Microeconomies

Question 1

What does price below market equilibrium point create and vice versa?

Answer 1

1. Price below market equilibrium point creates shortage because Q demanded will exceed Q supply.
2. Price above market equilibrium point creates surplus because Q supply will exceed Q demanded.

Question 2

1. If product’s demand is relatively elastic and price is lowered, the effect is _________
   If product’s demand is relatively inelastic and price is lowered, the effect is _________

Answer 2

If product’s demand is relatively elastic and price is lowered, the effect is TOTAL REVENUE INCREASES because demand change is greater than price.
If product’s demand is relatively inelastic and price is lowered, the effect is TOTAL REVENUE DECREASES because demand change is lower than price.

Question 3

What makes demand curve shift left?

Answer 3

A rise in price of complementary commodity

Question 4

Define economic cost

Answer 4

Economic cost is the sum of all explicit and implicit costs of the business firm.

Question 5

What is form of non-price competition typical under monopolistic competition?

Answer 5

Product differentiation
Advertising
Product quality

Question 6

Define the relationship between price and quantity supplied.

Answer 6

The law of supply states that, in the short run, the price of the product and the quantity supplied are positively related

Question 7

A perfectly elastic demand curve is depicted as ________

A perfectly inelastic demand curve is depicted as _______

Answer 7

A perfectly elastic demand curve is depicted as a horizontal line.
A perfectly inelastic demand curve is depicted as a vertical line