Acadec 2026-2027 ECONOMICS - Section 2 (Crammable)

What determines both market price and total quantity exchanged?

Interaction of supply and demand.

What is the central topic of microeconomics?

Interaction of supply and demand in markets.

Why do economists begin with perfectly competitive markets?

Provides clear framework for understanding market behavior.

What defines a market?

All buyers and sellers interacting to exchange goods.

When is a market perfectly competitive?

Standardized goods, many buyers and sellers, well-informed participants.

What behavior do buyers and sellers exhibit in perfect competition?

They act as price takers.

What is quantity demanded?

Amount consumers are willing and able to purchase.

What is the law of demand?

Inverse relationship between price and quantity demanded.

What is market demand?

Total quantity all consumers purchase at each price.

What causes a movement along the demand curve?

Change in the price of the good.

What causes a shift in demand?

Change in factors other than the good's price.

What is a normal good?

Demand increases as income rises.

What is an inferior good?

Demand decreases as income rises.

What are substitute goods?

Goods that serve similar overall purposes.

What are complement goods?

Goods that are consumed together.

What is quantity supplied?

Amount producers are willing and able to sell.

What is the law of supply?

Positive relationship between price and quantity supplied.

What is market supply?

Total quantity all producers are willing to sell.

What is market equilibrium?

Quantity demanded equals quantity supplied.

What occurs during a surplus?

Excess supply exists above equilibrium price.

What occurs during a shortage?

Excess demand exists below equilibrium price.

What is consumer surplus?

Difference between willingness to pay and price paid.

What is the marginal buyer?

Buyer indifferent between purchasing and not purchasing.

What is producer surplus?

Difference between market price and opportunity cost.

What is total surplus?

Sum of consumer surplus and producer surplus.

When is an outcome Pareto efficient?

Nobody can be made better off without harm.

How does technological innovation affect market supply?

Shifts supply curve outward and lowers production costs.

What is price elasticity of demand?

Measure of responsiveness of quantity to price.

When is demand elastic?

Quantity responds strongly to price changes.

When is demand inelastic?

Quantity responds weakly to price changes.

When is demand unit elastic?

Quantity changes proportionally with price changes.

Why do necessities have lower price elasticity than luxuries?

Consumers must purchase them regardless of price.

What is perfectly inelastic demand?

Quantity demanded does not change with price.

What is perfectly elastic demand?

Consumers buy any quantity at one price.

What does price elasticity of supply measure?

Responsiveness of quantity supplied to price changes.

How is total revenue calculated?

Price multiplied by quantity sold.

How does a price fall affect total revenue when demand is inelastic?

Total revenue decreases.

What is a price floor?

Government minimum legal price above equilibrium.

What is a price ceiling?

Government maximum legal price below equilibrium.

What is non-price rationing?

Allocating goods using criteria other than price.

Who bears the burden of a tax?

Shared between buyers and sellers.

What is the price wedge created by a tax?

Difference between price paid and price received.

What is deadweight loss?

Lost surplus from prevented mutually beneficial trades.

When demand is less elastic, who bears more tax burden?

Buyers bear greater share of the burden.

When supply is less elastic, who bears more tax burden?

Sellers bear greater share of the burden.

What is absolute advantage?

Producing more output using the same resources.

What is comparative advantage?

Producing a good at lower opportunity cost.

How does free trade affect social welfare?

Expands total surplus and overall social welfare.

What happens when world price is higher than domestic price?

Country becomes an exporter of the good.

What happens when world price is lower than domestic price?

Country becomes an importer of the good.

What is a firm in economics?

Actor combining inputs to produce output goods.

What is the main objective assumed for firms?

Maximizing economic profits.

How do accounting costs differ from economic costs?

Accounting costs exclude implicit opportunity costs.

What are explicit daily costs for Bob's Bread Company?

Ingredients $600, labor $300, rent $50.

What is Bob's daily accounting profit?

$250 per day.

What is the opportunity cost of Bob's time?

$200 per day managing another store.

What is Bob's daily economic profit?

$50 per day after opportunity costs.

What are fixed costs?

Costs that do not change with output.

What are variable costs?

Costs that change directly with output.

What is marginal cost?

Increase in total cost from producing one more unit.

What is the principle of diminishing returns?

Additional inputs yield progressively smaller output increases.

What is marginal revenue?

Additional revenue gained from selling one more unit.

When does a firm maximize profit in competitive markets?

When marginal cost equals marginal revenue.

What happens in the long-run competitive equilibrium?

Firms earn zero economic profit.

What is market power?

Ability to influence product price.

What is a monopoly?

Market with a single supplier and entry barriers.

What is a natural monopoly?

Single firm supplying market at lowest total cost.

Why is marginal revenue less than price for a monopolist?

Price cuts reduce revenue on existing units.

What is the Sherman Anti-Trust Act of 1890?

Federal law promoting competition and limiting monopolies.

What action was taken in Minnesota regarding ticket sales?

Passed pricing transparency legislation in November 2022.

Why does total revenue eventually decline for a monopolist?

Price reductions outweigh gains from extra volume.

What is price discrimination?

Charging different prices based on willingness to pay.

What is perfect price discrimination?

Charging each customer maximum willingness to pay.

What is an oligopoly?

Market dominated by small number of sellers.

What is a cartel?

Agreement among firms to restrict output and fix prices.

Why are cartels naturally unstable?

Members face incentives to cheat for higher profits.

What is OPEC?

International cartel of sovereign oil-producing nations.

What happened to oil prices between 1972 and 1981?

Rose from $3.39 to $31.77 per barrel.

What action did OPEC take in April 2020?

Implemented record oil production cuts due to COVID-19.

What is monopolistic competition?

Market with many firms selling differentiated products.

Who coined the term creative destruction?

Economist Joseph Schumpeter.

What is an externality?

Uncompensated impact of action on bystander well-being.

What is a positive externality?

Action creating uncompensated benefits for third parties.

What is a negative externality?

Action imposing uncompensated costs on third parties.

Where does the socially optimal level of production occur?

Where willingness to pay equals total social cost.

Who formulated the Coase Theorem?

Economist Ronald Coase.

What is the Coase Theorem?

Private bargaining resolves externalities if rights are defined.

What is congestion pricing in New York City?

Charging drivers fee to reduce city traffic congestion.

When did California establish its emissions trading system?

2013.

What is the tragedy of the commons?

Inefficient overuse of shared accessible resources.

What is a rival good?

One person's consumption reduces availability for others.

What is an excludable good?

Producers can prevent non-payers from consuming it.

What are private goods?

Goods that are rival and excludable.

What are collective goods?

Goods that are non-rival and excludable.

What are common resources?

Goods that are rival and non-excludable.

What are public goods?

Goods that are non-rival and non-excludable.

What is pork barrel politics?

Spending directed exclusively to benefit local districts.

What is logrolling?

Legislative vote trading to pass spending projects.

What is rent seeking?

Spending resources to capture unearned economic benefits.

What is the formula for price elasticity of demand?

Percentage change in quantity divided by percentage change in price.