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Which of the options is NOT considered a direct factor influencing supply?
Which of the options is NOT considered a direct factor influencing supply?
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?
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?
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?
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Government-imposed minimum prices typically result in what market condition?
Government-imposed minimum prices typically result in what market condition?
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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?
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How do ticket speculators typically affect a market?
How do ticket speculators typically affect a market?
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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?
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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:
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Which of the following is an example of a positive economic statement?
Which of the following is an example of a positive economic statement?
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Which of these statements represents a normative economic viewpoint?
Which of these statements represents a normative economic viewpoint?
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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:
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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?
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A key aspect of marginal analysis involves:
A key aspect of marginal analysis involves:
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Which statement best exemplifies the practical implications of comparative advantage?
Which statement best exemplifies the practical implications of comparative advantage?
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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?
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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)?
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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?
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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?
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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?
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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?
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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?
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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?
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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)?
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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)?
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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?
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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?
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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?
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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)?
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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)?
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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
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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.
