HONORS PRIN OF MICRO
HONORS PRIN OF MICRO ECO 2023
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This 6 page Class Notes was uploaded by Elmore Funk on Thursday September 17, 2015. The Class Notes belongs to ECO 2023 at Florida State University taught by Thomas McCaleb in Fall. Since its upload, it has received 207 views. For similar materials see /class/205442/eco-2023-florida-state-university in Economcs at Florida State University.
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Date Created: 09/17/15
Marginal Analysis 39239 If the marginal benefit of the next slice of pizza exceeds the marginal cost you will gt eat the slice of pizza 39239 When people make rational choices they gt weigh the costs and benefits of their options and act to satisfy their wants 39239 The characterisitc from which all economic problems arise is gt A change in marginal benefit or a change in marginal cost brings a change inthe incentives that we face and leads us to change our actions v The Latin term quotceteris paribusquot means gt other things being equal Opportunity Cost 0 v Points inside the PPF are all gt attainable and have some unemployed resources 0 v It is for someone to have a comparative advantage in all goods It is for someone to have an absolute advantage in all goods gt not possible possible 39239 All production points on the PPF are production efficient gt True 39239 quotComparative advantagequot is defined as a situation in which one person can produce gt a good for a lower opportunity cost than another person 39239 To achieve the gains from trade a producer specializes in the product in which he or she has a comparative advantage and then trades with others gt True Demand and Supply 0 v Suppose that the price of lettuce used to produce tacos increases As a result the equilibrium price of a taco and the equilibrium quantity gt rises decreases 39239 Which of the following is correct i A surplus puts downward pressure on the price of a good ii A shortage puts upward pressure on the price of a good iii There is no surplus or shortage at equilibrium gt i ii and iii 39239 The market supply curve is the gt horizontal sum of the individual supply curves 39239 When the demand for skateboards decreases and the supply of skateboards remains unchanged the quantity supplied of skateboards decreases as the price rises gt False 39239 When moving along a demand curve which of the following changes gt the price of the good Elasticities o v If the elasticity of supply is greater than 1 supply is inelastic gt False v The price elasticity of supply equals the percentage change in the gt quantity supplied divided by the percentage change in price 39239 The income elasticity of demand is the percentage change in the divided by the percentage change in gt quantity demanded income v The price elasticity of supply is a measure of the extent to which the quantity supplied of a good changes when only the gt price of the good changes v The measure used to determine whether two products are complements or substitutes is called the gt cross elasticity of demand Efficiency and Taxes 39239 Cost is gt what the seller must give up to produce the good V In general as the consumption of a good or service increases the marginal benefit from consuming that good or service gt decreases 39239 The concept of the invisible hand suggests that markets gt produce the efficient quantity v The percentage of an additional dollar of income that is paid in tax is the gt marginal tax rate v A supply curve shows the of producing one more unit of a good or service gt marginal cost v To determine who bears the greater share of a tax we compare gt the elasticity of supply to the elasticity of demand v When underproduction occurs gt there is a deadweight loss that is borne by the entire society v When the demand curve is the marginal benefit curve and the supply curve is the marginal cost curve the competitive equilibrium is efficient gt True 39239 When the government imposes a tax on the sale of a good the burden of the tax falls entirely on the buyer gt False Price Controls 39239 A minimum wage law can lead to increased job search activity and illegal hiring gt True 39239 In a housing market with a rent ceiling set below the equilibrium rent gt some people seeking an apartment will not be able to find one 39239 When a price ceiling is set below the equilibrium price the quantity supplied the quantity demanded and exists gt is less than a shortage 39239 A price support directly sets the gt lowest price for which the good may be sold 39239 The opportunity cost of a dorm room is equal to its rent plus the value of the search time spent finding the dorm room gt True Externalities o v The Coase theorem is the proposition that if property rights exist and are enforced private transactions are gt Efficient 39239 Marginal social benefit equals gt marginal private benefit plus marginal external benefit 39239 The benefit the consumer of a good or service receives is called the gt Private benefit 39239 Marginal social cost equals marginal private cost minus marginal external cost gt False 39239 Which of the following best describes an externality gt an effect of a transaction felt by someone other than the consumer or producer Cost and Profit v Total cost is equal to the sum of gt total variable cost and total fixed cost v An accountant measures profit as total revenue minus opportunity cost gt False v If a firm earns an economic profit the return to the entrepreneur exceeds normal profit gt True 39239 The paramount goal of a firm is to gt maximize profit 39239 A cost paid in money is an cost a cost incurred when a firm uses a factor of production for which it does not make a direct money payment is an cost gt explicit implicit Competition 39239 Perfect competition is efficient because it results in the efficient quantity being produced gt True o v If existing firms in a perfectly competitive market have economic losses then as time passes firms and the market gt exit supply curve shifts leftward 39239 A requirement of perfect competition is that i many firms sell an identical product to many buyers ii there are no restrictions on entry into or exit from the market and established firms have no advantage over new firms iii sellers and buyers are well informed about prices gt i ii and iii 39239 The four market types are gt perfect competition monopoly monopolistic competition and oligopoly 39239 In the long run firms respond to economic loss by exiting a perfectly competitive market gt True Monopoly o v Price discrimination lowers a firms profit gt False 39239 Once a monopoly has determined how much it produces it will charge a price that gt is determined by its demand curve 39239 A monopoly redistributes consumer surplus so that the consumers gain and the producer loses gt False 39239 A singleprice monopoly maximizes profit by producing the quantity at which marginal revenue equals to marginal cost gt True 39239 A natural monopoly is one that arises from gt economies of scale 39239 If a perfectly competitive industry is taken over by a single firm that operates as a singleprice monopoly the price will and the quantity will gt rise decrease 39239 For a singleprice monopoly price is marginal revenue gt greater than 39239 Pizza producers charge one price for a single pizza and almost give away a second one This is an example of gt price discrimination v A monopoly redistributes consumer surplus so that the consumers gain and the producer loses gt False Oligopoly o v Once a firm in monopolistic competition has determined how much to produce the firm determines its price by referring to its gt demand curve o v Collusion results when a group of firms i act seprately to limit output lower price and decrease economic profit ii act together to limit output raise price and increase economic profit iii in the United States legally fix prices gt ii only 0 239 A cartel is a group of firms gt acting together to limit output raise price and increase economic profit v A firm in monopolistic competition maximizes profit by equating gt marginal revenue and marginal cost 39239 Oligopoly is a market structure in which gt a small number of firms compete v The fact that firms in oligopoly are interdependent means that gt one firm39s profits are affected by other firm39s actions 39239 ln monopolistic competition there gt are a large number of firms Game Theory 0 v lnsurance reduces the risk that people face by the risks of many individuals People buy insurance if their utility after paying the insurance premium is than their expected utility if they do not buy insurance gt pooling greater 39239 Oligopolly is gt generally not efficient V In the used car market warranties can lead to an equilibrium in which good cars have higher prices than lemons gt True 39239 When duopoly games are repeated and a quottitfortatquot strategy is used gt the monopoly outcome is more likely to be reached than when the game is played once v If you have private information that you are a riskier driver than your record indicates you are likely to buy from your insurance company a policy that has a deductible and a premium gt Low high v Which of the following statements is true gt Insurance companies always earn a normal profit v Firms in oligopoly can achieve an economic profit gt if they cooperate v lnsurance reduces the risk that people face by the risks of many individuals People buy insurance if their utility after paying the insurance premium is than their expected utility if they do not buy insurance gt pooling greater Inequality o 00 The cost of acquiring a skill accounts for why the gt supply of highskilled workers is different than the supply of lowskilled workers At a given wage rate the quantity of highskilled labor demanded exceeds the quantity of low skilled labor demanded gt True The three major types of income maintenance programs are gt The three major types of income maintenance programs are Differences in skills i can arise partly from differences in education andor partly from differences in onthejob training ii can lead to large differences in earnings iii result in different demand curves for highskilled and lowskilled labor gt I ii and iii Inequality of annual income overstates the degree of lifetime inequality gt True