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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 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






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






3. 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






4. ATC = TC/Q = AFC + AVC






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






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






7. 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.






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






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






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






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






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






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






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






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






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






17. 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






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






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






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






21. 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






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. 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






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






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






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






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






28. TR = P * Qd






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. 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






31. 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






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






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






34. 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






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






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






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






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






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






40. 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






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






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






43. Ed < 1






44. 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






45. 0 < Ei < 1






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






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






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






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






50. Models where firms agree to mutually improve their situation