AP Econ Micro Chapter 1

Question 1

What is Welfare Economics?

Answer 1

The study of how the allocation of resources affects economic well-being.

Question 2

Equilibrium in the market results what?

Answer 2

Maximum benefits, and therefore maximizes total welfare for both consumers and the producers of the product.

Question 3

Consumer Surplus measures what?

Answer 3

Economic welfare from the buyer’s side.

Question 4

Producer Surplus measures what?

Answer 4

Economic welfare from the seller’s side.

Question 5

Producer Surplus is…

Answer 5

The amount the seller is paid minus the seller’s cost.

Question 6

The area below the demand curve and above the price is what?

Answer 6

measures the consumer surplus in the market.

Question 7

The area above the supply curve and below the price is what?

Answer 7

measures the producer surplus in the market.

Question 8

What is a negative externality?

Answer 8

When the impact on a bystander is adverse. Such as exhaust, second hand smoke, loud pets… etc.

Question 9

What is a positive externality?

Answer 9

When the impact on a bystander is beneficial. Such as immunization, new technologies, or restored buildings.

Question 10

Negative externalities lead the market to produce _______ quantities than is socially desired.

Answer 10

Larger

Question 11

Positive externalities lead the market to produce _______ quantities than is socially desired.

Answer 11

Smaller

Question 12

The intersection of the demand curve and ____-_____ curve determine the socially optimal output level.

Answer 12

Social-cost

Question 13

What is the equation for price elasticity of demand?

Answer 13

Price elasticity of D = PΔ in quantity D / %Δ in price

Question 14

What is the Midpoint formula and what does it find?

Answer 14

(Q2-Q1)/(Q2+Q1)/2 over (P2-P1)/(P2+P1)/2

The demand elasticity

Question 15

How do you calculate total revenue?

Answer 15

Total Revenue = Price X Quantity

Question 16

What are the characteristics of an inelastic quantity demanded?

Answer 16

Does not respond strongly to price changes.

Price elasticity is less than 1

Question 17

What are the characteristics of an elastic quantity demanded?

Answer 17

Does respond strongly to price changes.

Price elasticity is more than 1

Question 18

In respect the supply elasticity, when is it more elastic?

Answer 18

In the Long-run

Question 19

What is the price elasticity of supply formula?

Answer 19

Price elasticity of supply = PΔ in quantity supplied/%Δ in P

Question 20

Necessities tend to be income _____ while luxury or substitute goods tend to be more _____.

Answer 20

Inelastic, Elastic

Question 21

Consumer Surplus =
Producer Surplus =
Total Surplus =
Total Surplus =

Answer 21

Value to buyers - amount paid by buyers
Amount received by sellers - cost of sellers
Consumer surplus + Producer surplus
Value of buyers - cost to sellers