Microeconomics Final

General Economic Concepts

1. Q: What is the definition of economics?
   A: Economics is the study of how individuals, firms, and governments allocate scarce resources to satisfy unlimited wants.

2. Q: What are the four factors of production?
   A: Land, labor, capital, and entrepreneurial skills.

3. Q: Define "scarcity" in economics.
   A: Scarcity occurs when the demand for a good or service exceeds its availability.

4. Q: What is opportunity cost?
   A: The next best alternative foregone when a decision is made.

5. Q: What is a production possibilities curve (PPC)?
   A: A graph that shows the maximum combinations of two goods that can be produced with available resources and technology.

6. Q: What does a straight-line PPC indicate?
   A: Constant opportunity cost.

Demand and Supply

7. Q: What is the law of demand?
   A: As price falls, the quantity demanded rises; as price rises, the quantity demanded falls.

8. Q: Name the three explanations for the law of demand.
   A: Law of diminishing marginal utility, income effect, and substitution effect.

9. Q: What is the law of supply?
   A: As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.

10. Q: Name the determinants of demand.
    A: Tastes/preferences, number of buyers, income, prices of related goods, and consumer expectations.

11. Q: Name the determinants of supply.
    A: Resource prices, technology, number of sellers, taxes/subsidies, prices of other goods, and producer expectations.

12. Q: What’s the difference between a movement along the curve and a shift of the curve?
    A: Movement is caused by price changes; shifts are caused by changes in determinants of demand or supply.

Elasticity

13. Q: What is price elasticity of demand?
    A: A measure of how sensitive quantity demanded is to a change in price.

14. Q: Define elastic demand.
    A: When a small change in price causes a large change in quantity demanded.

15. Q: Define inelastic demand.
    A: When a price change results in a small change in quantity demanded.

16. Q: What is cross-price elasticity of demand?
    A: Measures how the quantity demanded of one good responds to a price change of another good.

17. Q: What is income elasticity of demand?
    A: Measures how quantity demanded changes in response to a change in income.

Costs and Marginal Analysis

18. Q: What is marginal cost?
    A: The cost of producing one additional unit of output.

19. Q: What are fixed costs?
    A: Costs that do not vary with production levels.

20. Q: What are variable costs?
    A: Costs that change with the level of production.

21. Q: What is the formula for calculating total cost?
    A: Total cost = Fixed cost + Variable cost.

22. Q: What does "marginal" mean in economics?
    A: Extra, additional, or a change in.

23. Q: What is marginal benefit?
    A: The additional benefit received from consuming one more unit of a good or service.

24. Q: What is the profit-maximizing rule for firms?
    A: Marginal revenue = marginal cost (MR = MC).

Market Structures

25. Q: What are the characteristics of a perfectly competitive market?
    A: Many buyers/sellers, identical products, free entry/exit, perfect information, price takers.

26. Q: What are the characteristics of a monopoly?
    A: Single seller, unique product, price maker, high barriers to entry, non-price competition.

27. Q: What is the shut-down rule for firms?
    A: A firm should shut down if price is less than average variable cost (P < AVC).

28. Q: What happens in the long run in perfect competition?
    A: Firms earn normal profit (zero economic profit), and price equals minimum average total cost (P = min ATC).

Consumer and Producer Surplus

29. Q: What is consumer surplus?
    A: The difference between what a consumer is willing to pay and what they actually pay.

30. Q: What is producer surplus?
    A: The difference between the price a producer receives and the minimum price they would accept.

31. Q: How is consumer surplus calculated?
    A: ½(Base × Height).

Goods and Externalities

32. Q: What are the characteristics of public goods?
    A: Nonrivalry and nonexcludability.

33. Q: What is the free-rider problem?
    A: When individuals consume public goods without contributing to their cost.

34. Q: Define positive externality.
    A: A benefit enjoyed by a third party as a result of an economic transaction.

35. Q: Define negative externality.
    A: A cost suffered by a third party due to an economic transaction.

Graphs and Analysis

36. Q: What is shown on a perfectly competitive firm’s graph?
    A: Price (P), quantity (Q), marginal cost (MC), average total cost (ATC), and profit/loss areas.

37. Q: What happens to costs in the long run when economies of scale occur?
    A: Average costs decrease as output increases.

38. Q: What is allocative efficiency?
    A: Producing the combination of goods most desired by society (P = MC).

Marginal Analysis in Resource Markets

39. Q: What is marginal revenue product (MRP)?
    A: The additional revenue generated by employing one more unit of a resource.

40. Q: What is marginal resource cost (MRC)?
    A: The additional cost of employing one more unit of a resource.

41. Q: What is the profit-maximizing rule for hiring resources?
    A: MRP = MRC.

Additional Topics

42. Q: Define substitute goods.
    A: Goods that can replace each other; when the price of one increases, demand for the other rises.

43. Q: Define complementary goods.
    A: Goods consumed together; when the price of one increases, demand for the other falls.

44. Q: What are quasi-public goods?
    A: Goods that have characteristics of both public and private goods (e.g., toll roads).

45. Q: What is Adam Smith

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Here’s a revised version of your flashcards, ensuring clarity, conciseness, and precision:

General Economic Concepts

1. Q: What is the definition of economics?
   A: The study of how scarce resources are allocated to satisfy unlimited wants.

2. Q: What are the four factors of production?
   A: Land, labor, capital, and entrepreneurship.

3. Q: What is scarcity?
   A: The condition where demand for goods/services exceeds their availability.

4. Q: What is opportunity cost?
   A: The value of the next best alternative forgone.

5. Q: What is a production possibilities curve (PPC)?
   A: A graph showing maximum possible output combinations of two goods using available resources.

6. Q: What does a straight-line PPC indicate?
   A: Constant opportunity costs.

Demand and Supply

7. Q: What is the law of demand?
   A: As price decreases, quantity demanded increases; as price increases, quantity demanded decreases.

8. Q: Name three reasons for the law of demand.
   A: Diminishing marginal utility, income effect, and substitution effect.

9. Q: What is the law of supply?
   A: As price increases, quantity supplied increases; as price decreases, quantity supplied decreases.

10. Q: What causes a shift in the demand curve?
    A: Changes in tastes, income, number of buyers, prices of related goods, or consumer expectations.

11. Q: What causes a shift in the supply curve?
    A: Changes in resource prices, technology, number of sellers, taxes/subsidies, or producer expectations.

12. Q: What’s the difference between a movement along a curve and a shift of a curve?
    A: Movements are caused by price changes, while shifts result from changes in other determinants.

Elasticity

13. Q: What is price elasticity of demand?
    A: The responsiveness of quantity demanded to a price change.

14. Q: Define elastic demand.
    A: Demand is sensitive to price changes; a small price change causes a large change in quantity demanded.

15. Q: Define inelastic demand.
    A: Demand is not sensitive to price changes; a price change causes little change in quantity demanded.

16. Q: What is cross-price elasticity of demand?
    A: Measures how the demand for one good responds to the price change of another good.

17. Q: What is income elasticity of demand?
    A: Measures how demand changes with income changes.

Costs and Marginal Analysis

18. Q: What is marginal cost?
    A: The additional cost of producing one more unit of a good.

19. Q: What are fixed costs?
    A: Costs that do not change with the level of output (e.g., rent).

20. Q: What are variable costs?
    A: Costs that change with the level of output (e.g., raw materials).

21. Q: What is total cost?
    A: The sum of fixed and variable costs.

22. Q: Define marginal benefit.
    A: The additional benefit of consuming one more unit of a good.

23. Q: What is the profit-maximizing rule for firms?
    A: Produce where marginal revenue equals marginal cost (MR = MC).

Market Structures

24. Q: What are the characteristics of a perfectly competitive market?
    A: Many buyers/sellers, identical products, easy entry/exit, and price-taking behavior.

25. Q: What are the characteristics of a monopoly?
    A: Single seller, unique product, price maker, high entry barriers, and non-price competition.

26. Q: What is the shut-down rule for firms?
    A: Shut down if price is less than average variable cost (P < AVC).

27. Q: What happens in the long run in perfect competition?
    A: Firms earn zero economic profit as price equals minimum average total cost (P = min ATC).

Consumer and Producer Surplus

28. Q: What is consumer surplus?
    A: The difference between what consumers are willing to pay and what they actually pay.

29. Q: What is producer surplus?
    A: The difference between the price a producer receives and the minimum price they would accept.

30. Q: How is consumer surplus calculated?
    A: ½ × (Base × Height).

Goods and Externalities

31. Q: What are the characteristics of public goods?
    A: Nonrivalry and nonexcludability.

32. Q: What is the free-rider problem?
    A: When individuals benefit from a public good without contributing to its cost.

33. Q: Define positive externality.
    A: A benefit to third parties from an economic activity (e.g., education).

34. Q: Define negative externality.
    A: A cost imposed on third parties by an economic activity (e.g., pollution).

Graphs and Analysis

35. Q: What does a perfectly competitive firm’s graph show?
    A: Price, quantity, marginal cost (MC), average total cost (ATC), and profit/loss areas.

36. Q: What is allocative efficiency?
    A: Producing goods most desired by society, where P = MC.

37. Q: What is productive efficiency?
    A: Producing at the lowest cost, where P = min ATC.

Marginal Analysis in Resource Markets

38. Q: What is marginal revenue product (MRP)?
    A: The additional revenue from employing one more unit of a resource.

39. Q: What is marginal resource cost (MRC)?
    A: The additional cost of employing one more unit of a resource.

40. Q: What is the profit-maximizing rule for hiring resources?
    A: Employ resources where MRP = MRC.

Additional Topics

41. Q: Define substitute goods.
    A: Goods that can replace each other; when the price of one rises, demand for the other increases.

42. Q: Define complementary goods.
    A: Goods consumed together; when the price of one rises, demand for the other falls.

43. Q: What are quasi-public goods?
    A: Goods with characteristics of both public and private goods (e.g., toll roads).

44. Q: What is Adam Smith’s "invisible hand"?
    A: The idea that individuals pursuing self-interest can unintentionally promote society’s overall good.