Micro Test #3 (Ch. 4, 7 & 9)

2 October 2022
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Consumer Surplus
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The benefit surplus received by consumers It is the difference between the maximum price a consumer is willing to pay for a product and the actual price. Consumer surplus can be applied to one consumer or many consumers.
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goes down, goes up
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Consumer surplus ____________ when equilibrium price ____________.
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The equilibrium market price is below what some consumers are willing to pay for the product.
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Consumer surplus arises in a market because: At the current market price, quantity supplied is greater than quantity demanded At the current market price, quantity demanded is greater than quantity supplied. The equilibrium market price is below what some consumers are willing to pay for the product. The equilibrium market price is higher than what some consumers are willing to pay for the product.
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Producer Surplus
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The difference between the actual price a producer receives and the producer's minimum acceptable price (the marginal cost of the product).
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goes down, goes down
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Producer surplus ________ when equilibrium price _________.
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Demand curve
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What curve reflects marginal benefit received by a consumer.
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Supply curve
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What curve reflects marginal cost incurred to a seller.
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Less than or greater than the competitive equilibrium quantity.
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Deadweight losses occur when the quantity of an output produced is: Less than, but not when it is greater than, the competitive equilibrium quantity. Greater than, but not when it is less than, the competitive equilibrium quantity. Less than or greater than the competitive equilibrium quantity. Such that the marginal benefit of the output is just equal to the marginal cost.
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Public goods, positive externalities
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Demand-side Market Failure:
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Negative externalities
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Supply-side Market Failure:
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nonrivalry and nonexcludability
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Characteristics of (Pure) public goods
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rivalry and excludability
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Characteristics of private goods
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Rivalry
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If one person consumes the product, the unit is not available to others.
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Excludability
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Those who are not willing to pay the price will be excluded from consuming the product.
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Nonrivalry
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one person's consumption of a good does not preclude consumption of the good by others.
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Nonexcludability
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there is no effective way of excluding nonpayers from benefit of the good once it comes into existence.
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None of the above
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Which one is NOT a (pure) public good? FM radio broadcast. Homeland security. Light beams from a lighthouse. None of the above
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nonrival
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Can I consume the same unit of product as others?
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nonexcludable
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If a firm offers this product, can it exclude those who do not pay?
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Network television
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Which one is a (pure) public good? Network television. Internet service. XM radio. Cell phone service
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rival, excludable
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Public goods are non_____ & non__________
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exclude
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Can't ___________ those who don't pay
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public
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No one pays, no_______ goods will be produced
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anyone
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Once a public good is produced, _______ can enjoy it
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free
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________ riders problem, which means Those who do not pay can still enjoy the product
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demand
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This is a _____-side market failure
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government, taxes
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Solution: __________ provides public goods through _______
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advertising
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Solution: Firms can use some other ways of raising revenue such as _______________.
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False
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True or False: Public goods cannot be provided by a private sector - they must be provided by either local, state or federal government.
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Negative Externalities
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costs
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Positive Externalities
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benefits
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Externalities
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cost/benefit of a good is passed on to someone other than the immediate buyer or seller (third party)
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Good school district.
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Which of the followings exhibits positive externalities? Good school district. Sewage treatment plant. Law firm. Cats in a field with mice.
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Drunk driving
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Which of the followings exhibits negative externalities? Vacationing. Drunk driving. Window shopping. Partying.
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Negative externality
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Firms do not incorporate costs on third party into their cost of production Overproduction -> DWL > efficient Q (allocative) Misallocating resources: too many resources are allocated for this firm.
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Positive externality
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Firms do not get compensated for the benefit bestowed on third party Underproduction->DWL
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involve positive externalities.
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A pure market economy underallocates resources to the production of goods that: involve negative externalities. involve positive externalities. are public goods. are inexpensive to produce.
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left
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Negative Externalities: S shifts ____
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right
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Positive Externalities: D shifts ___
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Quasi-Public Goods (Mixed Goods)
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Government not only provides services for pure public goods but also provides services/products that could be produced and delivered in such a way that exclusion would be possible
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under
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A firm can provide quasi-public goods but they will be _______ produced
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happiness
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Utility of a good or service is the ______ one gets from consuming it
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marginal utility
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Additional satisfaction from consuming additional unit.
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consume, satisfaction
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The more we _____ of any good, the less _____ we get from each additional unit
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additional
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Marginal utility declines as consumers acquire ______ unit of a given product
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util
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unit of utility
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total utility
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Total amount of satisfaction from consuming a specific quantity
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Rational Behavior
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The consumer tries to use his money income to derive the greatest amount of satisfaction or happiness
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Budget constraint
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Consumer has a fixed, limited amount of income therefore each consumer faces a _________
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Prices
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Goods are scarce therefore every good carries a price tag
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Indifference Curve
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What curve shows all the combinations of products that will yield the same satisfaction or total utility to a consumer
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scarce
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Costs exist because resources are ______.
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economic costs
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the payments a firm must make to attract resource it needs away from alternative production opportunities (can be explicit or implicit)
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explicit costs
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monetary payments to those who supply resources (land, labor, capital, entrepreneurial ability).
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implicit costs
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opportunity costs of using its self-owned, self-employed resources.
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Total revenue - Explicit Costs
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Accounting profit
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Total revenue - Explicit costs - Implicit costs
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Economic profit
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37,000
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Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate accounting profits and economic profits for Gomez's pottery. (**Assume no depreciation, Gomez can sell his equipments and retrieve $40,000 when he is done with his business.) Find explicit costs for Gomez's pottery. 37,000 40,000 59,000 77,000
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22,000
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Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate accounting profits and economic profits for Gomez's pottery. (**Assume no depreciation, Gomez can sell his equipments and retrieve $40,000 when he is done with his business.) Find implicit costs for Gomez's pottery. 15,000 22,000 37,000 59,000
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35,000
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Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate accounting profits and economic profits for Gomez's pottery. (**Assume no depreciation, Gomez can sell his equipments and retrieve $40,000 when he is done with his business.) Accounting profit for Gomez's pottery is 13,000 35,000 40,000 50,000
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13,000
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Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate accounting profits and economic profits for Gomez's pottery. (**Assume no depreciation, Gomez can sell his equipments and retrieve $40,000 when he is done with his business.) 94.Economic profit for Gomez's pottery is 13,000 17,000 40,000 50,000
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short run
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a period in which at least one of a firm's resources is fixed. For example, a period too brief for a firm to build a new plant to increase capacity.
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long run
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a period long enough for a firm to adjust quantities of all resources including plant capacity. (It takes a long time to build a new plant.)
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variable resource
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any resource that can be varied in the short run to increase or decrease production
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fixed resource
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any resource that cannot be varied in the short run
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total product (TP)
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total quantity of output produced
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marginal product (MP)
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extra output associated with adding a unit of input
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Marginal product of labor
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change in total product / change in labor input
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Average Product (AP)
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Total Output / Units of Labor
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specialization, division of labor
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Increasing marginal returns due to_________.
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The additional output generated by additional units of an input will diminish.
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According to the law of diminishing marginal returns, eventually: Output must fall and then rises as additional unites of inputs are employed. Additional inputs will no longer generate average output. The additional output generated by additional units of an input will diminish. The additional inputs necessary to produced an additional unit of output will diminish.
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Marginal Cost
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Change in TC / Change in Q =
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TC and ATC
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Long Run Production Costs only have what type of costs?
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Economies of scale
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Big plant - Low ATC
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Diseconomies of scale
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Big plant - High ATC
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Constant Returns to scale
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Constant ATC
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Managerial Specialization
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Large scale production means better use of management
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Efficient capital
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Effective use of a machine demands higher volume of production
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Minimum Efficient Scale (MES)
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the lowest level of output at which a firm can minimize long-run average costs
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Normal profit
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the income you forgo by applying your entrepreneurial abilities to your current business
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Normal profit
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the typical amount of accounting profit that you would mostly likely have earned in one of the firms in the same industry
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diminishing returns
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Law of __________ is key to short run production costs
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economies and diseconomies of scale
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______________ is key to long run production costs.