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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. All firms maximize profit by producing where MR = MC






2. Models where firms agree to mutually improve their situation






3. 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






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






5. The change in total product resulting from a change in the labor input. MPL = dTPL/dL - or the slope of total product






6. Exists if a producer can produce more of a good than all other producers






7. AFC = TFC/Q






8. The downward part of the LRAC curve where LRAC falls as plan size increases. This is the result of specialization - lower cost of inputs - or other efficiencies of larger scale.






9. 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






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






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






12. MUx / Px = MUy/Py or MUx/MUy = Px/Py






13. 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






14. Goods that are both nonrival and nonexcludable. One person's consumption does not prevent another from also consuming that good and if it is provided to some - it is necessarily provided to all - even if they do not pay for that good






15. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.






16. 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






17. 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






18. A period of time long enough to alter the plant size. New firms can enter the industry and existing firms can liquidate and exit






19. Ei = (%dQd good X)/(%d Income)






20. Entry (or exit) of firms does not shift the cost curves of firms in the industry






21. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






22. When firms focus their resources on production of goods for which they have comparative advantage






23. The ability to set the price above the perfectly competitive level






24. The practice of selling essentially the same good to different groups of consumers at different prices






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






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






27. 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






28. Ed = (%dQd)/(%dP). Ignore negative sign






29. Ed > 1 - meaning consumers are price sensitive






30. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity






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






32. The output where AVC is minimized. If the price falls below this point - the firm chooses to shut down or produce zero units in the short run






33. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus






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






35. Total product divided by labor employed. APL = TPL/L






36. Costs that do not vary with changes in short-run output. They must be paid even when output is zero.






37. 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






38. The total quantity - or total output of a good produced at each quantity of labor employed






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






40. A period of time too short to change the size of the plant - but many other - more variable resources can be changed to meet demand






41. The rational decision maker chooses an action if MB = MC






42. The difference between total revenue and total explicit costs






43. For one good - constrained by prices and income - a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received






44. 0 < Ei < 1






45. Direct - purchased - out-of-pocket costs paid to resource suppliers provided by the entrepreneur






46. The additional benefit received from the consumption of the next unit of a good or service






47. The sum of consumer surplus and producer surplus






48. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand






49. Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good






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







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