unit 2 ap econ

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41 Terms

1
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What is Total Product (TP)?

Total output produced.

2
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Define Marginal Product (MP).

Additional output from one more unit of input.

3
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What occurs when Marginal Product (MP) is increasing?

It is initially due to specialization, such as with the first few workers.

4
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What does it indicate if Marginal Product (MP) begins to decrease?

Diminishing returns set in after a certain number of inputs.

5
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What shape is the Average Total Cost (ATC) curve?

U-shaped.

6
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When is Average Total Cost (ATC) minimized?

When Marginal Cost (MC) equals ATC.

7
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How is Marginal Cost (MC) calculated?

MC = ΔTC / ΔQ.

8
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What does the Long-Run Average Cost (LRAC) curve represent?

The envelope of short-run ATC curves.

9
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What are Economies of Scale?

LRAC decreases as output rises.

10
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What are Diseconomies of Scale?

LRAC increases due to inefficiencies, like uncontrollable resources.

11
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Define Consumer Surplus.

The difference between willingness to pay and actual price.

12
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Provide an example of Consumer Surplus.

Fred’s maximum price of $20k for a car, leading to surplus if the price is less than $20k.

13
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Why do consumers take only one paper from vending machines?

Because the marginal utility of additional papers is less than the price.

14
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What is the rule for Utility Maximization?

MU_A / P_A = MU_B / P_B.

15
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When is Total Utility (TU) maximized?

TU peaks when Marginal Utility (MU) equals 0.

16
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What does the Income Effect refer to?

A price change that alters purchasing power.

17
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What does the Substitution Effect indicate?

Consumers switch to cheaper alternatives when prices change.

18
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What is the formula for Price Elasticity of Demand?

Price Elasticity = %ΔQ / %ΔP.

19
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What characterizes elastic demand?

Elasticity greater than 1 and a flat demand curve.

20
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What characterizes inelastic demand?

Elasticity less than 1 and a steep demand curve.

21
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What condition defines unit elasticity?

Total revenue is maximized.

22
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What does Cross-Price Elasticity measure?

The responsiveness of demand for one good when the price of another good changes.

23
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Provide an example of two substitute goods.

Golf balls and tennis balls.

24
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What is Income Elasticity with respect to Normal Goods?

Demand rises as income increases.

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What happens to demand for Inferior Goods as income rises?

Demand falls as income rises.

26
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What does the demand curve indicate?

Higher prices result in more elasticity along a linear curve.

27
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What peaks at unit elasticity with respect to total revenue?

Total Revenue peaks at unit elasticity.

28
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Describe an elastic supply curve.

It is flat and responsive to price changes.

29
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What describes an inelastic supply curve?

It is steep, as seen in perishable goods.

30
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What is a perfectly inelastic supply curve?

A vertical line indicating fixed quantity.

31
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Differentiate between Explicit and Implicit Costs.

Explicit are direct payments; implicit are opportunity costs.

32
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What is considered a Normal Profit?

Covers implicit costs with an economic profit of zero.

33
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When do we define Economic Profit?

When revenue exceeds total costs, including implicit costs.

34
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What is an Accounting Loss?

When total revenue is less than explicit costs.

35
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What constitutes an Economic Loss?

When total revenue is less than the sum of explicit and implicit costs.

36
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What happens to firms in a market when there are Economic Profits?

Firms will enter the market.

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What happens to firms in a market facing Economic Losses?

Firms will exit the market.

38
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What factor leads to Diseconomies of Scale in movie theaters?

Uncontrollable factors like city regulations.

39
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Where does the Marginal Cost (MC) curve intersect the Average Total Cost (ATC) curve?

At the minimum point of the U-shaped ATC curve.

40
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How can elasticity be calculated between points on a linear demand curve?

By assessing the change in price and quantity.

41
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How does Total Utility (TU) relate to Marginal Utility (MU)?

TU increases while MU is positive.