Podcast
Questions and Answers
Which of the options is NOT considered a direct factor influencing supply?
Which of the options is NOT considered a direct factor influencing supply?
- Production costs
- Consumer incomes (correct)
- Technology
- Prices of production factors
Given demand and supply functions $Q_d = 90 - 10P$ and $Q_s = 10 + 6P$, what is the equilibrium quantity?
Given demand and supply functions $Q_d = 90 - 10P$ and $Q_s = 10 + 6P$, what is the equilibrium quantity?
- 40 (correct)
- 50
- 20
- 30
If the government imposes a price ceiling of 4 units on the market described by functions $Q_d = 90 - 10P$ and $Q_s = 10 + 6P$, what will be the market outcome?
If the government imposes a price ceiling of 4 units on the market described by functions $Q_d = 90 - 10P$ and $Q_s = 10 + 6P$, what will be the market outcome?
- Excess demand (correct)
- Market equilibrium
- No change to market
- Excess supply
Given the supply and demand functions $Q_s = 3P$ and $Q_d = 12 - P$, if the government sets a minimum price twice as high as the equilibrium price, what type of market surplus will occur and in what quantity?
Given the supply and demand functions $Q_s = 3P$ and $Q_d = 12 - P$, if the government sets a minimum price twice as high as the equilibrium price, what type of market surplus will occur and in what quantity?
Government-imposed minimum prices typically result in what market condition?
Government-imposed minimum prices typically result in what market condition?
When both demand and supply decrease at different rates, what is the effect on the market price and quantity?
When both demand and supply decrease at different rates, what is the effect on the market price and quantity?
How do ticket speculators typically affect a market?
How do ticket speculators typically affect a market?
When price controls or price capping is implemented in a market, what is the most likely outcome?
When price controls or price capping is implemented in a market, what is the most likely outcome?
An airline sells a standby ticket for $300 on a flight with several empty seats, even though the average cost per seat is $500. The decision is economically rational because:
An airline sells a standby ticket for $300 on a flight with several empty seats, even though the average cost per seat is $500. The decision is economically rational because:
Which of the following is an example of a positive economic statement?
Which of the following is an example of a positive economic statement?
Which of these statements represents a normative economic viewpoint?
Which of these statements represents a normative economic viewpoint?
According to the theory of comparative advantage, countries specialize in the production of goods for which they have:
According to the theory of comparative advantage, countries specialize in the production of goods for which they have:
When two economic agents trade based on comparative advantage, which of the following outcome is most likely?
When two economic agents trade based on comparative advantage, which of the following outcome is most likely?
A key aspect of marginal analysis involves:
A key aspect of marginal analysis involves:
Which statement best exemplifies the practical implications of comparative advantage?
Which statement best exemplifies the practical implications of comparative advantage?
If a firm has total revenue of $500,000, explicit costs of $375,000 and implicit costs of $50,000, what is the firm's economic profit?
If a firm has total revenue of $500,000, explicit costs of $375,000 and implicit costs of $50,000, what is the firm's economic profit?
A company has a total cost (TC) function of TC = 400 + 10Q, and the market price of the good is 50. What is the break-even output quantity (Q)?
A company has a total cost (TC) function of TC = 400 + 10Q, and the market price of the good is 50. What is the break-even output quantity (Q)?
Which of the following characteristics apply to a market with perfect and pure competition?
Which of the following characteristics apply to a market with perfect and pure competition?
A firm in a perfectly competitive market has a total cost of TC = Q² - 4Q + 10 and the market price is P = $10. What quantity should the firm produce to maximize profit and what is the profit?
A firm in a perfectly competitive market has a total cost of TC = Q² - 4Q + 10 and the market price is P = $10. What quantity should the firm produce to maximize profit and what is the profit?
Under what condition should a firm in a perfectly competitive market shut down in the short term to minimize its losses?
Under what condition should a firm in a perfectly competitive market shut down in the short term to minimize its losses?
When demand is relatively inelastic and supply is relatively elastic, who primarily bears the tax burden?
When demand is relatively inelastic and supply is relatively elastic, who primarily bears the tax burden?
According to the content, what is the typical impact of imposing a tariff in international trade?
According to the content, what is the typical impact of imposing a tariff in international trade?
What happens to total surplus when a tariff is imposed, creating a social loss?
What happens to total surplus when a tariff is imposed, creating a social loss?
If a firm's production increases by 25%, what is the corresponding change in average fixed cost (AFC)?
If a firm's production increases by 25%, what is the corresponding change in average fixed cost (AFC)?
A company's production increases by 75%, while its variable costs increase by 50%. What will be the likely effect on average total cost (ATC)?
A company's production increases by 75%, while its variable costs increase by 50%. What will be the likely effect on average total cost (ATC)?
A company produces 100,000 units and sells them for $5 each. The explicit costs are $375,000 and implicit are $50,000. What are the company's accounting and economic profits, respectively?
A company produces 100,000 units and sells them for $5 each. The explicit costs are $375,000 and implicit are $50,000. What are the company's accounting and economic profits, respectively?
If a new tax is imposed on a good with a supply elasticity of 1.1 and a demand elasticity of 0.9, which side of the market will bear a larger portion of the tax burden?
If a new tax is imposed on a good with a supply elasticity of 1.1 and a demand elasticity of 0.9, which side of the market will bear a larger portion of the tax burden?
What is a direct consequence on the total market surplus of imposing a tariff in international trade?
What is a direct consequence on the total market surplus of imposing a tariff in international trade?
A firm increases its output by 25%. Assuming fixed costs remain constant, what is the percentage decrease in the Average Fixed Cost (AFC)?
A firm increases its output by 25%. Assuming fixed costs remain constant, what is the percentage decrease in the Average Fixed Cost (AFC)?
If a company increases production by 75% and its total variable costs increase by 50%, what is most likely to happen to average variable costs (AVC)?
If a company increases production by 75% and its total variable costs increase by 50%, what is most likely to happen to average variable costs (AVC)?
Flashcards
Marginal analysis
Marginal analysis
Analyzing the impact of small changes on a decision, considering only the additional costs and benefits of a particular choice.
Positive statement
Positive statement
A statement that can be tested and proven true or false using empirical evidence.
Normative statement
Normative statement
A statement that expresses an opinion or value judgment, often containing words like "should" or "ought to."
Comparative advantage
Comparative advantage
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Production possibility frontier (PPF)
Production possibility frontier (PPF)
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Benefits of specialization and trade
Benefits of specialization and trade
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Opportunity cost
Opportunity cost
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Equilibrium Price
Equilibrium Price
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Quantity Demanded
Quantity Demanded
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Quantity Supplied
Quantity Supplied
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Price Ceiling
Price Ceiling
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Price Floor
Price Floor
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Supply Surplus
Supply Surplus
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Demand Surplus (Shortage)
Demand Surplus (Shortage)
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Direct Factor of Supply
Direct Factor of Supply
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Speculation
Speculation
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Break-even point
Break-even point
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Perfect competition
Perfect competition
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Marginal cost
Marginal cost
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Economic profit
Economic profit
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Shutdown point
Shutdown point
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Elastic Demand
Elastic Demand
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Inelastic Demand
Inelastic Demand
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Price Elasticity of Demand
Price Elasticity of Demand
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High Price Elasticity of Demand
High Price Elasticity of Demand
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Price Elasticity of Supply
Price Elasticity of Supply
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Low Price Elasticity of Demand
Low Price Elasticity of Demand
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Inelastic Supply
Inelastic Supply
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Tax Burden with Inelastic Demand
Tax Burden with Inelastic Demand
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Indirect Tax
Indirect Tax
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Marginal Revenue
Marginal Revenue
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Consumer tax burden
Consumer tax burden
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Producer tax burden
Producer tax burden
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Price elasticity of demand (Ed)
Price elasticity of demand (Ed)
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Price elasticity of supply (Es)
Price elasticity of supply (Es)
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Tax burden and elasticity
Tax burden and elasticity
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Tariff
Tariff
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Social loss from tariffs
Social loss from tariffs
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Total surplus decrease from tariffs
Total surplus decrease from tariffs
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Average fixed cost (AFC)
Average fixed cost (AFC)
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Average variable cost (AVC)
Average variable cost (AVC)
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Study Notes
Microeconomics Applications
- Airline Cost Evaluation: An airline assesses a 200-seat flight's $100,000 cost ($500 per seat). Even if average cost per passenger is $500, accepting a standby passenger willing to pay $300 is rational if the marginal cost (sandwich, water) is less. This demonstrates the concept of marginal analysis.
Positive vs. Normative Statements
- Positive Statement: A statement describing how the world is. Examples include:
- If price drops, quantity demanded increases.
- Increasing government spending increases employment.
- Normative Statement: A statement expressing a value judgment or opinion about how the world should be. Examples include:
- The government should increase taxes on imported meat to protect domestic producers.
- To reduce income inequality, the government must raise the minimum wage.
Comparative Advantage
- Comparative Advantage: A theory asserting that economic units should specialize in producing goods with the lowest opportunity cost.
- Example: A country might concentrate on items where they are relatively most efficient.
Economic Agents and Trade
- Comparative Advantage in Trade: If two economic agents trade based on comparative advantage, both will benefit and consume beyond the production possibility frontier.
Supply Factors
- Factors Influencing Supply: The factors that are not direct determinants of supply are prices of production factors, consumer incomes. Production costs and Technology are direct factors that do influence supply.
Supply and Demand Equilibrium
- Equilibrium Price and Quantity: Given supply (Qs = 10 + 6P) and demand (Qd = 90 - 10P) functions, the equilibrium price is 5 and the equilibrium quantity is 40.
- Price Ceiling: If the government sets a price ceiling (e.g., $4), a shortage occurs (Qd = 50, Qs = 34). Excess demand, or shortage, is caused by a price ceiling.
- Price Floor: If the government sets a price floor twice the equilibrium price (e.g., $6), a surplus occurs. Excess supply, or surplus, is caused by price floor
Minimum Prices and Shortages/Surpluses
- Setting minimum prices by the Government leads to surpluses in the market.
- When both demand and supply decrease at different rates, the equilibrium price may increase or decrease, while the equilibrium quantity decreases or remain unchanged.
Elasticity of Demand
- Price Elasticity of Demand: Elastic demand exists when the percentage change in quantity demanded is greater than the percentage change in price. For example, if a 30% price increase results in a 50% reduction in sales, demand is elastic.
- Elasticity and Total Revenue: If the price of pencils increases by 10 percent and sales revenue increases by 5 percent, the demand for pencils is inelastic.
Elasticity of Supply
- Price Elasticity of Supply: Inelastic supply exists when the percentage change in quantity supplied is smaller than the percentage change in price. For example, if a 10% price increase results in a 5% increase in quantity supplied, supply is inelastic.
Indirect Taxes and Burden
- The burden of an indirect tax (imposed when demand is more inelastic than supply) will primarily fall on the consumers. An example of this is the case of a 2 unit tax on coffee in city A.
- The elasticity of demand and the elasticity of supply determine the market reaction.
Production Costs and Profits
- Production Costs and Firm Behavior: In a perfectly competitive market, firms maximize profits by producing the quantity where marginal revenue equals marginal cost. The firm should shut down to minimize losses when marginal revenue is less than average variable cost.
- Short-Run Loss Minimization: The condition for a firm to shut down in the short run is when the firm's total revenue is less than the total variable costs. Therefore when marginal revenue is less than average variable cost, the firm should shut down.
Market Structures (Monopoly, Oligopoly)
- Monopoly: A market with a single producer of a unique product with restricted entry. Profit maximization involves setting quantity where marginal revenue (MR) equals marginal cost (MC). For example, a monopoly may decrease production below its quota below its quota and increase profits.
- Oligopoly: A market with a small number of firms and barriers to entry, where firms' actions have an effect on other firms.
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Description
Test your understanding of how price controls, demand, and supply functions influence market outcomes. This quiz covers equilibrium quantity, market surplus, and the effects of government interventions like price ceilings and minimum prices. Engage with diverse scenarios to enhance your economic analysis skills.
