Question 3

Consumer surplus Equilibrium . price Producer surplus Equilitrium quantity D Supply Demand Quantity

Question 4

  • The law of diminishing marginal utility states that as you consume more and more of the same good during a given period, your enjoyment gained from each additional unit of the good decreases. This is why more unites of a good will be purchased if the price decreases and vice versa - the law of demand

    Machine generated alternative text: Nijel's Demand Price L20 1.00 025 Mary's Demand Total Market Demand price L50 L20 1.00 一 95 ． 0 ． 50 Quantity L50 L20 L00 “ 住 9 斗 0 ． 63 0 50 住 25 1 Quantity 2 3 5 6 7 8 9 10 Quantity

Question 6

  • If economic profits = 0, then

    • owners receive a payment equal to their opportunity costs

    • no incentive for firms to either enter or leave this industry

    • owners are earning the most that could be made elsewhere

  • Zero economic profits are also called normal profits

  • They are what all firms earn in the long run in a competitive industry

  • They do not indicate any resource allocation errors.

Question 8

  • Because there are far more substitutes available for Sprite than there are for all types of soda pop, the demand for Sprite will be more elastic than the demand for all soda pop.

Question 12

  • In the absence of intervention, imperfect competition, externalities, public goods, and imperfect information all result in market failure.

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Question 14

  • Firms with every type of market structure maximize profits by producing where MC=MR, if at all.

  • Producing more will increase costs more than revenues

  • Producing less will fail to take advantage of opportunities to sell additional unites when the additional revenue exceeds the additional cost

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Question 16

  • The Sherman Act (1890)

    • declared attempts to monopolize commerce or restrain trade among the states illegal

  • The Clayton Act (1914)

    • strengthened the Sherman Act by specifying that monopolistic behavior such as price discrimination, tying contracts, and unlimited mergers are illegal

  • The Robinson-Patman Act (1936)

    • prohibits price discrimination except when it is based on differences in cost, difference in marketability of product, or a good faith effort to meet competition

  • The Celler-Kefauver Act (1950)

    • authorized the government to ban vertical mergers (mergers of firms at various steps in the production process from raw materials to finished products) and conglomerate mergers (combinations of firms from unrelated industries) in addition to horizontal mergers (mergers of direct competitors)

Question 20

  • By adding supply curves horizontally, the quantities each firm will provide at each price are combined into a total quantity supplied y the market at each price.

    Avocados Unlimited's Supply (SAO Always Avocados Supply (s AA) S Total Market Supply (S) Price 1.25 1.00 0.75 0.50 025 100 p rice 1.25 0.75 0.50 0.25 200 300 400 s 500 600 Quantity price 1.25 0.75 0.50 0.25 100 200 300 400 500 600 100 250 500 750 1000 Qu anti ty

Question 21

$ per unit MC ATC AVC AR Quantity

  • A competitive firm facing the demand and cost curve in the figure above should shut down immediately.

  • The firm is not covering its average variable costs. Not only is it losing money, it is not earning enough to help pay for any of its fixed costs

Question 27

  • tuba n. the lowest brass wind instrument

  • Because the demand for tuba makers is derived from the demand for tubas, when tuba demand goes down, tuba maker demand goes down and thus wages go down.

Question 32

BUTTER Figo 23 Concave to the Origin Production Possibilities Frontier

  • The curvature of PPFs results from increasing opportunity costs arising from the use of resources that are less and less specialized for the production of a particular good.

  • If the resources used to make the two goods are not specialized, opportunity costs are constant and the PPF is a straight line

Question 37

Namc Pricc clasticity of demand Perfectly inelastic demand Inelastic demand Unit-elastic demand Elastic demand Perfectly elastic demand Possiblc values Significance % change in quantity demanded (dropping thc minus sign) % change in price Betvveen 0 and 1 Exactly 1 Greater than 1 , less than Price has no effect on quantity demanded (vertical demand curve). A rise in price increases total revenue. Changes in price have no effect on total revenue. A rise in price redires total revenue. A rise in price causes quantity demanded to fall too. A fall in price leads to an infinite quantity demanded (horizontal demand curve). Cross-price clasticity of demand Complements Substitutes % change in quantib' of one good dcmandcd % change in price of another good Negative Positive Quantity demanded of one good falls when the price of another rises. Quantity demanded of one good rises when the price of another rises. Income elasticity of demand Inferior good Normal good, income-inelastic Normal good, income-elastic % change in quantib' dcmandcd % change in income Negative Positive, less than 1 Greater than 1 Quantity demanded falls when income rises. Quantity demanded rises when income rises, but not as rapidly as income. Quantity demanded rises when income rises, and more rapidly than income. % change in quantib' supplied Pricc clasticity of supply Perfectly inelastic supply Perfectly elastic supply % change in price Greater than 0, less than Price has no effect on quantity supplied (vertical supply curve). Ordinary upward-sloping supply curve. Any fall in price causes quantity supplied to fall to 0. Any rise in price elicits an infinite quantity supplied (horizontal supply curve).

Question 38

  • Constant returns to scale

    • output increases in proportion to the amounts of each of the inputs

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Question 39

  • Dominant Strategies Equilibrium vs. Nash Equilibrium

    • Dominant strategies are stable and self-enforcing

    • However, in many games one or more players do not have a dominant strategy

    • Nash equilibrium is a more general concept

    • A Nash equilibrium is a set of strategies such that each player is doing the best it can, given the actions of its opponents.

    • A dominant strategy equilibrium is a special case of a Nash equilibrium

Question 42

  • The demand for labor is determined by the marginal revenue product of labor, which is the product of the marginal product of labor and the marginal revenue from the output produced by the labor. Thus, if the mariginal product of labor decreases, so does the demand for labor.

    $ per unit The Ice Cream Market Ice Cream $ per unit The Ice Cream Machine Market

Question 45

  • Because a monopoly holds 100 percent of the market share, the concentration ratio is 100.

Question 50

  • monopsony: (economics) a market in which goods or services are offered by several sellers but there is only one buyer

Question 51

  • A free rider problem arises when people try to benefit from a public good without paying for it.

  • The government can avoid this by taxing everyone and providing the public good itself.

Question 52

Price, cost, marginal revenue MC Monopoly profit ATC Quantity

  • Because monopolies lower the price in order to sell one more unit, the marginal revenue is not the price as indicated on the demand curve, but that price minus the lost earning on all of the previous units that are now selling at a lower price

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