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






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






3. 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






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






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






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






7. 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






8. 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






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






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






11. 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






12. 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






13. Ei > 1






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






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






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






17. 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






18. The difference between total revenue and total explicit costs






19. Models where firms agree to mutually improve their situation






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






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






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






23. 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.






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






25. 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






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






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






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






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






30. A good for which higher income increases demand






31. 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






32. 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






33. Ed > 1 - meaning consumers are price sensitive






34. 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






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






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






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






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






39. Ed = 0 - no response to price change






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






41. 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






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






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






44. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






45. 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






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






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






48. 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






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






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







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