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






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






3. Ei > 1






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






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






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






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






8. AFC = TFC/Q






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






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






11. A group of firms that agree not to compete with each other on the basis of price - production - or other competitive dimensions. Cartel members operate as a monopolist to maximize their joint profits






12. The change in quantity demanded that results from a change in the consumer's purchasing power (or real income)






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






14. The least competitive market structure - characterized by a single producer - with no close substitutes - barriers to entry - and price making power






15. 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






16. 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.






17. 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.






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






19. 0 < Ei < 1






20. 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






21. Ed = 1






22. 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






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






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






25. 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






26. The sum of consumer surplus and producer surplus






27. A good for which higher income decreases demand






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






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






30. 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






31. Ed > 1 - meaning consumers are price sensitive






32. 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






33. 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






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






35. 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






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






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






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






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






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






41. 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






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






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






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






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






46. Ed = 0 - no response to price change






47. 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






48. 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






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






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