ECON 2003 Mclean Final Exam

demand shifts to the right

buyers expect the price to increase next month. this month, what happens to the market

price of the product itself

in terms of demand curve, the most important variable in determining Qd

decrease in price of output

what will shift the supply curve to the right

buyers and sellers

who determines the price and quantity traded in a market

increase in supply

supply curve SHIFTS to the right

increase in Qs

MOVEMENT along supply curve

decrease in number of people

a decrease in the demand might be caused by

Qd exceeds Qs

if a price ceiling is set below equilibrium price in a market,

it falls

what happens to price when there is a surplus in the market

willing and able to buy

"market demand" focuses on what buyers are

law of supply

producers will offer more of a product at high prices than at low prices

surplus will increase Qd and decrease Qs

if price is above the equilibrium level, competition among sellers to reduce the resulting

supply curve shifts left

if tax is placed on a good,

supply increases and demand decreases

what needs to happen to decrease equilibrium price

normal goods

a rise in income increases the demand for

increases, Qd decreases, and Qs increases

if there is shortage of a product, price

true

t/f

if demand decreases, price decreases

attainable and efficient

a point or combination of goods on the PPF curve is

resources to the highest value good or service

prices usually allocate resources efficiently because they allocate

the supply has decreased

if the supply curve shifts to the left

suggests that the supply has increased

prices have fallen and the quantity purchased has increased

diminishing marginal utility

a good produces less and less satisfaction

price

the construction of demand and supply curves assumes that the primary variable influencing decisions to produce or to not is

increase its price

an excise tax on a product will

demand curve

graphical representation of relationship between quantity and price of a good

demand schedule

tabular representation

greater than or equal to the price

buyers will continue to purchase a good as long as their willingness to pay for the good is

complements

pens and writing pads

shifters of demamd

(future) price

substitutes/compliments

number of buyers

preference/tastes

income

shifters of supply

taxes/subsidies

resource price

technology

surplus

occurs when price is higher than equilibrium price

exist until government intervenes

in a perfectly competitive market, surplus or shortage will continue until

left shift in supply curve

increase in equilibrium price and decrease in equilibrium quantity

a binding price ceiling

imposed by the government creates situations of excess demand

when firms exit the market

profits increase, supply shifts left, equilibrium price rises, and output decreases

example of perfect competition

many firms supply the same product, but each have a different brand loyalty

an individual competitive firm

produces a small portion of output relative to the market

a perfectly competitive firm

can sell all of its output at a prevailing price

in a perfectly competitive market

no seller has market power

competitive firms

produce identical products with identical prices

market demand in a competitive industry

is horizontal; MC=P

perfectly competitive markets

have low barriers to entry

if P=ATC=MC

economic profits would be zero

total revenue

price of a good * quantity of a good sold

large

small

perfect competition has a _______ number of relatively ______ firms

profit per unit

price - ATC

total profit

AC * quantity sold

(P - ATC) * quantity sold

decrease output

if the cost increases,

marginal cost curve shifts downward

if the level of productivity increases,

marginal cost curve

lies above AVC

shut down

when price is less than AVC

the short run supply curve for a competitive firm is the

segment of the MC curve above the AVC curve

perfect competition

demand=MR

monopolistically competitive firms

can only earn an economic profit, minimize a loss, earn a normal profit, and shut down

oligopoly

mutual interdependence exists in a(n)

marginal cost

rises because of diminishing returns

in the short run

at least one of a firms inputs is fixed

monopolistically competitive firm's marginal revenue curve

is downward sloping and lies below the demand curve

product differentiation

the source of market power for firms in a monopolistically competitive market is

in a purely competitive market

products are standardized and homogenous

implicit costs

cost of wages foregone by the owner

theory of consumer behavior

consumers behave rationally, attempting to maximize satisfaction

MR=MC

profit maximization for all three market types

ATC

TC/Q

characteristic of a pure monopoly

monopolist produces a product with no close substitutes

decreases quantity demanded by less than the %

the demand for a product is inelastic, a % increase in the price

the loss is smaller than its total fixed costs

a purely competitive firm will produce at a loss in the short run as long as

inelastic

< 1

elastic

> 1

irrelevant

sunk costs are

marginal cost

what curve is most important to the firm's short run output decision

economic profit

TC - (explicit+implicit)

accounting proft

TC - explicit

surplus will increase Qd and decrease QS

if price is above the equilibrium level, competition results to

suggests the supply has increased

prices have fallen and quantity purchased has increased

market demand

is downward sloping

the same as the market demand curve

the demand curve for an individual monopolist is

makers

monopolists are price

takers

perfectly competitive firms are

less than the price after the first unit

for a monopolist, marginal revenue is

profit maximizing rule

what do monopolists and competitive firms have in common

demand

monopolist sets price on what curve, corresponding to MC and MR

the price on the demand curve above the intersection where MC=MR

the price charged by a profit-maximizing monopolist occurs at

monopolistic competition

large number of firms and low entry barriers with differentiated products

employment and output decrease

in the recession phase of a business cycle

a profit maximizing firm

will reduce employment if MRP is less than MRC

a tariff

increases the price of domestically produced goods

Qd of a good increases

according to the law of demand, if the price decreased

MRP curve for labor

the firm's labor demand curve

purchasing power of money decreases

when inflation occurs

a decrease in productivity

what causes the demand curve for a resource to decrease

all nations

international trade has the potential to increase the availability of goods and services to

employment and output increase

in the expansion phase of the business cycle

a decrease in the price decreases the cost, thus increasing the demand of workers

what would cause an increase in labor demand due to a change in the price of a related resource

tariff

a tax placed on imported goods

MRP=MRC

optimal resource utilization occurs when

example of derived demand

the demand for airplane pilots results from the demand for air travel

opportunity costs are lowest

total output and consumption levels are highest when

marginal resource cost

change in total cost resulting from a one-unit increase in the quantity of a resource