Microeconomics: Markets, Choices, and Policy Free Online FlashCards

What does scarcity mean?

Scarcity means human wants exceed available resources, so individuals and societies must make choices and accept tradeoffs.

Own-price movement or curve shift?

A change in the good’s own price causes movement along its curve. A change in a nonprice determinant shifts the entire curve.

Price rises $10→$12; QD falls 500→400. Classify demand.

Using the midpoint method, elasticity is approximately −1.22, so demand is elastic because its absolute value exceeds 1.

What does a budget-line slope measure?

The budget-line slope is −PX/PY. Its absolute value is the opportunity cost of one additional unit of the horizontal-axis good.

How does MC affect ATC?

When MC is below ATC, ATC falls; when MC is above ATC, ATC rises. MC intersects ATC at ATC’s minimum.

How does a firm choose profit-maximizing output?

A profit-maximizing firm produces where MR = MC on the rising portion of MC. A perfectly competitive firm uses P = MR = MC.

Calculate labor MRP: MP = 12, price = $15

If MP is 12 units and the product price is $15, MRP is $180. A firm should hire the worker when the wage is below $180.

Find MSC when MPC = $30 and MEC = $10

Marginal social cost is $40: MSC = MPC + MEC = $30 + $10. Ignoring the external cost causes overproduction.

Opportunity cost of a free review session?

The opportunity cost is $72 in forgone wages, plus any other relevant cost of the next-best alternative.

What is the marginal decision rule?

An additional unit should generally be chosen when MB ≥ MC; the efficient quantity is usually where MB = MC.

What do points inside and outside a PPF represent?

A point inside the PPF is attainable but productively inefficient; a point outside it is unattainable with current resources and technology.

Find equilibrium: QD = 120 − 4P, QS = 20 + 6P

Set quantity demanded equal to quantity supplied: 120 − 4P = 20 + 6P, giving P = $10 and Q = 80 units.