Econ Exam 2
Card Set Information
Econ Exam 2
michael carter jsu economics econ exam
Market clearing, or systematic plan coordination, is a(n) ________ ________ of people pursuing their own projects in a free market economy.
What is governmental imperfection?
its inability to effectively monitor and enforce private and public property.
How does the price spike reflect the market process at work?
The increase in demand and decrease in supply lead to a higher price.
A(n) _____ price ceiling can cause a _____.
During a price ceiling, what changes?
Price changes. Cost to consumer stays the same.
Rent controls unintentionally create _____.
The higher the rent control, the lower the ______________.
cost of discriminating
How did prohibition affect the supply and demand curve of alcohol?
The supply curve was made more inelastic. The demand curve didn't change.
Both price floors and price ceilings represent a(n) ____________________________.
attempt to transfer wealth from one group in the market to another.
When price floors are in effect...
planned consumption decreases while planned output increases.
Minimum wage is an example of a ____ _____.
What happens when the wage rate rises?
The number of unskilled persons willing to supply their labor services increases.
What is a price ceiling?
a legal maximum on the price at which a good can be sold
What is a price floor?
a legal minimum on the price at which a good can be sold
What are the two possible outcomes of a price ceiling?
If it is higher than or equal to the equilibrium price, it is not binding.
If it is lower than the equilibrium price, the ceiling is a binding constraint and a shortage is created
What are the two possible outcomes of a price floor?
If it is lower than or equal to the equilibrium price, it is not binding (It will not impact the market price or quantity).
If it is higher than the equilibrium price, the floor is a binding constraint and a surplus is created
What are welfare economics?
the study of how the allocation of resources affects economic well-being
Define deadweight loss
the fall in total surplus that results from a market distortion, such as a tax
People who say that prices should be based on costs rather than on supply and demand don=t realize that
Costs are prices set by supply and demand
What are fixed costs?
costs that do not change when the firm alters the quantity of output produced
What are variable costs?
costs that do change when the firm alters the quantity of output produced
What is average total cost?
total cost divided by the quantity of output
What is marginal cost?
the amount by which total cost would rise if output were increased by one unit
Definition of Total Revenue
the amount a firm receives for the sale of its output
Definition of Total Cost
the market value of the inputs a firm uses in production
Definition of Profit
total revenue minus total cost
Rental rate represents...
a price for rental property
Wage rate represents...
a price for labor services
Interest rate represents...
a price for credit
________ is a necessary condition for profit.
What are the three things entrepreneurs engage in?
arbitrage, innovation, imitation
What is arbitrage?
when you seek out profit opportunities by attempting to buy low and sell high
What is speculation?
when you seek out profit opportunities by attempting to buy low and sell high over time.
What is price searching?
Trying to find the price that maximizes profit
Where is profit maximized?
Where marginal cost = marginal revenue
What is capital?
produced goods that are used to produce future goods
Payments made to obtain current purchasing power are _____.
How do you find accounting profit?
total revenue - total explicit cost
What are explicit costs of production?
expenses that are incurred to produce a good or service
What are implicit costs of production?
the value of all the scarce resources used in the production process
How do you find economic profit?
total revenue - (total explicit costs + implicit costs)
What influences entrepreneurial decisions?
the expected amount of the residual
True or false?
An entrepreneur's profit can never be negative if all contracts and agreements have been met.
What is the unintended result of arbitrage?
a converging of market prices across regions
What does open entry and exit do?
It allows people who believe they have a comparative advantage in entrepreneurial activity to enter markets and trade as they see fit
What is open entry and exit?
It allows any claim to be tested