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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.






2. Ei > 1






3. The difference between total revenue and total explicit costs






4. Labor demand for the firm is MRPL curve. The labor demanded for the entire market DL = ?MRPL of all firms






5. Demand for a resource like labor is derived from the demand for the goods produced by the resource






6. A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly






7. The firm hires the profit maximizing amount of a resource at the point where MRP = MRC






8. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage






9. An economic system based upon the fundamentals of private property - freedom - self-interest - and prices






10. Ed > 1 - meaning consumers are price sensitive






11. The imbalance between limited productive resources and unlimited human wants






12. Holding all else equal - when the price of a good rises - suppliers increase their quantity supplied for that good






13. Measures the value of what the next unit of a resource (e.g. - labor) brings to the firm. MRPL = MR x MPL. In a perfectly competitive product market - MRPL = P x MPL. In a monopoly product market - MR < P so MRPm < MRPc.






14. Product demand - productivity - prices of other resources - and complementary resources






15. Two goods are consumer substitutes if they provide essentially the same utility to consumers






16. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market






17. A group of firms that agree not to compete with each other on the basis of price - production - or other competitive dimensions. Cartel members operate as a monopolist to maximize their joint profits






18. The rate paid on the last dollar earned. This is found by taking the ratio of the change in taxes divided by the change in income






19. The price of a good measured in units of currency






20. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources






21. Models where firms agree to mutually improve their situation






22. The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price






23. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






24. Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials






25. Factors of production - 4 categories: labor - physical capital - land/natural resources - and entrepreneurial ability






26. Entry of new firms shifts the cost curves for all firms downward






27. AVC = TVC/Q






28. TR = P * Qd






29. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price






30. Exists when the production of a good creates utility for third parties not directly involved in the consumption of production of the good






31. Models where firms are competitive rivals seeking to gain at the expense of their rivals






32. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good






33. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit






34. Exists if a producer can produce a good at lower opportunity cost than all other producers






35. Two goods are consumer complements if they provide more utility when consumed together than when consumed separately






36. Ed = 8 - infinite change in demand to price change






37. The change in quantity demanded resulting from a change in the price of one good relative to other goods






38. A very diverse market structure characterized by a small number of interdependent large firms - producing a standardized or differentiated product in a market with a barrier to entry






39. Excess demand; a shortage exists at a market price when the quantity demanded exceeds the quantity supplied






40. The more of a good that is produced - the greater the opportunity cost of producing the next unit of that good






41. A legal maximum price above which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent shortage






42. Consumer income - prices of substitute and complementary goods - consumer tastes and preferences - consumer speculation - and number of buyers in the market all influence demand






43. Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF






44. Indirect - non-purchased - or opportunity costs of resources provided by the entrepreneur






45. Occurs when LRAC is constant over a variety of plant sizes






46. The mechanism for combining production resources - with existing technology - into finished goods and services






47. The combination of labor and capital that minimizes total costs for a given production rate. Hire L and K so that MPL / PL = MPK / PK or MPL/MPK = PL/PK






48. Ed = 1






49. The proportion of the tax paid by the consumers in the form of a higher price for the taxed good is greater if demand for the good is inelastic and supply is elastic






50. AFC = TFC/Q