes in a market with negative externalities, it does so in order to _______.
protect the interests of bystanders
National defense is often used as an example of a public good because it _______.
is difficult to exclude people from receiving the benefits from national defense once it is provided
National defense is often used as an example of a public good because it is easy to see that it is difficult to exclude people from receiving the benefits from national defense once it is provided and because providing national defense to one citizen does not diminish the nation's ability to provide it to another.
What are the 4 properties of Indifference curves?
What are the 4 properties of Indifference curves?
Higher indifference curves are preferred to lower ones.
Indifference curves slope downward.
Indifference curves do not cross.
Indifference curves are bowed inward.
Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?
The demand curve shifts to the right.
When a good is taxed, the burden of the tax falls mainly on consumers if _______.
supply is elastic and demand is inelastic
Alexis, Bruno, and Camila each want an ice-cream cone. Alexis is willing to pay $12, Bruno is willing to pay $8, and Camila is willing to pay $4. The market price is $6. Consumer surplus equals _________.
8
True or False
Assuming that implicit costs are positive, economic profit is greater than accounting profit.
False
Accounting profit equals total revenues minus explicit costs. Economic profit equals total revenues minus both explicit and implicit costs. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
What is an indifference curve?
a curve that shows consumption bundles that give the consumer the same level of satisfaction
Opportunity Cost is...
whatever must be given up to obtain some item
If the market price of burgers is $8 and the government sets a legal minimum at $9, the government has imposed a price _______.
Price floor
What is an externality?
the uncompensated impact of a person’s actions on the well-being of a bystander
A meadow that is being damaged by overuse in a national park for which there is no entry fee would be an example of a _______.
Common resource
The national park has no entry fee, the meadow is not excludable. However, usage is at a level where use by one person decreases the enjoyment for others, so the meadow is rival in consumption. A good that is not excludable but rival in consumption is a common resource. If usage were low enough that additional users did not damage the meadow, the meadow would be a public good: not excludable and not rival in consumption
Which of the following statements best describes the business practice of price discrimination?
a. Pricing a good below marginal cost
b. Selling the same good at different prices to different customers
c. Selling two similar goods at different prices
d. Hiring an advertising firm to enhance a good's brand
B
Price discrimination is the business practice of selling the same good at different prices to different customers.
What shifts the supply curve?
Input prices, Technology, Number of sellers, Expectations
The income elasticity of demand measures how much the quantity demanded responds to changes in__________________
consumer income
Isabelle values her time at $60 an hour. She spends 2 hours giving Jayla a massage. Jayla was willing to pay as much at $300 for the massage, but they negotiated a price of $200. In this transaction, _______.
consumer surplus is $20 larger than producer surplus
What is diminishing marginal product?
the property whereby the marginal product of an input declines as the quantity of the input increases
the property whereby the marginal product of an input declines as the quantity of the input increases
True or False
For all firm types price equals marginal revenue, and for competitive firms price equals average revenue.
False
Average revenue for a firm is total revenue (P × Q) divided by the quantity (Q). Therefore, average revenue simplifies to the price of the good (P) for all firm types. Marginal revenue is the change in total revenue from an additional unit sold. Because price is fixed for a competitive firm, the change in total revenue from selling an additional unit will be the price. Therefore, price and marginal revenue are equal for competitive firms.