Final Exam Flashcards
True or False.
Trade Patterns are determined by comparative advantage not by absolute advantage.
True
Optimal choices must satisfy…
Marginal cost = Marginal Benefit
PPF means…
Production Point Frontier
Factors that can shift the demand curve are:
- price of consumption
- complements or substitutes
- income, populations and taxes
Factors that can shift the supply curve:
- price of production
- substitutes and complements
- the price of factors of production
- the number of firms and technology
A competitive equilibrium is..
the price and quantity where supply and demand intersect
When prices are above equilibrium level…
There is excess production
When prices are below the competitive level…
there are shortages
When demand increases, what happens to the equilibrium price and quantity?
They both increase
When supply increase what happens to the equilibrium price and quantity?
The quantity goes up and price goes down
The cross-price elasticity helps describe the relationship between…
Complements and substitutes
If the cross price elasticty is positive it means it is a…
Substitute
if the cross price elasticity is negative it means it is a…
Complement
Income elasticity of demand helps us determine if a good is
Inferior or normal
If the income elasticity is less than 1…
it is an inferior good
If the income elasticity is greater than 1
it is a normal good
Indifference curves are usually…
Decreasing at a decreasing rate
Indifference curves usually tell us if..
the 2 goods are perfect subs or perfect complements are something in between
If the indifference curves are lines…
it is a perfect substitute
If the indifference curves are L-shaped…
It is a perfect complement
If the indifference curves are curves…
It is something in between
The slope of an indfference curve is…
MRS
The slope of the budget equation is…
The relative price
True or False
Relative price = MRS
True
True or False.
The FC curve is always decreasing
True
True or False
The TC curve is always increasing.
True
The law of diminishing returns state that…
The MC, AVC and ATC curves eventually becoming increasing at an increasing rate
In perfect competition we assume that…
each firm has a perfectly elastic demand. that is, and they have to act as price takers
True or False.
In a perfectly competitive market marginal revenue = demand.
True
True or false.
Competition makes the residual demand of each firm be more elastic. This lowers profit and prices
True.
In perfect competition the optimal choice of firms is…
Marginal cost = price
The best welfare criterion is the…
Pareto Criterion: policies that help some without hurting others unambiguously good.
What happens in a perfectly competitive market without externalities?
Total surplus is maximized by the competitive equilibrium
What happens in a monopolistic market with perfect price discrimination?
Total surplus is maximized by the monopolistic equilibrium
What is a price control?
A price control restricts the prices at which legal trade can occur. Examples are rent controls and minimum wages
What happens in a competitive market without externalities and with price control?
It will decrease trade and total surplus
What will happen in a market that is not perfectly competitive with a price control?
It will increase trade and total surplus
What are sales tax?
Sales tax are a way of raising revenue for the govy
What are subsidies?
Negative taxes. Buyers and sellers are compensated for each unit traded
Tax will reduce…
Trade
Subsidies will increase…
Trade
Externalities are…
the effects that our choices have on the wellbeing of other people
True or False
MSC=MSB
True
An unregulated market with negative externalities…
Will result in overproduction and dead-weight loss
An unregulated market with positive externalities…
with result in underproduction and dead-weight loss
What is one way to deal with negative externalities?
Pigouvian Taxes
What is a monopsony?
A market operated by a single buyer
True or False.
For a monopsony, the MCL is above the supply curve
True
True or False.
In concentrated labour markets, minimum wages can increase employment and total market surplus
True
What is a production quota?
A Limit to the quantity of a good that maybe produced in a specified period in time
