Microeconomics Quiz & Flashcards

A perfectly competitive market consists of many firms selling identical products with no control over prices.

Consumer surplus increases as the price decreases because consumers pay less for the same quantity.

Diminishing marginal utility means each additional slice of pizza gives less satisfaction than the previous one.

An increase in the price of one complementary good generally decreases the demand for the other.

In perfect competition, firms are price takers because they cannot influence market prices.

A binding price floor is set above the equilibrium price, causing a surplus of the good.

National defense is a public good because it is non-excludable and non-rivalrous.

Monopolistic competition is characterized by many firms providing differentiated products.

Adverse selection occurs when one party has more information, such as insurance companies facing hidden risks.

A subsidy reduces production costs, encouraging firms to supply more at each price level.

A negative cross-price elasticity indicates that the goods are complements, as the price increase in one decreases demand for the other.

A natural monopoly arises where high fixed costs make it inefficient for multiple firms to operate in the market.

Firms in oligopolistic markets are interdependent, meaning the actions of one firm affect the others.

Price discrimination involves charging different prices to different consumers based on willingness to pay.

A price ceiling set below equilibrium creates a shortage as quantity demanded exceeds quantity supplied.

Firms in monopolistic competition aim to maximize profits through product differentiation and attracting consumers.

In a monopoly, the firm is the sole provider of a product with no close substitutes.

With perfectly elastic demand, any price decrease causes an infinite increase in quantity demanded.

Diseconomies of scale arise from inefficiencies that come with managing a larger scale of operations.

A change in consumer preferences can shift the demand curve, as it affects the willingness to purchase at various prices.

Market equilibrium occurs when quantity demanded equals quantity supplied, resulting in stable prices.

Instant noodles are often considered an inferior good because demand falls as consumer income rises.

A firm is an entity that organizes resources to produce goods or services for sale.

A subsidy effectively lowers production costs, shifting the supply curve to the right, indicating an increase in supply.

Allocative efficiency implies that resources are distributed in a way that maximizes societal welfare.

An increase in production costs makes it more expensive to supply the same quantity, shifting the supply curve leftward.

A perfectly inelastic supply curve is a vertical line, indicating that quantity supplied does not change with price.

Asymmetric information leads to market inefficiencies as one party has more or better information than the other.

Moral hazard occurs when a party takes more risks because they do not have to bear the full consequences.

A normal good is one where demand increases as consumer income increases.

The substitution effect refers to changes in consumption patterns due to a change in the price of a good relative to others.

Monopolistic competition is characterized by product differentiation, where firms sell products that are not perfect substitutes.

Diseconomies of scale result in increased average costs due to inefficiencies as the scale of production increases.

Marginal cost is the additional cost incurred by producing one more unit of a good or service.

Monopolies have high barriers to entry, preventing other firms from entering the market easily.

A decrease in consumer income typically leads to a decrease in demand for normal goods.

The free rider problem occurs when people enjoy the benefits of a public good without contributing to its cost.

Perfect competition assumes no barriers to entry, allowing firms to enter and exit the market freely.

An increase in consumer income typically causes a rightward shift in the demand curve for normal goods.

A horizontal demand curve indicates perfectly elastic demand, where consumers are extremely sensitive to price changes.

Fixed costs are costs that remain constant regardless of the level of output produced.

A perfectly inelastic demand curve is a vertical line, indicating that quantity demanded does not change with price.

In monopolistic competition, firms differentiate their products to attract consumers.

A price ceiling set below equilibrium results in shortages because the quantity demanded exceeds the quantity supplied.

A monopolistic market is characterized by a single seller with significant control over the market.

An increase in consumer preferences typically leads to an increase in demand for the product.

Productive efficiency means goods are produced at the lowest possible cost, minimizing waste.

Technological advancements typically increase production efficiency, shifting the supply curve to the right.

The income effect describes changes in quantity demanded resulting from changes in consumer purchasing power.

A price decrease in a substitute good typically decreases the demand for the original good as consumers switch to the cheaper option.