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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. 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






2. 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






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






4. Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient






5. Additional costs to society not captured by the market supply curve from the production of a good - result in a price that is too low and a market quantity that is too high. Resources are overallocated to the production of this good






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






7. 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






8. 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






9. 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.






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






11. The most desirable alternative given up as the result of a decision






12. 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






13. Models where firms agree to mutually improve their situation






14. Costs of inputs - technology and productivity - taxes/subsidies - producer speculation - price of other goods that could be produced - and number of sellers all influence supply






15. Has opposite effect of an excise tax - as it lowers the marginal cost of production - forcing the supply curve down






16. The study of how people - firms - and societies use their scarce productive resources to best satisfy their unlimited material wants.






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






18. 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






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






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






21. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic






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






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






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






25. A firm that has market power in the factor market (a wage-setter)






26. Production inputs that cannot be changed in the short run. Usually this is the plant size or capital






27. All firms maximize profit by producing where MR = MC






28. Ei > 1






29. 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






30. 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






31. 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






32. Goods that are both rival and excludable. Only one person can consume the good at a time and consumers who do not pay for the good are excluded from consumption






33. Occurs when there is no more incentive for firms to enter or exit. P=MR=MC=ATC and profit = 0






34. 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






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






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






37. The additional cost incurred from the consumption of the next unit of a good or a service






38. AVC = TVC/Q






39. In the case of a public good - some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding and forces the government to provide it






40. The marginal utility from consumption of more and more of that item falls over time






41. The sum of consumer surplus and producer surplus






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






43. Ed < 1






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






45. 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






46. ATC = TC/Q = AFC + AVC






47. Ex -y = (%dQd good X) / (%d Price Y). If Ex -y > 0 - goods X and Y are substitutes. If Ex -y < 0 - goods X and Y are complementary






48. Characterized by many small price-taking firms producing a standardized product in an industry in which there are no barriers to entry or exit






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






50. 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