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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. The output where ATC is minimized and economic profit is zero






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






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






4. 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






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






6. 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






7. 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






8. 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






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






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






11. A good for which higher income decreases demand






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






13. Substitutes - cost as percentage of income - and time to adjust to price changes all influence price elasticity






14. 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.






15. 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






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






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






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






19. 0 < Ei < 1






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






21. 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






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






23. Es = (%dQs) / (%dPrice)






24. Ed < 1






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






26. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter






27. Ed = 1






28. Ei > 1






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






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






31. 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






32. Costs that change with the level of output. If output is zero - so are TVCs.






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






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






35. The sum of consumer surplus and producer surplus






36. Ed = 0 - no response to price change






37. 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






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






39. A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax






40. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.






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






42. 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






43. The lost net benefit to society caused by a movement away from the competitive market equilibrium






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






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






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






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






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






49. 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






50. The difference between total revenue and total explicit costs







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