RepetoIs the horizontal demand curve facing a price-taking firm also the market demand curve?
No. Market demand can slope downward even though one small firm takes price as fixed.
Microeconomics fundamentals
240 questions in English on markets, consumer choice, firms, market power and trade.
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Why can one firm's demand slope downward under monopolistic competition?
Some consumers prefer its variety, so a small price rise need not eliminate all its customers.
With linear demand and supply and no externalities, a tax of 4 reduces trade from 12 to 10 units. What is deadweight loss?
4 currency units: one-half × 4 × (12 - 10).
After receiving full insurance, a person takes less care because covered losses cost them less. Which information problem is illustrated?
Moral hazard.
In a competitive labor market with downward-sloping demand and upward-sloping supply, what does a binding minimum wage do to employment demanded?
It reduces it relative to the uncontrolled equilibrium; this prediction depends on the competitive model.
What shape does perfectly inelastic demand have when price is vertical and quantity horizontal?
A vertical line: quantity does not respond to price over the stated range.
All 240 cards
Every card in the deck, in study order.
Question Answer
Is the horizontal demand curve facing a price-taking firm also the market demand curve? No. Market demand can slope downward even though one small firm takes price as fixed.
Why can one firm's demand slope downward under monopolistic competition? Some consumers prefer its variety, so a small price rise need not eliminate all its customers.
With linear demand and supply and no externalities, a tax of 4 reduces trade from 12 to 10 units. What is deadweight loss? 4 currency units: one-half × 4 × (12 - 10).
After receiving full insurance, a person takes less care because covered losses cost them less. Which information problem is illustrated? Moral hazard.
In a competitive labor market with downward-sloping demand and upward-sloping supply, what does a binding minimum wage do to employment demanded? It reduces it relative to the uncontrolled equilibrium; this prediction depends on the competitive model.
What shape does perfectly inelastic demand have when price is vertical and quantity horizontal? A vertical line: quantity does not respond to price over the stated range.
With unavoidable fixed cost and no shutdown cost, when should a competitive firm shut down in the short run? When price is below minimum average variable cost, so no positive output covers variable cost.
Facing an emissions tax of 12 per unit, should a cost-minimizing firm undertake an available extra unit of abatement costing 9? Yes. It saves 12 of tax at a cost of 9, a net saving of 3.
How is the marginal product of an additional worker calculated in a discrete example? Extra output divided by the increase in labor, holding other inputs fixed.
When is a good excludable? Access by nonpayers can feasibly be prevented.
What must happen for an inferior good to be Giffen over a price range? Its income effect must outweigh the opposing substitution effect, so a higher own price raises quantity demanded.
What is price elasticity of supply? The percentage change in quantity supplied divided by the percentage price change, holding other supply determinants fixed.
If a regulated firm charges average total cost and sells that quantity, what is its economic profit? Zero, provided the measured total cost includes all opportunity costs.
In a competitive market without taxes or externalities, what two components make up total surplus? Consumer surplus plus producer surplus.
What makes strategic interdependence central in an oligopoly? A small number of important firms each affect rivals' payoffs through their choices.
With a competitive labor market and diminishing marginal revenue product, what condition characterizes an interior profit-maximizing employment level? Marginal revenue product equals the wage, with other inputs held as specified.
What does 'small country' mean in a partial-equilibrium trade model? Its trade volume does not change the world price; it takes that price as given.
For a supplied unit, what is producer surplus? The price received minus the minimum amount needed to induce its supply, represented by marginal opportunity cost.
Why does successful price discrimination generally require limiting resale between customer groups? Otherwise low-price buyers can resell to high-price buyers and undermine the price difference.
In the standard competitive model, how does a rise in variable input prices affect supply, other things equal? It shifts supply left: less is offered at each product price.
What cost property characterizes a natural monopoly over the relevant market demand? One firm can supply the market at lower total cost than two or more firms splitting that output.
Does naming sellers as the legal remitters of a tax determine who bears its economic burden? No. The burden depends on price and quantity responses, not simply who sends the payment.
A competitive market has Qd = 84 - 3P and Qs = 12 + P. What are equilibrium price and quantity? P = 18 and Q = 30.
Revenue is 140, explicit costs are 95, and implicit costs are 25. What is economic profit? 20 currency units.
When is a good rival in consumption? One person's use reduces the amount or quality available for others.
Why can an insurance deductible reduce moral hazard? The insured person bears part of a loss and retains more incentive to avoid it.
A free workshop uses three hours you would otherwise spend earning 18 currency units per hour. What earnings are forgone? 54 currency units, assuming working those hours was the best available alternative.
A price-taking firm's next worker adds 5 output units, each selling for 9. What is that worker's marginal revenue product? 45 currency units per worker over the stated production period.
If the output market is competitive, what does labor's marginal revenue product become? Output price multiplied by marginal product of labor.
What properties describe an uncongested club good? It is excludable but nonrival over the stated usage range.
With income 48 and x priced at 6, what is the largest affordable quantity of x if nothing is spent on y? 8 units.
With an unchanged upward-sloping supply curve, what does a rightward demand shift do to equilibrium price and quantity? Both rise, assuming a unique interior equilibrium.
Why can unobservable quality drive some high-quality sellers out of a market? Buyers may offer a pooled price too low to attract them, further lowering expected quality.
Demand is Pb = 28 - Q and supply is Ps = 4 + Q. With a per-unit tax of 4, what are Q, Pb and Ps? Q = 10, Pb = 18 and Ps = 14.
Can an appropriately set minimum wage increase employment in the textbook monopsony model? Yes. A floor between the monopsony and competitive wage can raise employment; the competitive prediction does not automatically apply.
How does demand differ from quantity demanded? Demand relates prices to intended purchases; quantity demanded is the amount at one specified price.
What happens under diminishing marginal product of labor when capital and technology are fixed? Marginal product falls as labor increases. Output rises more slowly while marginal product remains positive, and can fall if marginal product becomes negative.
In a competitive industry with free entry, what does positive economic profit encourage? Entry and expansion, increasing industry supply, other things equal.
If an uncontrolled equilibrium price is 20, does a price ceiling of 24 constrain that equilibrium? No. The equilibrium price already lies below the ceiling.
Other things equal, how does access to close substitutes usually affect demand's price elasticity magnitude? It increases the magnitude because buyers can switch more readily.
What distinguishes monopolistic competition from perfect competition? Many firms sell differentiated products, giving each some price-setting power while entry remains relatively easy.
A price-taking firm has variable cost VC = Q², fixed cost 18, and price 12. For Q ≥ 0, what output maximizes short-run profit? Q = 6, where MC = 2Q = 12.
A's opportunity cost of a shelf is 3 stools; B's is 5 stools. Who has comparative advantage in shelves? A, because A gives up fewer stools per shelf.
In a competitive market with standard slopes, which side bears more of a small per-unit tax when the other side is more elastic? The less elastic side, because it adjusts quantity less readily.
What does ceteris paribus mean in a demand prediction? Hold the other relevant influences fixed while changing the specified variable.
What defines a monopoly in the textbook market-structure model? One seller serves the relevant market and faces no close substitute, with barriers protecting its position.
Why may a cartel member want to expand output beyond its agreed share when rivals keep to theirs? It can gain individually from extra sales at the high cartel price, undermining joint restraint.
Holding utility constant, what does a fall in x's relative price do to demand for x under standard convex preferences? The substitution effect weakly increases x consumption.
A small country collects a tariff of 5 on each of 20 imported units. What is tariff revenue? 100 currency units.
At a smooth interior optimum with positive prices and a binding budget, what marginal-utility condition holds for two goods? MUx/Px = MUy/Py, assuming the usual differentiable utility-maximization model.
What key conditions support the Coase result that bargaining can reach an efficient allocation of an externality? Clearly defined enforceable rights and costless bargaining; the initial rights can still affect who gains.
For Qd = 90 - 3P at P = 10, what is point price-elasticity magnitude? 0.5, since Q = 60 and magnitude = 3 × 10/60.
A gives up 3 stools per shelf and B gives up 5. Ignoring trade costs, what stool price per shelf gives both a strict gain at the margin? More than 3 and less than 5 stools per shelf.
What denominator does the midpoint method use for a percentage change in quantity? The average of the starting and ending quantities.
What do bundles on one indifference curve have in common? The consumer ranks them as equally preferred.
What shape represents perfectly elastic demand in the standard price-vertical diagram? A horizontal line at the specified price.
Marginal benefit is 26 - Q, marginal private cost is 2 + Q, and marginal external damage is 4. What is the efficient output Q ≥ 0? 10 units, where 26 - Q equals 6 + Q.
How does a common resource differ from a pure public good? A common resource is rival but difficult to exclude people from using.
With unavoidable fixed cost and no shutdown cost, what happens at price equal to minimum average variable cost? The firm is indifferent between shutting down and producing at the AVC-minimizing output.
A buyer is willing to pay 19 for a unit and pays 13. What is consumer surplus on that unit? 6 currency units.
Show the other 180 cards
At Q = 8, fixed cost is 24 and variable cost is 40. What is average total cost? 8 currency units per output unit.
If demand raises a competitive firm's output price, what happens to its labor demand with production technology fixed? It shifts outward because each marginal unit of output is worth more.
A seller changes price from 6 to 7, and sales fall from 100 to 80 units. What is the change in total revenue? A decrease of 40 currency units: 560 instead of 600.
A feasible extra production unit brings revenue of 23 and adds cost of 17. What happens to profit if it is produced? Profit rises by 6 currency units.
What information does an ordinal utility representation convey? The ranking of bundles, rather than a measurable size of satisfaction differences.
Two people value an extra shared public-good unit at 7 and 5. Its marginal cost is 10, with no other effects. Does that unit add positive total surplus? Yes. Combined marginal benefit is 12, exceeding cost by 2.
What does deadweight loss measure in a surplus analysis? The reduction in total surplus relative to the specified efficient benchmark, excluding mere transfers between participants.
What distinguishes the budget line from the entire budget set? The line contains bundles that spend exactly the available income.
What does a downward-sloping long-run average cost curve indicate? Economies of scale: average cost falls as output increases when all inputs can adjust.
A per-unit tax is 4 and 10 units trade legally. What is tax revenue? 40 currency units.
What is a monopsony in the basic labor-market model? A single employer buying the relevant type of labor and facing an upward-sloping labor supply curve.
When is a legal minimum price binding in the standard competitive model? When it is above the uncontrolled equilibrium price.
A tax of 4 raises the buyer's price from 16 to 18 and lowers the seller's net price from 16 to 14. What share of the per-unit burden do buyers bear? One-half: their price rises by 2 out of the 4-unit wedge.
Under what central conditions does the simple supply-demand equilibrium maximize total surplus? Price-taking behavior, demand reflecting marginal social benefit, supply reflecting marginal social cost, and no uncounted trading costs or distortions.
Under the standard U-shaped cost assumptions, which part of a competitive firm's MC curve is its positive-output short-run supply? The rising part at or above minimum AVC, subject to the shutdown choice.
Why can increasing long-run returns to scale coexist with diminishing short-run marginal product of labor? The long-run comparison changes all inputs; the short-run comparison holds at least one fixed.
If scarce ceiling-priced units go to lower-value buyers instead of higher-value buyers, what happens to total surplus relative to efficient rationing of the same quantity? It falls because the same units generate less buyer benefit.
An earlier fee is nonrefundable and unchanged by today's choice. Should it enter today's incremental cost comparison? No. It is sunk; compare future benefits and costs that differ between the options.
At an enforced ceiling, Qd is 50 and Qs is 30. Without government supply, illegal trades or forced sales, what is the maximum quantity traded? 30 units, limited by the short side of the market.
Why does a binding price ceiling require some rationing mechanism beyond the posted price? At that price, intended purchases exceed the units sellers provide.
In the standard short-run firm model, how does producer surplus differ from economic profit? Producer surplus is revenue minus variable cost; subtract fixed cost to obtain economic profit.
A monopolist faces demand P = 42 - 2Q and chooses Q = 9. What price clears demand for that output? 24 currency units per unit.
What establishes comparative advantage in producing a good? A lower opportunity cost of producing it.
Total cost rises from 70 to 82 as output increases from 10 to 12. What is average incremental cost per extra unit across this change? 6 currency units per unit.
If demand is perfectly inelastic and supply slopes upward, who bears a small per-unit tax that leaves trade feasible? Buyers bear the full per-unit burden in this model; quantity is unchanged.
A gains 1 stool from exchanging a shelf rather than making stools. If exchange uses resources worth 1.5 stools, is that trade a net gain for A? No. Its net gain is -0.5 stool-equivalents.
Tea and coffee are substitutes. If coffee becomes more expensive while other determinants stay fixed, what happens to demand for tea? It increases.
For a per-unit transaction subsidy s in a competitive market, how does the seller's receipt Ps compare with the buyer's payment Pb? Ps - Pb = s; government pays the difference.
Does studying one industry's prices belong primarily to microeconomics or macroeconomics? Microeconomics: it examines choices and interactions within particular markets.
Doubling every input raises output from 90 to 210 with technology unchanged. What kind of returns to scale does this change show? Increasing returns to scale over that range, because output more than doubles.
A can make one shelf or three stools. If A trades one shelf for four stools, how many stools does A gain over making stools directly? 1 stool, with the same resources and no trade costs.
Does a falling but positive marginal product mean total output is falling? No. Output is still increasing, but more slowly as that input expands.
Why is 'this allocation is fairer' a normative statement? It relies on a judgment about fairness, rather than only a testable claim about what occurs.
With a nonprohibitive per-unit tariff t and no transport cost, what domestic price prevails for an imported good in the small-country model? World price plus t.
For a linear PPF y = 60 - 3x, what is the opportunity cost of one extra x along the frontier? 3 units of y, for feasible nonnegative quantities.
Why is marginal revenue below price for a single-price monopolist on a downward-sloping demand curve? Selling more requires lowering the price on units that would otherwise have sold at the higher price.
When can a principal-agent problem arise? An agent acts for a principal but has different incentives and actions the principal cannot fully monitor.
Why does a monopolist generally lack a supply curve depending only on its output price? Its optimal output depends on the demand curve and marginal revenue, not on price and cost alone.
In the short run, what distinguishes fixed cost from variable cost? Fixed cost does not change with output; variable cost does.
How does temporary shutdown differ from exit in the standard firm model? Shutdown suspends current production while fixed commitments remain; exit removes the firm from the industry.
With identical products, identical constant marginal costs, no capacity limits and simultaneous price choices, what is the standard Bertrand equilibrium price? Marginal cost, despite having only two or a few firms.
What is an implicit cost of using the owner's building in a business? The value of its best alternative use, such as rent the owner gives up.
Why is demand often more price responsive over a longer adjustment period? Consumers have more time to change habits, equipment or substitute products.
With free trade and no transport costs, when does a small country import a good? When the world price is below the domestic no-trade equilibrium price.
What is a best response to a specified rival strategy? An action yielding the highest payoff given that rival strategy.
For a price-taking seller facing a fixed market price P, what is marginal revenue per unit? P, because another unit sells at the same price without changing receipts on earlier units.
Which two properties define a pure public good? Nonrivalry and nonexcludability over the relevant range.
In the standard two-good PPF model, what does a feasible point strictly inside the frontier indicate? Productive inefficiency: some output can increase without reducing the other output.
In the standard identical-firm long-run competitive equilibrium, why is each firm productively efficient? Each produces at the minimum of its long-run average cost curve.
What does a negative income elasticity of demand indicate over the measured range? The good is inferior: purchases fall as income rises, holding prices and other determinants fixed.
What kind of hidden behavior creates moral hazard after a contract is made? An action changes risk or cost borne by someone else and is difficult to observe or contract on.
What does marginal analysis compare when considering one additional unit of an activity? The extra benefit from that unit with its extra opportunity cost.
What is the opportunity cost of choosing one feasible option? The value of the best alternative forgone, rather than the sum of all rejected alternatives.
Can a monopolistically competitive firm have price above marginal cost while earning zero economic profit? Yes. Price can equal average total cost while remaining above marginal cost.
What does it mean for a perfectly competitive firm to be a price taker? It treats the market price as given when choosing its own output.
Holding income, preferences and related prices fixed, what does a change in a good's own price produce on its demand curve? A movement along the existing curve.
With increasing opportunity costs, must gains from trade require complete specialization by both countries? No. Relative costs can converge before either country specializes completely.
Why can an optimal bundle fail to satisfy an interior tangency condition? The optimum may be a corner with zero consumption of one good, or preferences may be nonsmooth.
If demand has unit elasticity at a point, what is the first-order effect of a very small price change on revenue there? Zero; a finite change need not leave revenue unchanged.
At a smooth interior optimum with both goods desirable and strictly convex preferences, what links MRS and prices? MRS equals Px/Py, so the indifference curve is tangent to the budget line.
What is labor's marginal revenue product in a differentiable firm model? Marginal product of labor multiplied by marginal revenue from output.
Does government funding alone make a service a public good in the economic sense? No. Classification depends on rivalry and excludability, not who pays for it.
For a natural monopoly with average cost above marginal cost at the regulated output, why can requiring P = MC create a funding problem? Revenue does not cover total cost, so the firm needs a subsidy or another source of fixed-cost recovery.
In the standard competitive model with a negative production externality, what per-unit tax decentralizes the efficient output? Marginal external damage evaluated at the efficient output, assuming that damage and market responses are known.
What does the magnitude of price elasticity of demand measure? The percentage response of quantity demanded to a percentage price change, with other demand determinants fixed.
With standard slopes, demand shifts right and supply shifts left. What can be concluded about the new equilibrium? Price rises; the quantity change depends on the relative shifts.
Does being the only seller guarantee positive economic profit? No. Demand may be too weak relative to costs, even at the best available output.
Can trade allow consumption beyond a country's own PPF without changing that production frontier? Yes. Its consumption possibilities can expand through exchange, while its production limits remain unchanged.
At positive output Q, how is average total cost calculated? Total cost divided by Q; equivalently, average fixed cost plus average variable cost.
Income rises by 5% and quantity demanded rises by 8%, with other determinants fixed. What is income elasticity using those percentages? 1.6.
With Qd = 80 - 2P and Qs = 2P, what shortage results at an enforced price ceiling P = 15? 20 units: buyers demand 50 while sellers offer 30.
Why can a firm optimally operate when price lies below average total cost but above average variable cost at its best output? Revenue covers variable cost and part of unavoidable fixed cost, reducing its loss relative to shutting down.
What defines the short run in production theory? At least one input quantity is fixed; the definition is technological, not a fixed number of months.
With consistent transitive preferences, can two distinct indifference curves represent different utility levels and cross? No. The common bundle would have to belong to two different preference levels.
If a good is normal, what does higher consumer income do to its demand, other things equal? It shifts demand right.
A small country faces a fixed world price of 15 and no transport costs. Domestic demand is Qd = 100 - 2P and supply is Qs = 2P. After a per-unit tariff of 5, how many units are imported? 20 units: domestic price is 20, demand is 60 and supply is 40.
What defines a Nash equilibrium? Each player's strategy is a best response to the others, so no player gains by changing alone.
Marginal external damage is constantly 4 per unit. With no other distortions, what Pigouvian tax per unit aligns private and social marginal costs? 4 currency units per unit.
With capital fixed, output rises from 42 to 53 when labor rises from 4 to 5 workers. What is the fifth worker's marginal product? 11 output units per additional worker.
A worker needs 2 hours per stool or 6 hours per shelf. With constant productivity, what is one shelf's opportunity cost? 3 stools.
Does diminishing marginal utility necessarily mean total utility falls as consumption increases? No. Total utility can keep rising while each extra unit adds less.
Demand is P = 30 - Q, and 12 units sell at P = 18 to the highest-value buyers. What is consumer surplus? 72 currency units: one-half × 12 × (30 - 18).
A supplied unit has marginal opportunity cost 8 and sells for 14. What is producer surplus on that unit? 6 currency units.
Under competitive permit trading with no transaction costs, what condition characterizes a cost-effective interior allocation of emissions abatement? Marginal abatement costs are equal across participating firms.
With identical constant opportunity costs and no other differences, does the basic comparative-advantage model predict gains from reallocating production? No. There is no production gain from specialization based on relative costs alone.
With x horizontal and y vertical, what is a two-good budget line's slope? -Px/Py, for positive prices.
Why can nonexcludability lead to free riding? People may enjoy a benefit without contributing, weakening incentives for voluntary payment.
Does producing on a PPF establish that the output mix is socially preferred? No. Productive efficiency does not by itself identify the preferred allocation.
For a purchased unit, what is consumer surplus? The buyer's willingness to pay minus the price paid.
Can a monopolist independently choose any price and any quantity sold? No. Market demand constrains which price-quantity combinations buyers will accept.
In the standard symmetric model with free entry and exit, what happens to economic profit in long-run monopolistic competition? Entry and exit drive it to zero.
With both prices fixed, what does higher income do to the budget line? It shifts the line outward in parallel.
What defines the long run in production theory? All input quantities can be adjusted.
With competitive markets, no externalities and no trade costs, do aggregate gains from importing imply every resident gains? No. Total domestic surplus rises in the model, but some producers or workers can lose.
If a good is inferior over the relevant income range, what does higher income do to its demand, other things equal? It shifts demand left.
In an asymmetric-information problem, who takes the initiative in screening? The less-informed side designs a test or set of offers to reveal information.
What condition defines an interior competitive market equilibrium without price controls or a tax wedge? Quantity demanded equals quantity supplied at a common price.
Printers and compatible cartridges are complements. If printer prices rise, what happens to cartridge demand, other things equal? It decreases.
For two goods with positive prices Px and Py and income I, what is the affordable set without borrowing? Nonnegative bundles satisfying Px × x + Py × y ≤ I.
For a price-taking firm choosing a smooth interior positive-output profit maximum, what marginal condition must hold? P = MC, with the appropriate maximum condition and a comparison against shutting down.
What does a two-good production possibilities frontier show? The maximum feasible combinations of the two outputs with given resources and technology.
With Qd = 80 - 2P and Qs = 2P, what excess supply results at an enforced price floor P = 25? 20 units: sellers offer 50 while buyers demand 30.
What kind of hidden information creates adverse selection? Pre-existing private characteristics affect who chooses to participate in a transaction.
In an asymmetric-information problem, who takes the initiative in signaling? The informed side uses an observable action to convey information about its type.
At a price of 7, buyer A demands 4 units and buyer B demands 6. If these are the only buyers, what is market quantity demanded? 10 units at that price.
What input change is considered when measuring returns to scale? All inputs increase in the same proportion, with technology unchanged.
Does zero economic profit mean that owners receive no return for their work and capital? No. Normal opportunity-cost returns are already included in economic cost.
With an unchanged downward-sloping demand curve, what does a rightward supply shift do to equilibrium? Quantity rises and price falls, assuming a unique interior equilibrium.
What does an upward-sloping long-run average cost curve indicate? Diseconomies of scale over that output range.
With a per-unit tax t on a competitive-market transaction, how are the buyer's price Pb and seller's net price Ps related? Pb - Ps = t.
Can a producer with absolute advantage in both goods still gain from trade in the standard two-good model? Yes, if opportunity costs differ and the terms of trade allow mutually beneficial exchange.
Why can a straight downward-sloping demand curve have different elasticities at different points? Elasticity uses percentage changes, so the price-to-quantity ratio changes along the line.
Why can unregulated open access to a rival resource lead to excessive use? Each user may ignore the depletion or congestion cost imposed on other users.
If Px = 6 and Py = 3, what is the slope of the budget line with y vertical? -2: one extra x requires giving up two y on the line.
For a pure public good consumed in the same quantity by everyone, how are individual marginal willingness-to-pay schedules aggregated? Add willingness to pay vertically at each common quantity.
Two firms have these payoffs: both hold price earns (6,6), both cut (3,3), and a lone cutter earns 8 while the holder earns 1. What is the Nash equilibrium? Both cut, although both would earn more if both held.
A firm produces 72 units with 6 workers. What is average product of labor? 12 output units per worker.
A firm sells 6 units at price 12. Its variable cost is 36 and fixed cost is 18. What is profit? 18 currency units.
Under the standard upward-sloping supply assumption, what does a higher product price do to quantity supplied, ceteris paribus? It increases quantity supplied through a movement along the curve.
Why can a PPF become steeper as production of the horizontal-axis good expands? Resources are not equally suited to both goods, so marginal opportunity cost can increase.
In a standard surplus calculation that values government revenue, is all tax revenue itself deadweight loss? No. Revenue is a transfer; lost net gains from trades not made create deadweight loss.
What makes information asymmetric in a transaction? One side knows relevant facts that the other side does not.
If fixed cost rises but variable cost at every output is unchanged, does marginal cost change? No. Only total cost and average fixed and total costs change.
Why can entry barriers allow positive economic profit to persist? Potential rivals cannot freely enter and compete away the return.
With a negative production externality, how is marginal social cost related to marginal private cost? MSC = MPC + marginal external damage.
With downward-sloping marginal benefit and upward-sloping costs, what does unpriced marginal external damage usually do to competitive output relative to the efficient level? It makes market output too high when the private equilibrium ignores that damage.
With the same input quantities, what establishes absolute advantage in making a good? Producing more of that good than the other producer.
For identical competitive firms with free entry, unchanged input prices and standard costs, what price prevails in long-run equilibrium? Minimum long-run average cost, with zero economic profit.
What is price discrimination in economic analysis? Charging different effective prices for comparable units based on buyers' willingness to pay rather than corresponding cost differences.
Holding utility constant, how does a higher wage affect the price of leisure in the labor-leisure model? Leisure becomes more costly in forgone earnings, creating a substitution effect toward more work.
What does a positive cross-price elasticity of demand for A with respect to B's price indicate? A and B are substitutes over the relevant range.
For a small price increase along an elastic demand curve, what happens to total revenue? It falls because the percentage quantity decrease exceeds the percentage price increase.
For demand Qd = 72 - 4P, restricted to nonnegative quantities, what is quantity demanded at P = 9? 36 units.
What relationship does a production function describe? The maximum output obtainable from specified input quantities with a given technology.
What is an explicit production cost? A payment to acquire an input, such as wages paid to hired workers.
When is demand classified as price inelastic using the absolute value convention? When the elasticity magnitude is below 1.
What is an externality? A cost or benefit of an activity falling on others that is not fully reflected in the decision-maker's incentives or transaction prices.
If only Px falls, how does the budget line change with x horizontal and y vertical? The x-intercept moves outward while the y-intercept stays fixed.
Demand is P = 42 - 2Q and MC = 6, with no externalities. A single-price monopoly sells 9 units rather than the efficient 18. What is deadweight loss? 81 currency units: one-half × (18 - 9) × (24 - 6).
Conditional on operating, with downward-sloping demand, nondecreasing marginal cost, perfect price discrimination and no externalities or extra trading costs, which units should a seller supply? Supply units whose willingness to pay is at least marginal cost. The decision to operate must also account for all avoidable startup costs.
If a government purchases all 20 surplus units at a supported price of 25, what is its purchase expenditure before storage or disposal costs? 500 currency units.
With unchanged resources and technology, is reallocating production along a PPF an outward shift of the frontier? No. It changes the output mix within the same production possibilities.
Does a larger total surplus prove that every participant is better off or that an outcome is fair? No. Aggregate gains can coexist with individual losses, and fairness requires additional value judgments.
When is demand classified as price elastic using the absolute value convention? When the elasticity magnitude exceeds 1.
In a Cournot model, what does each firm choose while treating rivals' choices as given? Its output quantity; market demand then determines the price.
What is marginal utility of a good? The additional utility from a small increase in its consumption, holding the other goods fixed.
Revenue is 140 and explicit costs are 95. Under the textbook's simplified accounting-profit definition, what is accounting profit? 45 currency units, before subtracting implicit opportunity costs.
What does a rightward demand shift mean at a given price? Buyers want and can afford to purchase more than before at that price.
A small-country tariff of 5 raises domestic production by 10 units and reduces consumption by 10. With linear curves and no externalities, what is deadweight loss? 50 currency units: one-half × 5 × (10 + 10).
What makes a resource scarce in economics? Its available amount cannot satisfy every competing use people want to make of it.
At the world price, domestic demand is 70 and domestic supply is 25. What are imports if there are no trade restrictions? 45 units.
Under perfect first-degree price discrimination, how much surplus does a seller extract from each buyer's purchased units? All consumer surplus, by charging each unit's willingness to pay.
If a production improvement lowers marginal cost at each output, what happens to competitive supply, other things equal? Supply shifts right.
In the standard flexible-price model, what price pressure results when quantity supplied exceeds quantity demanded? Downward pressure as sellers compete to clear unsold output.
B's price rises 10% and demand for A falls 3%, other things equal. What is the cross-price elasticity? -0.3, consistent with complementarity.
A consumer has U = x + y, income 24, Px = 4 and Py = 2. What utility-maximizing bundle is affordable? x = 0 and y = 12: y provides the same utility per unit at half the price.
When is a legal maximum price binding in the standard competitive model? When it is below the uncontrolled equilibrium price.
With an uncompensated positive consumption externality and otherwise competitive markets, how does market quantity compare with the surplus-maximizing quantity? It is too low because private willingness to pay omits external benefits.
What makes a strategy strictly dominant? It gives a higher payoff than every alternative for every possible rival strategy.
Price rises from 8 to 12 while quantity demanded falls from 120 to 80 on one demand curve. What is midpoint elasticity magnitude? 1: both midpoint percentage changes have magnitude 40%.
At a positive output where smooth costs apply, what happens to average total cost if marginal cost is below it? Average total cost is decreasing as output increases locally.
Why need a binding import quota not generate government revenue like a tariff? Quota rents go to whoever holds the import rights unless the government captures them, for example by auction.
With technology and input prices fixed, what does a change in the product's own price produce on its supply curve? A movement along the curve, changing quantity supplied.
If technology improves only for producing x, must both intercepts of a two-good PPF increase? No. Maximum x can increase while maximum y remains unchanged.
A single-price monopolist faces P = 42 - 2Q and constant MC = 6, with no fixed cost. What output maximizes profit for 0 ≤ Q ≤ 21? Q = 9, where MR = 42 - 4Q equals 6.
In a competitive industry with free exit, what do persistent expected economic losses encourage? Firms to leave, reducing industry supply, other things equal.
How can an individual's desired work hours fall as the wage rises? If leisure is normal, the income effect toward more leisure can outweigh the substitution effect toward work.
What does a point beyond the current PPF indicate? A combination that cannot currently be produced with the stated resources and technology.
On an efficient PPF move, output changes from 12 tools and 40 meals to 16 tools and 28 meals. What is the average opportunity cost per extra tool? 3 meals per tool: 12 meals forgone for 4 extra tools.
For a small price increase along an inelastic demand curve, what happens to total revenue? It rises because the percentage quantity decrease is smaller than the percentage price increase.
A firm earns 8 from cutting price or 6 from holding when its rival holds; it earns 3 from cutting or 1 from holding when the rival cuts. Which action is strictly dominant? Cutting price: 8 exceeds 6 and 3 exceeds 1.
If a competitive-market model predicts an effect, is that alone proof the effect occurs in a real market? No. The prediction is conditional on the model; its assumptions and empirical relevance must be assessed.
Under the standard downward-sloping demand assumption, what does a higher own price do to quantity demanded, ceteris paribus? It reduces quantity demanded through a movement along the curve.
Using a positive-magnitude convention, what does MRS of x for y measure? How much y the consumer is locally willing to give up for one more x while keeping utility unchanged.
People who privately know they face high loss risk are more likely to buy insurance at one pooled price. Is this adverse selection or moral hazard? Adverse selection: participation varies with a pre-existing hidden risk type.
In a constant-cost competitive industry with free entry, what happens to price after a permanent demand increase and full long-run adjustment? It returns to its original long-run level while industry output expands.
A consumer has U = min(x, y), income 30, Px = 4 and Py = 2. What is the optimal bundle? x = 5 and y = 5, spending the budget on equal quantities.
When a small country opens to a lower world price, what happens to domestic consumer and producer surplus in the competitive model? Consumer surplus rises and producer surplus falls.
In a simultaneous one-shot game, what is a player's pure strategy? A particular action the player can choose.
Why is demand for labor called derived demand? Employers value labor because it helps produce output that customers demand.
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Original Repeto study-card text. Educational diagrams and museum images retain the source, creator and license attribution recorded on each card and in the documented source manifest.