Economics: Microeconomics

Question 1

Accounting Costs

Answer 1

Monetary value of economic resources used in performing an activity. The can be explicit out of pocket current payment or an allocation of historical payments (depreciation) for recourses. They do not include implicit opportunity costs

Question 2

Accounting Profit

Answer 2

Income as reported on the income statement, in accordance with prevailing accounting standards, before the provisions for income tax expense

Question 3

Average Fixed Cost

Answer 3

Total Fixed Cost divided by quantity produced

Question 4

Average product

Answer 4

Measures the productivity of inputs on average and is calculated by dividing total product by the total number of units for a given input that is used to generate that output

Question 5

Average Revenue

Answer 5

Total revenue divided by quantity sold

Question 6

Average total cost

Answer 6

Total cost divided by quantity produced

Question 7

Average variable cost

Answer 7

Total variable cost divided by quantity produced

Question 8

economic cost

Answer 8

The number of units is produced and sold at which the companies net income is zero (Revenues = total cost) in the case of perfect competition, the quantity at which price average revenue and marginal revenue equal average total cost

Question 9

Compliments

Answer 9

Goods that tend to be used together; technically, two goods whose cross-price elasticity of demand is negative

Question 10

Cross-price elasticity of demand

Answer 10

The percentage change in quantity demanded for a given change in the price of another good; the responsiveness of the demand for product A that is associated with the change in price of product B

Question 11

Decreasing returns to scale

Answer 11

When a production process leads to increases in output that are proportionally smaller than the increase in inputs

Question 12

Demand Curve

Answer 12

Graph of the inverse demand function. A graph showing the demand function, either the highest quantity willingly purchased at each price or the highest price willingly paid for each quantity

Question 13

Demand Function

Answer 13

A relationship that expresses the quantity demanded of a good or service as a function of own-price and possibly other variables.

Question 14

Diseconomies of Scale

Answer 14

Increase in cost per unit resulting from increases production

Question 15

Economic Costs

Answer 15

All the renumeration needed to keep a productive resource in its current employment or to acquire the resource for productive use; the sum of total accounting costs and implicit opportunity costs

Question 16

Economic loss

Answer 16

The amount by which accounting profit is less than normal profit

Question 17

Economic Profit

Answer 17

Equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue and total cost

Question 18

Economies of Scale

Answer 18

Reduction in cost per unit resulting from increased production

Question 19

Elastic

Answer 19

Said of a good or service when the magnitude of elasticity is greater than one

Question 20

Elasticity

Answer 20

The percentage change in one variable for a percentage change in another variable; a general measure of how sensitive one variable is to a change in the value of another variable

Question 21

Elasticity of Demand

Answer 21

A measure of density of the Quantity demanded to a change in the products own price %ChangeQ/%ChangeP

Question 22

Elasticity of Supply

Answer 22

A measure of the sensitivity of quantity supplied to a change in price %changeQ/%changeP

Question 23

Giffen Goods

Answer 23

Goods that are more as the price of the good rises because it is a very inferior food whose income effect overwhelms its substitution effect when price changes

Question 24

Increasing marginal returns

Answer 24

When the marginal product of a resource increases as additional units of that input are employed

Question 25

Increasing returns to Scale

Answer 25

When a production process leads to increases in output that are proportionally larger than the increase in inputs

Question 26

Inelastic

Answer 26

Said of a good or service when the magnitude of elasticity is less than one. Insensitive to price changes

Question 27

Inferior Goods

Answer 27

A good whose consumption decreases as income increases

Question 28

Input productivity

Answer 28

The amount of output produced by workers in a given period of time-for example, output per hour workers; measures the efficiency of labor

Question 29

Inverse Demand Function

Answer 29

A restatement if the demand function in which price is stated as a function of quantity

Question 30

Law of Demand

Answer 30

The principle that as the price of a good rises, buyers will choose to buy less of it and as price falls, they will buy more.

Question 31

Law of Diminishing Marginal Returns

Answer 31

The observation that a variables factors marginal product must eventually fall as more of it is added to a fixed amount of the other factors.

Question 32

Long-run average total cost

Answer 32

The curve describing average total cost when no costs are considered fixed.

Question 33

Macroeconomics

Answer 33

The branch of economics that deals with aggregate economic quantities, such as national output and national income.

Question 34

Marginal Cost

Answer 34

The cost of producing an additional unit of a good

Question 35

Marginal product

Answer 35

Measures the productivity of each unit of input and is calculated by taking the difference in total product from adding another unit of input (assuming other resources quantities are held constant).

Question 36

Marginal Revenue

Answer 36

The change in total revenue divided by the change in quantity sold; simply the additional revenue from selling one more unit

Question 37

Microeconomics

Answer 37

The branch of economics that deals with markets and decisions making of individual economic units, including consumers and businesses

Question 38

Minimum efficient scale

Answer 38

The smallest output that a firm can produce such that its long run average total cost is minimized

Question 39

Normal goods

Answer 39

Goods that are consumed in greater quantities as income increases

Question 40

Normal Profit

Answer 40

The level of accounting profit to just cover the implicit opportunity costs ignores in accounting costs

Question 41

Opportunity Cost

Answer 41

The value that investors forgo by choosing a particular course of action; the value of something in its best alternative use

Question 42

Own Price

Answer 42

The price of a good or service itself (as opposed to the price of something else.

Question 43

Own-price elasticity of demand

Answer 43

The percentage change in quantity demanded for a percentage change in goods own price, holding all other things constant

Question 44

Perfectly elastic

Answer 44

When the quantity demanded or supplied of a given good is infinitely sensitive to a change in the value of a specified variable (e.g. price )

Question 45

Perfectly inelastic

Answer 45

When the quantity demanded or supplied of a given good is completely insensitive to a change in the value of a specified variable (e.g.,price).

Question 46

Quasi-fixed cost

Answer 46

A cost that stays the same over a range of production but can change to another constant level when production moves outside of that range

Question 47

Real Income

Answer 47

Income adjusted for the effect of inflation on the purchasing power of money. Also known as the purchasing power of income. If income remains constant and goods price falls, real income is said to to rise, even through the number of monetary units (eg dollars) remains unchanged.

Question 48

Short-run average total cost

Answer 48

The curve describing average total cost when some costs are considered fixed

Question 49

Shutdown point

Answer 49

The point at which average revenue is equal to the firms average variable cost.

Question 50

Substitutes

Answer 50

Said of two goods or services such that if the price of one increases the demand for the other tends to increase, holding all other
things equal. (E.g butter and margarine)

Question 51

Total cost

Answer 51

The summation of all costs for which costs are classified as fixed or variable.

Question 52

Total fixed cost

Answer 52

The summation of all expenses that do not change as the level of production varies

Question 53

Total Variable Cost

Answer 53

The summation of all variable expenses

Question 54

Unit Elastic

Answer 54

An elasticity with a magnitude of -1

Question 55

Variable costs

Answer 55

Costs that fluctuate with the level of production and sales

Question 56

Veblen goods

Answer 56

Goods that increase in desirability with increasing price