Basic Economic Concepts
What two concepts are involved in any economic issue?
scarcity and choice
What is the substitution effect?
Causes a consumer to consume more of a good that is relatively cheaper than one that has become more expensive.
Are their any barriers to entry in perfect competition?
No
What is a Production Function?
The relationships between the quantity of inputs a firm uses and the quantity of output it produces.
What happens at firms profit-maximizing quantity of output?
Marginal Revenue equals Marginal Cost.
What prevents producers and consumers from making their own individual decisions in a market economy as opposed to market economy?
Government/central authority makes all production and consumption decisions.
What comparism is made when calculating the price elasticity of demand?
The percent change in quantity demanded to the percent change in price
Which type of market has price takes and why?
Perfect competition because neither consumers nor producers have the power to affect the market price of that good
The slope of the total product curve is also known as...
the marginal product of labor
Why is economic profit different from accounting profit?
Incorporates both explicit and implicit costs while accounting profit only uses explicit costs.
What is the difference between positive economics and normative economics.
Positive economics involve factual statements while normative economics explains how the economy "should" work.
What is the term that describes a graph where any price change causes a drastic change in the quantity demanded.
Perfectly Elastic
What is price discrimination?
When sellers charge different prices to different consumers for the same good.
What shape do economist believe most ATC curves form in most firms.
U-shaped
When firms cooperate to raise their joint profits, they are necessarily...
colluding.
When is an economy considered Efficient?
When there are no missed opportunities- no way to make some better off without making at least one person worse off
Name the four factors that determine the price elasticity of demand?
1) Availability of close substitutes
2) Good is a necessity or luxury
3) Share of income spent on good
4) Time
What happens monopolistically competitive firms in the long run?
They end up in zero-profit equilibrium.
What is diseconomies of scale?
When long-run average total cost increase as output increases
What is the term to describe the result when each player in a game chooses the actions that maximizes his or her payoff, given the actions of the other players.
Nash equilibrium/ Noncooperative equilibrium
How can someone show the effect of a third variable on a graph?
By showing a shift in either the demand or supply curve.
The optimal consumption bundle is always represented where on the utility function?
on the consumers budget line.
A price discriminating monopolist will charge a higher price to consumers with...
A more inelastic demand
Why do short-run and long-run average total cost curves differ?
Firms can choose their fixed cost in the long run.
State all the characteristics to an oligopoly.
few firms, interdependent, products can be differentiated and not differentiated, high barriers to entry