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Micro Econ > Test Deck > Flashcards

Test Deck Flashcards

1
Q

What is the definition of economics?

A

Economics is the study of how individuals, businesses, governments, and other organizations allocate scarce resources to satisfy unlimited wants and needs.

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2
Q

What does marginal cost refer to?

A

Marginal Cost refers to the additional cost of producing one more unit of a good or service.

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3
Q

What is meant by marginal benefit?

A

Marginal Benefit is the additional benefit or satisfaction derived from consuming one more unit of a good or service.

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4
Q

What factors do consumers consider when making rational choices?

A
  • Price
  • Preferences
  • Income
  • Opportunity cost
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5
Q

What is a positive economic statement?

A

A positive economic statement describes facts or how the world is, and can be tested or verified.

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6
Q

What is a normative economic statement?

A

A normative economic statement involves value judgments or opinions on how the world should be.

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7
Q

What is opportunity cost?

A

Opportunity cost is the value of the next best alternative that must be forgone when a choice is made.

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8
Q

What are the three categories of resources?

A
  • Land
  • Labor
  • Capital
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9
Q

What does the Production Possibilities Curve (PPC) illustrate?

A

The PPC illustrates the maximum combinations of two goods or services that can be produced in an economy, given a fixed amount of resources.

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10
Q

What is the Law of Demand?

A

The Law of Demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases, and vice versa.

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11
Q

What is the Law of Supply?

A

The Law of Supply states that, all else being equal, as the price of a good or service increases, the quantity supplied increases, and vice versa.

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12
Q

What is the equilibrium price?

A

The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers.

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13
Q

What happens if the price is above equilibrium?

A

There will be a surplus (more supply than demand).

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14
Q

What happens if the price is below equilibrium?

A

There will be a shortage (more demand than supply).

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15
Q

What can cause a shift in the demand curve?

A
  • Income
  • Tastes and Preferences
  • Price of Related Goods
  • Expectations
  • Population and Demographics
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16
Q

What effect does an increase in demand have on the equilibrium price and quantity?

A

Causes the demand curve to shift right, increasing both equilibrium price and quantity.

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17
Q

What factors can shift the supply curve?

A
  • Input Prices
  • Technology
  • Government Policies
  • Number of Sellers
  • Expectations
  • Natural Events
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18
Q

What happens when there is an increase in supply?

A

Causes the supply curve to shift right, lowering equilibrium price and increasing equilibrium quantity.

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19
Q

What is economic efficiency?

A

Economic efficiency occurs when resources are allocated in such a way that maximizes total welfare or the value of output.

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20
Q

What is price elasticity of demand (PED)?

A

Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to changes in the price of a good or service.

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21
Q

What is a price ceiling?

A

A price ceiling is a government-imposed limit on how high a price can be charged for a product.

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22
Q

What is a price floor?

A

A price floor is a government-imposed minimum price that must be charged for a product.

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23
Q

What is a black market?

A

A black market is a market where goods and services are traded illegally, often due to price controls.

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24
Q

What is a progressive tax?

A

A progressive tax is a tax where the rate increases as income increases.

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25
Q

What is a proportional tax?

A

A proportional tax is a tax where the rate remains constant regardless of income.

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26
Q

What is a regressive tax?

A

A regressive tax is a tax where the rate decreases as income increases.

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27
Q

What is a competitive market?

A

A competitive market is one where many buyers and sellers interact, and no single participant has the power to control the price.

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28
Q

What are normal goods?

A

Normal goods are goods for which demand increases as income increases.

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29
Q

What are inferior goods?

A

Inferior goods are goods for which demand decreases as income increases.

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30
Q

What is rent-seeking behavior?

A

Firms using political influence to gain economic advantages, such as subsidies or protection from competition.

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31
Q

Define normal goods.

A

Goods for which demand increases as income increases.

32
Q

Give an example of normal goods.

A
  • High-end electronics
  • Luxury cars
33
Q

How is the income elasticity of demand for normal goods measured?

A

If the income elasticity of demand is positive.

34
Q

Define inferior goods.

A

Goods for which demand decreases as income increases.

35
Q

Give an example of inferior goods.

A
  • Generic brands
  • Public transportation
36
Q

How is the income elasticity of demand for inferior goods measured?

A

If the income elasticity of demand is negative.

37
Q

What does Average Total Cost (ATC) represent?

A

The total cost per unit of output produced.

38
Q

What is the formula for Average Total Cost (ATC)?

A

ATC = Total Cost (TC) / Quantity of Output (Q)

39
Q

What does Total Cost (TC) include?

A
  • Fixed costs (FC)
  • Variable costs (VC)
40
Q

What is the shape of the ATC curve?

A

Typically U-shaped.

41
Q

When is the ATC curve at its lowest point?

A

When Marginal Cost (MC) intersects ATC.

42
Q

Define Marginal Cost (MC).

A

The additional cost incurred by producing one more unit of output.

43
Q

What is the formula for Marginal Cost (MC)?

A

MC = ΔTotal Cost (TC) / ΔQuantity of Output (Q)

44
Q

What is the significance of MC in production decisions?

A

Firms will increase production as long as MC is less than or equal to the price.

45
Q

What is the shape of the MC curve?

A

Typically U-shaped.

46
Q

When does MC intersect AVC and ATC?

A

At their minimum points.

47
Q

What happens to ATC when MC is less than ATC?

A

ATC is falling.

48
Q

What happens to ATC when MC is greater than ATC?

A

ATC is rising.

49
Q

Define Average Variable Cost (AVC).

A

The variable cost per unit of output.

50
Q

What is the formula for Average Variable Cost (AVC)?

A

AVC = Variable Cost (VC) / Quantity of Output (Q)

51
Q

What does the AVC curve exclude?

A

Fixed costs.

52
Q

Where does the AVC curve lie in relation to the ATC curve?

A

AVC curve lies below the ATC curve.

53
Q

What is minimized at the point where MC intersects AVC?

A

Average Variable Cost (AVC).

54
Q

What is the relationship between ATC, AVC, and MC curves?

A

All three curves are typically U-shaped.

55
Q

What does it indicate when MC is less than AVC?

A

AVC is falling.

56
Q

What does it indicate when MC is greater than AVC?

A

AVC is rising.

57
Q

What is the goal of a firm regarding production costs?

A

To produce where MC equals ATC and MC equals AVC.

58
Q

What is the Profit Maximization Rule for a firm?

A

A firm maximizes its profit by producing the quantity of output where Marginal Revenue (MR) equals Marginal Cost (MC)

This ensures that the cost of producing one more unit is exactly matched by the revenue it generates.

59
Q

What indicates a firm’s profit or loss on a graph?

A

The area between the Price (determined by the demand curve) and Average Total Cost (ATC) curve at the profit-maximizing output

Profit occurs if Price > ATC and loss occurs if Price < ATC.

60
Q

List four characteristics of a perfectly competitive market.

A
  • Many buyers and sellers
  • Homogeneous products
  • Free entry and exit
  • Perfect information
61
Q

In perfect competition, what is the relationship between Price and Marginal Revenue?

A

Price equals Marginal Revenue (P = MR)

Firms are price takers in perfect competition.

62
Q

What is the long-run equilibrium condition for firms in perfect competition?

A

The MC curve intersects the ATC curve at the minimum point

In the long run, economic profits tend to zero due to free entry and exit.

63
Q

Define Price Searcher Markets.

A

Markets where firms have some degree of market power to set prices due to product differentiation

Includes monopolies, monopolistic competition, and oligopolies.

64
Q

What are the characteristics of a monopoly?

A
  • One firm controls the market
  • No close substitutes
  • Barriers to entry
  • The monopolist is a price maker
65
Q

How does a monopoly maximize profit?

A

By producing at the quantity where MR = MC

The price is determined by the demand curve at the profit-maximizing quantity.

66
Q

What is price discrimination?

A

Charging different prices to different consumers for the same product based on willingness to pay

Not based on the cost of production.

67
Q

List the three types of price discrimination.

A
  • First-degree: Personalized pricing
  • Second-degree: Prices based on quantity or product version
  • Third-degree: Prices based on demographic characteristics
68
Q

Why do firms engage in price discrimination?

A
  • Maximize profit
  • Market segmentation
69
Q

What is collusion?

A

When firms cooperate to set prices or output levels to maximize collective profits

Can be explicit or tacit.

70
Q

What are the types of collusion?

A
  • Explicit Collusion: Open agreements
  • Tacit Collusion: Indirect cooperation
71
Q

What impact does collusion have on consumers?

A
  • Higher prices
  • Reduced output
  • Loss of competition
72
Q

List factors affecting wage differences.

A
  • Human Capital
  • Occupational Differences
  • Industry Differences
  • Geographic Differences
  • Discrimination
  • Labor Union Presence
  • Supply and Demand for Labor
73
Q

What are efficiency wages?

A

Wages paid above market rates to increase productivity and attract higher-quality workers

Helps reduce turnover.

74
Q

In competitive markets, where do firms maximize profit?

A

Where P = MC

In monopolies, firms maximize profit where MR = MC.

75
Q

What is the consequence of collusion for market competition?

A

Reduces competition and consumer welfare

Often leads to higher prices and less output.

76
Q

What is one key reason for wage disparities?

A

Differences in human capital, such as education and skills

Higher human capital often leads to higher wages.

Micro Econ (3 decks)

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