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






2. 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






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






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






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






6. Ed > 1 - meaning consumers are price sensitive






7. 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






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






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






10. Ei > 1






11. The sum of consumer surplus and producer surplus






12. Models where firms agree to mutually improve their situation






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






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






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






16. 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






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. 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






19. 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






20. 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.






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






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






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






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






25. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






26. Demand for a resource like labor is derived from the demand for the goods produced by the resource






27. 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






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






29. The difference between total revenue and total explicit costs






30. A good for which higher income decreases demand






31. Exists at the point where the quantity supplied equals the quantity demanded






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






33. Ed = 0 - no response to price change






34. 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






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






36. ATC = TC/Q = AFC + AVC






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






38. 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






39. 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






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






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






42. 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






43. 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






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






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






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






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






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






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






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