Economics Concepts Quiz

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Questions and Answers

What does "marginal cost" describe?

Total cost divided by the quantity produced

The cost that remains constant regardless of the production level

The cost of producing one more unit (correct)

The difference between fixed and variable costs

What is a characteristic of perfect competition?

There are high barriers to entry

Products are homogeneous (correct)

Firms can freely set their own prices

Firms have monopolistic control

If the demand for a product is very elastic, what happens when the price increases?

Quantity demanded increases

Quantity demanded decreases slightly

Quantity demanded remains unchanged

Quantity demanded decreases significantly (correct)

What is the main reason for "economies of scale"?

Reduction in fixed costs per unit as production increases Signup and view all the answers

What does "market failure" mean?

The market does not allocate resources efficiently Signup and view all the answers

A price floor (price minimum) usually leads to:

A surplus of goods on the market Signup and view all the answers

What is a negative externality?

A cost imposed on a third party not involved in the transaction Signup and view all the answers

What happens in a market with a monopoly?

One firm controls the entire supply Signup and view all the answers

When a nation has a comparative advantage in the production of a good:

It can produce the good at a lower opportunity cost than other nations Signup and view all the answers

What does the Lorenz curve show?

The distribution of income or wealth in an economy Signup and view all the answers

What does "opportunity cost" describe?

The value of the best alternative that is not chosen Signup and view all the answers

A price increase for a complementary good will likely lead to:

Reduced demand for the given good Signup and view all the answers

What is a characteristic of monopolistic competition?

Differentiated products and low barriers to entry Signup and view all the answers

What happens to total revenue when the price increases in a market with inelastic demand?

Total revenue increases Signup and view all the answers

What does a production possibilities curve (PPC) show?

The maximum possible combinations of two goods that can be produced Signup and view all the answers

When will a firm operate at a short-run loss?

When fixed costs are covered but variable costs are not Signup and view all the answers

What does "price discrimination" mean?

A firm selling goods at different prices to different customers Signup and view all the answers

What is a "positive externality"?

A benefit for a third party that does not pay for the product Signup and view all the answers

What happens in a market economy when the prices of goods rise?

Supply increases Signup and view all the answers

If marginal cost is lower than marginal revenue, what should a firm do?

Increase production Signup and view all the answers

What is the main difference between accounting profit and economic profit?

Accounting profit takes into account explicit costs only, while economic profit considers both explicit and implicit costs Signup and view all the answers

How does a tax on producers affect the supply curve?

The supply curve shifts upward Signup and view all the answers

What does "derived demand" mean?

Demand for a final good is driven by demand for inputs Signup and view all the answers

What characteristics define a public good?

Non-rivalrous and non-excludable Signup and view all the answers

What happens when a nation specializes in its comparative advantage?

The nation can trade with other nations to mutual benefit Signup and view all the answers

What is an example of a "variable cost"?

Wages for temporary workers Signup and view all the answers

What is the purpose of a carbon tax?

Reduce emissions by internalizing environmental costs Signup and view all the answers

Which of these actions can increase productivity in an economy?

Investing in education and technology Signup and view all the answers

What does the "law of diminishing marginal returns" describe?

Increasing the use of one input eventually leads to smaller increases in output Signup and view all the answers

What is a Lorenz curve designed to measure?

Income inequality in an economy Signup and view all the answers

Under conditions of pure monopoly, entry into the market is:

Blocked Signup and view all the answers

What is likely to be the result of an oligopolistic market?

Neither allocative nor productive efficiency Signup and view all the answers

If the price of a firm's output increases, how will it affect the firm's demand for labor in the short run?

The firm's demand for labor will increase, as marginal revenue product will increase Signup and view all the answers

A country that has a comparative advantage in the production of rubber bands means that:

It can produce rubber bands at a lower opportunity cost than other countries Signup and view all the answers

What concept underlies the statement that "Incomes are subject to diminishing marginal utility"?

The additional satisfaction from each additional unit of income declines as income increases Signup and view all the answers

In a perfectly competitive market, what is the relationship between marginal revenue and demand?

Marginal revenue is equal to demand Signup and view all the answers

Climate change can be viewed as an example of:

Negative externalities Signup and view all the answers

What is a good example of a public good?

National defense Signup and view all the answers

What does the "law of diminishing marginal returns" state?

Adding more units of a variable input to a fixed input eventually leads to smaller increases in output Signup and view all the answers

What is the best definition of "derived demand"?

The demand for a good or service that is driven by the demand for the inputs used to produce it Signup and view all the answers

The short-run effect of an increase in the price of a firm's output will always increase the firm's demand for labor.

True Signup and view all the answers

When a firm's product faces a market price of $50, but it produces only when its variable cost is below $50, the competitive firm is likely to?

Shut down Signup and view all the answers

If a firm's price just covers its average total cost, what kind of economic profit is the firm earning?

Normal profit Signup and view all the answers

When a firm increases its output, what generally happens to its total revenue and profits?

Total revenue increases, total profits decrease Signup and view all the answers

In the short run, a firm should always continue to operate at a loss if it can:

Cover its variable costs and some of its fixed costs Signup and view all the answers

What is the amount of money that a firm can save by continuing to operate in the short run rather than shutting down immediately?

A portion of fixed cost Signup and view all the answers

The point where the demand curve and supply curve intersect is referred to as:

The equilibrium point Signup and view all the answers

In the long run, the market will tend to supply more of a good or service if there is a sustainable economic profit.

True Signup and view all the answers

When a purely competitive market has reached long-run equilibrium, price equals:

The minimum average cost and the marginal cost Signup and view all the answers

The demand curve for a non-discriminating monopolist is the same as:

The market demand curve Signup and view all the answers

What is the relationship between the demand curve and marginal revenue for an imperfectly competitive firm?

Marginal revenue is less than demand Signup and view all the answers

A law that restricts or prohibits price gouging is often referred to as:

Price ceiling Signup and view all the answers

Study Notes

Marginal Cost

Represents the cost of producing one additional unit.

Perfect Competition

Firms can't freely set prices.
Products are homogeneous.
Low barriers to entry.

Price Elasticity

When price increases, sales significantly decrease (elastic).
When price increases, sales slightly decrease (inelastic).

Economies of Scale

Costs per unit decrease as production increases.
Due to fixed costs being spread over more units.

Market Failure

Occurs when markets do not efficiently allocate resources.
Usually involves externalities or public goods.

Price Floor

Sets a minimum price for a product.
Often leads to surpluses.

Externality

A cost or benefit imposed on a third party not involved in the transaction.
Negative externalities (e.g., pollution) have an adverse effect.
Positive externalities (e.g., education) are beneficial.

Monopoly

A single seller controls the entire market.
Sets prices above marginal cost.

Market Equilibrium

Occurs where demand and supply meet.
Prices are stable, and quantity demanded equals quantity supplied.

Supply and Demand

Describes how consumers and producers interact to determine market prices.
Relationship between price and quantity demanded/supplied.

Fiscal Policy

Government actions to influence the economy.
Fiscal policy instruments like taxes and government spending affects the economy.

Monetary Policy

Actions taken by a central bank to influence money supply and credit conditions.
Tools include interest rates, reserve requirements, and open market operations.

Fiscal & Monetary Policy Interaction

Fiscal policy and monetary policy can interact to stimulate or restrain economic activity.
A combined strategy is beneficial but requires careful coordination.

Macroeconomics

Studies the economy as a whole.
Focuses on broad measures like inflation, unemployment, and economic growth.

Microeconomics

Focuses on choices made by individuals, firms, and industries.
Looks at individual markets (supply, demand curves).

Comparative Advantage

Producing a good or service at a lower opportunity cost than other countries (in trade).

Economic Systems

The structure of how a nation uses its resources to produce and distribute products and services.
Different systems include capitalism, socialism, communism, and mixed economies.

Market Structures

Types of markets, differing in number of competitors.
Perfect competition (large number of sellers).
Monopoly (single seller).
Monopolistic competition (large number of sellers).
Oligopoly (a few powerful sellers)

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Description

Test your understanding of key economics concepts such as marginal cost, price elasticity, and market structures. This quiz covers fundamental topics that are essential for any economics student. Dive in and see how well you grasp these important principles!