Micro

Question 1

Tax effect with relatively inelastic supply

Answer 1

tax incidence falls on seller

Question 2

long run-supply curves v. short-run supply curves

Answer 2

long-run supply curves are MORE ELASTIC and FLATTER than short-run supply curves

Question 3

law of demand

Answer 3

as price decreases, quantity demanded increases

Question 4

law of supply

Answer 4

as price increases, quantity supplied increases

Question 5

change in quantity demanded or supplied

Answer 5

movement along the demand or supply curve when equilibrium price changes (change in price)

Question 6

increases or decreases in supply or demand

Answer 6

shift of the supply or demand curve, due to change in one of the independent variables other than price

Question 7

excess supply

Answer 7

price is above its equilibrium level

Question 8

excess demand

Answer 8

price is below equilibrium level

Question 9

consumer surplus

Answer 9

excess of the total value to consumers of the units they purchase above the total amount paid

difference between price paid and marginal benefit

Question 10

producer surplus

Answer 10

excess of the amount producers receive for the units they sell above their total cost of production

Question 11

marginal cost

Answer 11

supply curve (when no external costs or benefits associated with production and consumption of good)

Question 12

marginal benefit

Answer 12

demand curve (when no external costs or benefits associated with production and consumption of good)

Question 13

underproduction

Answer 13

producing at a quantity less than equilibrium.
consumers are willing to pay more than the cost to supply
MB > MC

Question 14

overproduction

Answer 14

producing at a quantity greater than equilibrium
consumers are willing to pay less than the cost to supply
MB < MC

Question 15

deadweight loss

Answer 15

decrease in total surplus that results from an inefficient level of production

Question 16

tax on suppliers

Answer 16

equilibrium Price increases, equilibrium quantity decreases

Question 17

actual incidence of tax given inelastic demand

Answer 17

buyers suffer the greater burden

Question 18

actual incidence of tax given inelastic supply

Answer 18

sellers suffer the greatest burden

Question 19

subsidies

Answer 19

lead to overproduction

Question 20

external costs of production

Answer 20

when not borne by suppliers, result in a deadweight loss from overproduction

Question 21

external benefits of consumption

Answer 21

when not realized by consumers, they consume less than efficient quantity of good, resulting in deadweight loss

Question 22

price ceiling

Answer 22

results in underproduction and excess demand, non-price allocation to consumers, and deterioration of the quality of the good

Question 23

price floor on wages

Answer 23

excess supply of unskilled labor and increased unemployment, non-wage worker benefits will be reduced, and producers will substitute other factors of production, including capital equipment and skilled labor, for unskilled labor

Question 24

price elasticity of demand

Answer 24

ratio of the percent change in quantity demanded to the percent change in price

Question 25

income elasticity of demand

Answer 25

ratio of the percent change in quantity demanded to the percent change in income

Question 26

cross price elasticity of demand

Answer 26

ratio of the percentage change in quantity demanded to the percent change in the price of a related good.

positive for substitute
negative for complement

Question 27

marginal revenue

Answer 27

increase in total revenue from selling one or more unit of a good or service

Question 28

production function

Answer 28

quantity of output that a firm can produce is a function of the amounts of capital and labor employed

Question 29

total fixed cost

Answer 29

cost of inputs that do not vary with the quantity of output and cannot be avoided over the period of analysis:

PP&E, normal profit, fixed interest costs on debt financing, etc.

Question 30

total variable cost

Answer 30

cost of all inputs that vary with output over the period of analysis: wages, raw materials

Question 31

total cost

Answer 31

total fixed cost + total variable cost

Question 32

marginal cost

Answer 32

addition to total cost of producing one more unit

curve declines initially and then increases
intersects AVC and ATC at minimum points
above the AVC, represents the short-run supply curve in a perfectly competitive market

Question 33

average fixed cost (AFC) curve

Answer 33

downward sloping

= distance between Ave total cost and ave var cost curves

Question 34

average total cost (ATC) curve

Answer 34

U-shaped
minimum point represents lowest cost per unit
a firm should shut down in the long-run if Price < ATC

Question 35

average variable cost (AVC) curve

Answer 35

u-shaped

as long as Price > AVC, a firm should continue to operate in the short-run

Question 36

marginal revenue product

Answer 36

additional revenue from employing one or more unit for each productive unit

Question 37

perfect competition

Answer 37

many firms, small relative to market
low barriers to entry
homogenous products and perfect substitution
no advertising or branding
no pricing power

P = MR = MC
perfectly inelastic firm demand curve
zero economic profit in equilibrium

Question 38

monopolistic competition

Answer 38

many firms
low barriers to entry
differentiated products
heavy advertising and high marketing expenditure
some pricing power

P > MR, MR = MC
downward sloping firm demand curve
zero economic profit in long-run

Question 39

oligopoly

Answer 39

few sellers
high barriers to entry
homogenous products or differentiated by branding and advertising
significant pricing power

P > MR, MR = MC
downward sloping demand curve
may have positive economic profit in long run
tends toward zero economic profit over time

Question 40

monopoly

Answer 40

single firm comprises the whole market
very high barriers to entry
advertising used to compete with substitute products
significant pricing power

P > MR, MR = MC
downward sloping demand curve
may have positive economic profit in long run
profits may be zero due to expenses to preserve monopoly

Question 41

Herfindahl-Hirschman Index (HHI)

Answer 41

measure of market concentration that is sensitive to M&A

sum of squares of the market shares of the largest firms in the market