Economics B251 Final Exam Study Set

question

Which of the following are features of game theory?

answer

Players
Strategy
Information
Payoffs

question

Economics

answer

the study of how people allocate their limited resources to satisfy their unlimited wants

question

Scarcity

answer

occurs when there are limited resources with unlimited wants

question

Microeconomics

answer

the study of the decisions made by individuals and businesses (example: pollution, crime, healthcare)

question

Macroeconomics

answer

the study of a behavior of an economy as a whole (example: inflation, taxes, unemployment)

question

Rationality Assumption

answer

The assumption that people do not intentionally make decisions that would leave them worse off.

question

Reasons why people behave irrationally

answer

- Asymmetric Information
- Biases
- Emotion based on uncertainty and risk

question

Self- Interest

answer

what makes an individual happy

question

Social-Interest

answer

what decision will make society better as a whole

question

Trade-offs

answer

Alternatives that must be given up when one is chosen rather than another

question

Opportunity cost

answer

The highest-valued alternative that must be given up to engage in an activity.

question

Non-strategic

answer

decisions based on an individual's or firm's own costs and benefits

question

Strategic

answer

decisions based on others decisions as well as ones costs and benefits.

question

Marginal Analysis

answer

analysis that involves comparing marginal benefits and marginal costs

question

Margin

answer

the difference between the value that an activity generates and the cost of the activity

question

Positive Economics

answer

descriptive statements or scientific predictions. A question of "what is?"

question

Normative Economics

answer

CANT BE TESTED. Analysis involving value judgments about economic policies; relates to whether outcomes are good or bad. A statement of "what ought to be?"

question

Economic Theory

answer

A generalization that summarizes what we think we understand about the economic choices that people make and the performance of industries and entire economies.

question

Centeris Paribus Assumption

answer

Nothing changes except the factor or factors being studied

question

Economics is an ______ study

answer

Empirical - real world models are used

question

What are the 3 scarcity questions?

answer

What?
How?
For Whom?

question

The most important goal of the firm is to...

answer

Maximize its profit

question

An implicit cost is an opportunity cost that

answer

requires no actual payment of cash

question

Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food, etc. Heidi's economic profit for the year $

answer

-$10,000

question

The owner of a proprietorship might decide incorporate the firm as a corporation in order to

answer

gain limited liability

question

An example of a variable resource in the short run is

answer

an employee

question

In the above figure, after the second worker is hired, the marginal product of labor is

answer

diminishing

question

The law of diminishing marginal returns says that as the firm uses more of ________, with a given quantity of __________, the ___________ product of the variable input eventually diminishes.

answer

- a variable
- fixed inputs
- marginal

question

When long-run average costs decrease as output increases, there are

answer

economies of scale

question

In perfect competition, restrictions on entry into an industry

answer

do not exist

question

In perfect competition, each individual firm faces ________ demand curve.

answer

perfectly elastic

question

In perfect competition, the marginal revenue of an individual firm

answer

equals the price of a product

question

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,

answer

makes an income equal to his best alternative forgone income.

question

A firm will expand the amount of output it produces as long as its________ exceeds its _______.

answer

marginal revenue exceeds its marginal costs

question

In the short run, a firm will

answer

produce and incur an economic loss if its total revenue covers its total variable cost but not its total cost

question

Which of the following statements about a monopoly is FALSE?

answer

Monopolies do not have barriers to entry or exit

question

A single-price monopoly charges the same price

answer

to all customers

question

When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it is willing to sell the identical pizza to a student who lives a block away from the campus, the pizza firm is practicing ______

answer

price discrimination

question

For a single-price monopoly, marginal revenue is _______ when demand is elastic, and is _________ when demand is inelastic

answer

1. positive
2. negative

question

An unregulated monopoly will

answer

produce in the elastic range of its demand curve.

question

A single-price monopolist will find when it produces its profit-maximizing amount of output that

answer

All of other options occur at the profit-maximizing output level.

question

The fundamental reason a single-price monopoly creates a deadweight loss is that it

answer

restricts output

question

The profit maximizing perfectly competitive firm produces where

answer

P=MC

question

The profit maximizing single-price monopolist firm produces where

answer

MR=MC

question

In comparison with a perfect competition, a single-price monopolist with the same costs creates a __________ consumer surplus and earns a _________ economic profit.

answer

1. smaller
2. larger

question

Which of the following is characteristic of oligopoly, but NOT of monopolistic competition?

answer

The choices made by one firm have a significant effect on other firms.

question

The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true?

answer

If Bob confesses, then Joe should confess

question

Double Shift Rule

answer

when two curves shift at the same time, either the price or quantity will be indeterminate.

question

Single shift

answer

Either the Supply Curve or Demand Curve shifts. Just One

question

Elastic Demand

answer

% change in quantity demanded is greater than the % change in price

question

Inelastic Demand

answer

% change in quantity demanded is less than the % change in price

question

The 3 determinants of Price Elasticity of Demand

answer

- Existence of Substitutes
- Share of the Budget
- Length of Time allowed for adjustments

question

Cross Price Elasticity of Demand

answer

% change in quantity demanded of one good / % change in the price of another
- Substitutes would be positive
- Compliments would be negative

question

Income Elasticity of Demand

answer

Ei = % change in quantity demanded / % change in income
- Normal good would be positive
- Inferior good would be negative

question

Consumer Surplus

answer

1/2 Quantity Demanded Price

question

Producer Surplus

answer

1/2 Quantity Demanded Price

question

Total Surplus

answer

consumer surplus + producer surplus

question

Deadweight Loss

answer

the fall in total surplus that results from a market distortion, such as a tax

question

Price for a firm

answer

Benefit

question

Supply Curve for a firm

answer

minimum supply price

question

the more inelasticity on a tax... (demand)

answer

the larger the tax is on a buyer

question

the more elasticity on a tax... (demand)

answer

the larger the tax is on a seller

question

the more elasticity on a tax... (supply)

answer

the larger the tax is on the buyer

question

the more the elasticity on a tax... (supply)

answer

the larger the tax is on the seller

question

Positive Externalities

answer

Marginal Private Benefit that can be gained through subsidies or vouchers

question

Negative Externalities

answer

the consequences of an active spillover that affects a third party (example: Pollution)
- emission taxes

question

Marginal Social Cost

answer

Marginal cost + tax

question

Consumer Optimum

answer

A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income

question

Average Variable Cost

answer

Variable Cost/Quantity

question

Average Total Cost

answer

Total Cost/Quantity

question

Average Fixed Cost

answer

Fixed Cost/Quantity

question

Marginal Cost

answer

Total Cost/Quantity

question

Total Revenue

answer

P * Q

question

Characteristics of Perfect Competition

answer

1. Many buyers and many sellers.
2. The goods offered for sale are largely the same.
3. Firms can freely enter or exit the market.
4. the decisions of one buyer or seller has no effect on the market price

question

Short Run Decisions

answer

- produce or shut down completely

question

Long Run Decisions

answer

- increase or decrease plant size
- stay or leave industry

question

zero-sum games

answer

payoffs stay constant

question

positive sum game

answer

payoffs increase from beginning to end

question

negative sum game

answer

payoffs decrease from beginning to end

1 of 79

question

Which of the following are features of game theory?

answer

Players
Strategy
Information
Payoffs

question

Economics

answer

the study of how people allocate their limited resources to satisfy their unlimited wants

question

Scarcity

answer

occurs when there are limited resources with unlimited wants

question

Microeconomics

answer

the study of the decisions made by individuals and businesses (example: pollution, crime, healthcare)

question

Macroeconomics

answer

the study of a behavior of an economy as a whole (example: inflation, taxes, unemployment)

question

Rationality Assumption

answer

The assumption that people do not intentionally make decisions that would leave them worse off.

question

Reasons why people behave irrationally

answer

- Asymmetric Information
- Biases
- Emotion based on uncertainty and risk

question

Self- Interest

answer

what makes an individual happy

question

Social-Interest

answer

what decision will make society better as a whole

question

Trade-offs

answer

Alternatives that must be given up when one is chosen rather than another

question

Opportunity cost

answer

The highest-valued alternative that must be given up to engage in an activity.

question

Non-strategic

answer

decisions based on an individual's or firm's own costs and benefits

question

Strategic

answer

decisions based on others decisions as well as ones costs and benefits.

question

Marginal Analysis

answer

analysis that involves comparing marginal benefits and marginal costs

question

Margin

answer

the difference between the value that an activity generates and the cost of the activity

question

Positive Economics

answer

descriptive statements or scientific predictions. A question of "what is?"

question

Normative Economics

answer

CANT BE TESTED. Analysis involving value judgments about economic policies; relates to whether outcomes are good or bad. A statement of "what ought to be?"

question

Economic Theory

answer

A generalization that summarizes what we think we understand about the economic choices that people make and the performance of industries and entire economies.

question

Centeris Paribus Assumption

answer

Nothing changes except the factor or factors being studied

question

Economics is an ______ study

answer

Empirical - real world models are used

question

What are the 3 scarcity questions?

answer

What?
How?
For Whom?

question

The most important goal of the firm is to...

answer

Maximize its profit

question

An implicit cost is an opportunity cost that

answer

requires no actual payment of cash

question

answer

-$10,000

question

The owner of a proprietorship might decide incorporate the firm as a corporation in order to

answer

gain limited liability

question

An example of a variable resource in the short run is

answer

an employee

question

In the above figure, after the second worker is hired, the marginal product of labor is

answer

diminishing

question

The law of diminishing marginal returns says that as the firm uses more of ________, with a given quantity of __________, the ___________ product of the variable input eventually diminishes.

answer

- a variable
- fixed inputs
- marginal

question

When long-run average costs decrease as output increases, there are

answer

economies of scale

question

In perfect competition, restrictions on entry into an industry

answer

do not exist

question

In perfect competition, each individual firm faces ________ demand curve.

answer

perfectly elastic

question

In perfect competition, the marginal revenue of an individual firm

answer

equals the price of a product

question

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,

answer

makes an income equal to his best alternative forgone income.

question

A firm will expand the amount of output it produces as long as its________ exceeds its _______.

answer

marginal revenue exceeds its marginal costs

question

In the short run, a firm will

answer

produce and incur an economic loss if its total revenue covers its total variable cost but not its total cost

question

Which of the following statements about a monopoly is FALSE?

answer

Monopolies do not have barriers to entry or exit

question

A single-price monopoly charges the same price

answer

to all customers

question

answer

price discrimination

question

For a single-price monopoly, marginal revenue is _______ when demand is elastic, and is _________ when demand is inelastic

answer

1. positive
2. negative

question

An unregulated monopoly will

answer

produce in the elastic range of its demand curve.

question

A single-price monopolist will find when it produces its profit-maximizing amount of output that

answer

All of other options occur at the profit-maximizing output level.

question

The fundamental reason a single-price monopoly creates a deadweight loss is that it

answer

restricts output

question

The profit maximizing perfectly competitive firm produces where

answer

P=MC

question

The profit maximizing single-price monopolist firm produces where

answer

MR=MC

question

In comparison with a perfect competition, a single-price monopolist with the same costs creates a __________ consumer surplus and earns a _________ economic profit.

answer

1. smaller
2. larger

question

Which of the following is characteristic of oligopoly, but NOT of monopolistic competition?

answer

The choices made by one firm have a significant effect on other firms.

question

The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true?

answer

If Bob confesses, then Joe should confess

question

Double Shift Rule

answer

when two curves shift at the same time, either the price or quantity will be indeterminate.

question

Single shift

answer

Either the Supply Curve or Demand Curve shifts. Just One

question

Elastic Demand

answer

% change in quantity demanded is greater than the % change in price

question

Inelastic Demand

answer

% change in quantity demanded is less than the % change in price

question

The 3 determinants of Price Elasticity of Demand

answer

- Existence of Substitutes
- Share of the Budget
- Length of Time allowed for adjustments

question

Cross Price Elasticity of Demand

answer

% change in quantity demanded of one good / % change in the price of another
- Substitutes would be positive
- Compliments would be negative

question

Income Elasticity of Demand

answer

Ei = % change in quantity demanded / % change in income
- Normal good would be positive
- Inferior good would be negative

question

Consumer Surplus

answer

1/2 Quantity Demanded Price

question

Producer Surplus

answer

1/2 Quantity Demanded Price

question

Total Surplus

answer

consumer surplus + producer surplus

question

Deadweight Loss

answer

the fall in total surplus that results from a market distortion, such as a tax

question

Price for a firm

answer

Benefit

question

Supply Curve for a firm

answer

minimum supply price

question

the more inelasticity on a tax... (demand)

answer

the larger the tax is on a buyer

question

the more elasticity on a tax... (demand)

answer

the larger the tax is on a seller

question

the more elasticity on a tax... (supply)

answer

the larger the tax is on the buyer

question

the more the elasticity on a tax... (supply)

answer

the larger the tax is on the seller

question

Positive Externalities

answer

Marginal Private Benefit that can be gained through subsidies or vouchers

question

Negative Externalities

answer

the consequences of an active spillover that affects a third party (example: Pollution)
- emission taxes

question

Marginal Social Cost

answer

Marginal cost + tax

question

Consumer Optimum

answer

A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income

question

Average Variable Cost

answer

Variable Cost/Quantity

question

Average Total Cost

answer

Total Cost/Quantity

question

Average Fixed Cost

answer

Fixed Cost/Quantity

question

Marginal Cost

answer

Total Cost/Quantity

question

Total Revenue

answer

P * Q

question

Characteristics of Perfect Competition

answer

question

Short Run Decisions

answer

- produce or shut down completely

question

Long Run Decisions

answer

- increase or decrease plant size
- stay or leave industry

question

zero-sum games

answer

payoffs stay constant

question

positive sum game

answer

payoffs increase from beginning to end

question

negative sum game

answer

payoffs decrease from beginning to end

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Economics B251 Final Exam Study Set

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