Economics Quiz on Costs and Market Structures

The total amount of money a firm receives from selling its goods or services.

The total cost incurred by a firm in producing its goods or services. It includes both fixed and variable costs.

The difference between total revenue and total cost. It represents the profit or loss made by a firm.

Costs that do not change with the quantity of output produced. Examples include rent, salaries, and insurance premiums.

Costs that vary with the quantity of output produced. Examples include raw materials, labor, and utilities.

The self-regulating nature of the free market, where individuals pursuing their own interests unintentionally benefit society as a whole.

A visual representation showing how money flows back and forth between businesses (firms) and individuals (households) in an economy.

The combination of goods and services an economy can produce with its current resources.

The value of the best alternative that is forgone when making a decision. It represents what you give up by choosing one option over another.

The ability of one producer to produce more of a good or service than another producer using the same amount of resources, or to produce the same amount of a good or service with fewer resources.

The ability of one producer to produce a good or service at a lower opportunity cost than another producer.

The process of focusing on producing a specific good or service where you have a comparative advantage.

Trade allows entities to specialize in what they have a comparative advantage in, leading to increased efficiency and benefiting everyone in the economy.

The additional costs faced by a firm due to missed opportunities when pursuing one course of action over another.

The actual out-of-pocket expenses incurred by a firm in producing its goods or services.

The quantity of output that minimizes the average total cost of production for a firm.

The point where total revenue equals total cost for a firm.

The situation where the long-run average total cost of production decreases as the firm increases its output.

The situation where the long-run average total cost of production increases as the firm increases its output.

The situation where the long-run average total cost of production remains constant as the firm increases its output.

A market structure where a single firm controls the entire market supply of a good or service.

An agreement between competing firms about prices and quantity, aiming to reduce competition and increase profits.

A group of firms that act together to set prices and output levels, essentially forming a monopoly.

A situation where firms in an oligopoly face both an output effect and a price effect when deciding how much to produce.

In a game theory setting, a situation where each player chooses their best strategy given the strategies of other players, and no player can benefit by changing their own strategy.

The study of strategic interaction between rational individuals or organizations, understanding how to make choices in situations where outcomes depend on the actions of others.

A market structure characterized by few firms selling differentiated products. Often, there are high barriers to entry.

A scenario with two firms competing, where the market outcome resembles a perfectly competitive market. This is due to intense price competition, driving prices down to marginal cost.

A resource that is not excludable, meaning that it is difficult to prevent people from using it, and rivalrous in consumption, meaning that one person's use of the resource diminishes another person's ability to use it.

An individual who benefits from a good or service without contributing to its cost.

A situation where individuals acting in their own self-interest deplete or degrade a shared resource, leading to its overuse and potential destruction.

A game theory concept that states that players will work backwards from the final stage to determine the optimal strategy for each step.

The extent to which the findings of a study can be generalized to other populations, settings, or time periods.

The tendency for individuals to care about their outcomes relative to others and to prefer fairness in the distribution of resources.

The tendency for individuals to reciprocate the treatment they receive from others, responding to kindness with kindness and to unkindness with unkindness.

The tendency for individuals to be influenced by the way in which choices are presented, even if the underlying options are the same.

Information asymmetry occurs when one party involved in a transaction has more information than the other. This can lead to problems where the party with less information is at a disadvantage.

Moral hazard is the risk that one party in a deal will act in a risky or irresponsible way because they are not fully responsible for the consequences. This is often seen in situations where someone has insurance or a guarantee.

An agent is someone who carries out tasks or makes decisions for another person, called the principal. They are bound by an agreement or understanding.

The principal is the person or entity who hires or authorizes an agent to act on their behalf. They have given the agent authority to make decisions or perform tasks.

When an agent doesn't fully bear the consequences of their actions, they may be tempted to slack off and do less work. This can be a problem for the principal.

Adverse selection is a problem where hidden information about a situation leads to an unfair or unbalanced deal. It can leave the less-informed party at a disadvantage.

Incentives are important to ensure that agents work hard and do their best. This can involve tying rewards directly to performance or outputs.

The signal extraction problem is the difficulty in separating meaningful indicators of performance from chance or external factors. It's hard to know if someone did well because of skill or just luck.