Final Exam

Question 1

The study of the choices of consumers, business managers, and government officials make to attain their goals, given scarce sources

Answer 1

Economic definition

Question 2

3 economic ideas

Answer 2

1. People are rational
2. People respond to economic incentives
3. Rational people think @ the margin

Question 3

When you know all the pieces and still make the decision

Answer 3

Rational

Question 4

When you don’t know all the pieces and still make the decision

Answer 4

Irrational

Question 5

Graph that shows the maximum attainable combination of two goods that may be produced with available resources & technology

Answer 5

Production possibilities frontier

Question 6

The ability of an individual firm or country to produce at a lower opportunity cost then its competitor.

Answer 6

Comparative advantage

Question 7

The ability to produce a good using fewer inputs.

Answer 7

Absolute advantage

Question 8

3 characteristics of a perfectly competitive market?

Answer 8

1. Homogeneous good
2. Lots of buyers and sellers
3. No barriers to new firms entering the market

Question 9

An inverse relationship between the price of a product and the quantity of the product demanded

Answer 9

Law of demand

Question 10

Two effects that drive the law of demand

Answer 10

Substitution effect

Income effect

Question 11

An agreement between firms that usually compete against each other in efforts to set the price for their goods in order to gain an advantage

Answer 11

Collusion

Question 12

Anything that keeps new firms from entering an industry in which firms are earning economic profits.

Answer 12

Barriers to entries

Question 13

A pricing strategy that charges customers different prices for the same product or service

Answer 13

Price discrimination

Question 14

A game in which pursuing dominant strategies results in non-cooperation that leaves everyone worse off.

Answer 14

Prisoners Dilemma

Question 15

A firm that is the only seller of a good or service that does not have a close substitute

Answer 15

Monopoly

Question 16

A market structure in which a small number of interdependent firms compete

Answer 16

Oligopoly

Question 17

Three important barriers to entry:

Answer 17

1. Economies of scale
2. Ownership of key input
3. Government imposed barriers

Question 18

The situation when a firm’s long-run average costs fall as the firm increases output.

Answer 18

Economies of scale

Question 19

If production of a good requires a particular input

Answer 19

Ownership of a key input

Question 20

The exclusive right to a product for a period of 20 years from the date the __ is filed with the government

Answer 20

Patent

Question 21

A buyer or seller that is unable to affect the market price.

Answer 21

Price taker

Question 22

The period of time during which at least one of a firm’s inputs is fixed

Answer 22

Short run

Question 23

The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

Answer 23

Long run

Question 24

The cost of all the inputs a firm uses in production

Answer 24

Total cost

Question 25

Costs that change as outputs change

Answer 25

Variable cost

Question 26

Costs that remain constant as output changes.

Answer 26

Fixed cost

Question 27

The highest valued alternative that must be given up to engage in an activity

Answer 27

Opportunity cost

Question 28

A cost that involves spending money

Answer 28

Explicit cost

Question 29

A non monetary opportunity cost

Answer 29

Implicit cost

Question 30

Total cost equation

Answer 30

Total cost = fixed cost + variable cost

Question 31

Average total cost equation

Answer 31

Total cost divided by the quantity of output produced

Question 32

A) Elastic demand

B) Inelastic demand

C) Unit-elastic demand

Answer 32

A) >1

B) <1

C) =1

Question 33

The key determinants of the price elasticity of demand are:

Answer 33

1. The availability of close substitutes to the good
2. The passage of time
3. Whether the good is a luxury or a necessity
4. The definition of the market
5. The share of the good in the consumer’s budget

Question 34

Equation for cross-price elasticity of demand

Answer 34

Percentage change in quantity demanded of one good

Divided by

percentage change in price of another good

Question 35

A legally determined maximum price that sellers may charge

Answer 35

Price ceiling

Question 36

A legally determined minimum price that sellers may receive

Answer 36

Price floor

Question 37

The additional benefit to consumer from consuming one more unit of a good or service

Answer 37

Marginal benefit

Question 38

Accounting profit equation

Answer 38

Total revenue - totals explicit costs

Question 39

Economic profit equation

Answer 39

Total revenue - total costs