10 Questions
Equilibrium in a competitive market results in the economically efficient level of output where
marginal benefit equals marginal cost
What explains why the ATC and marginal cost curves are U-shaped in the short run
The law of diminishing returns states that as production increases, marginal costs initially decrease due to specialization and increasing returns to scale. However, beyond a certain point, diminishing returns set in, causing marginal costs to rise, hence the U-shape of the curves.
A market demand curve reflects the:
aggregate preferences of consumers for a product.
Which of the following statements about monopoly is true?
Monopoly causes a reduction in consumer surplus.
Why might private producers be disinclined to supply public goods?
Government subsidies for public goods are generally excessive, discouraging private involvement due to reduced potential profits.
Lattes are priced at $4.00 each, and chocolate chip cookies are priced at $2.00 each. What is the opportunity cost of buying a latte?
2 chocolate chip cookies
What could lead to an inward movement of a nation's production possibility frontier?
A decrease in the availability of raw materials
When do you have a comparative advantage?
If you can produce something at a lower opportunity cost than others
The profit-maximising level of output is
where the difference between total revenue and total cost is the greatest
Australia has a comparative advantage in the production of
Laptops
Study Notes
Market Equilibrium and Efficiency
- Equilibrium in a competitive market results in the economically efficient level of output.
Cost Curves
- The Average Total Cost (ATC) and Marginal Cost (MC) curves are U-shaped in the short run due to diminishing returns and increasing marginal costs.
Demand Curve
- A market demand curve reflects the quantity of a good or service that all consumers are willing and able to purchase at a given price level.
Monopoly
- One true statement about monopoly is that a single firm produces the entire market output.
Public Goods
- Private producers may be disinclined to supply public goods because they are non-rivalrous and non-excludable, making it difficult to charge for them and recover production costs.
Opportunity Cost
- The opportunity cost of buying a latte is the next best alternative that is given up, which is the value of the chocolate chip cookie that could have been purchased instead (in this case, 2 cookies).
Production Possibility Frontier
- An inward movement of a nation's production possibility frontier can be caused by a decline in factors of production, technological regress, or an increase in unemployment.
Comparative Advantage
- You have a comparative advantage when you can produce a good or service at a lower opportunity cost than someone else.
- Australia has a comparative advantage in the production of goods such as minerals, coal, and agricultural products.
Test your knowledge on how equilibrium in a competitive market leads to the economically efficient level of output. Explore the concept of market equilibrium and its impact on the allocation of resources.
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