Economics Quiz - Concepts & Applications

Price controls are often used to regulate markets, but they don't always have the intended positive effects.

A club good is excludable, so you have to pay to access it, but non-rival, so one person's use doesn't affect another's. Internet access can be paid for, but one person's use doesn't limit another's.

Diseconomies of scale happen when increasing production leads to higher average costs. This can happen if a business becomes too large to manage efficiently.

A perfectly competitive market has many buyers and sellers, and no one can influence the price. In the long run, firms will produce at a price that just covers their average total cost, resulting in a flat supply curve.

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. In a monopoly, a portion of this surplus is transferred to the monopolist.

A price ceiling is a maximum price set by the government. It can lead to shortages and a decline in product quality because sellers may be unwilling to produce as much at the lower price.

A minimum wage is a price floor that sets a minimum hourly wage. If the minimum wage is above the market equilibrium wage, it will lead to fewer jobs being offered.

A price floor is a minimum price set by the government. If it is binding, it will lead to a surplus of the good.

A positive externality means that the benefits of an activity are not fully captured by the individual or firm undertaking the activity, while a negative externality means the costs of the activity are not fully borne by the individual or firm.

Diseconomies of scale happen when increasing production leads to higher average costs. A business may experience this if it struggles to manage its resources effectively as it grows.

Marginal cost is the additional cost of producing one more unit. Marginal revenue is the additional revenue earned from selling one more unit. Firms maximize profits by producing at the output level where marginal cost equals marginal revenue.

A good is rival if one person's use of it prevents another person from using it, and it is excludable if it is possible to prevent someone from using it. A market works efficiently in the absence of externalities if the good is both rival and excludable.

Opportunity cost is the value of the best alternative foregone when making a decision. It includes both explicit costs (money spent directly) and implicit costs (the value of what is given up).

Firms will continue to produce as long as marginal revenue (MR) is greater than or equal to marginal cost (MC). This means they are still earning a profit, even if it's small.

Rent-seeking is when individuals or firms use resources to influence government policy in a way that benefits them, often at the expense of others. This can be seen in lobbying efforts or legal challenges.

In a perfectly competitive market, firms are price takers. This means that they cannot influence the market price and must accept the price determined by the forces of supply and demand.

A public good is non-rival and non-excludable. This means that one person's use of the good does not diminish another person's ability to use it, and it is impossible to prevent anyone from using it.

A common resource good is rival, meaning one person's use of it diminishes another person's ability to use it, but non-excludable, meaning it is impossible to prevent anyone from using it. This can lead to overuse and depletion.

A private good is both rival and excludable. One person's use of the good prevents another person from using it, and it is possible to prevent someone from using it. Most goods in the economy are private goods.

The socially optimal level of output is the level that maximizes social welfare. This is the level where the marginal social benefit (MSB) of the good or service equals the marginal social cost (MSC) of producing it.

The output effect refers to the increase in sales revenue that results from a monopolist lowering its prices to increase the quantity sold. The monopolist will sell more units at the lower price.

Marginal cost is the additional cost of producing one more unit. It includes not only the cost of the additional inputs used in production, but also any increases in fixed costs.

A dynamic congestion charge is a toll that varies depending on the level of congestion. This can be used to discourage driving during peak times and encourage driving during off-peak times.

The price elasticity of demand is a measure of how responsive the quantity demanded of a good is to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Fixed costs are costs that do not vary with the level of output. These costs are incurred even if the firm produces nothing. Examples include rent, insurance premiums, and salaries.

Average fixed cost (AFC) is the fixed cost per unit of output. It is calculated as total fixed cost divided by the quantity of output.

Average total cost (ATC) is the total cost per unit of output. It is calculated as total cost divided by the quantity of output. ATC includes both fixed and variable costs.

Marginal cost is the additional cost of producing one more unit. It is calculated as the change in total cost divided by the change in quantity.

The deadweight loss is the loss of economic welfare that occurs when the market is not in equilibrium. It represents the value of transactions that do not take place because of market distortions.

The deadweight loss is the difference between the total surplus that would be obtained if the market were operating efficiently and the total surplus that is actually obtained. It is a reflection of the inefficiency of the market.

A monopolist is a firm that is the sole producer of a good or service for which there are no close substitutes. Because of this, monopolies can charge higher prices and produce less output than competitive firms.

In a perfectly competitive market, the price of a good is determined by the forces of supply and demand. Firms in this market are small and cannot influence the price of the product, so they are price takers.