Solutions for Modern Principles Microeconomics exam questions and answers fully solved

Solutions for Modern Principles Microeconomics exam questions and answers fully solved Incentives - answersRewards and penalties that motivate behavior (Ch. 1) Opportunity Cost - answersOf a choice, the value of the opportunities lost (Ch. 1) Inflation - answersIncrease in the general level of prices (Ch. 1) Absolute Advantage - answersAbility to produce the same good using fewer inputs than another producer (Ch. 2) Production Possibilities Frontier - answersShows all the combinations of goods that a country can produce given its productivity and supply of inputs (Ch. 2) Comparative Advantage - answersIn producing goods for which (a country) has the lowest opportunity cost (Ch. 2) Demand Curve - answersFunction that shows the quantity demanded at different prices (Ch. 3) Quantity Demanded - answersQuantity that buyers are willing and able to buy at a particular price (Ch. 3) Consumer Surplus - answersThe consumer's gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price (Ch. 3) Total Consumer Surplus - answersMeasured by the area beneath the demand curve and above the price (Ch. 3) Normal Good - answersGood for which demand increases when income increases (Ch. 3) Inferior Good - answersGood for which demand decreases when income increases (Ch. 3) Substitutes - answersA decrease in the price of one good leads to a decrease in demand for the other good (Ch. 3) Complements - answersA decrease in the price of one good leads to an increase in the demand for the other good (Ch. 3) Supply Curve - answersFunction that shows the quantity supplied at different prices (Ch. 3) Quantity Supplied - answersAmount of a good that sellers are willing and able to sell at a particular price (Ch. 3) Producer Surplus - answersProducer's gain from exchange, or the difference between the market price and the minimum price a which a producer would be willing to sell a particular quantity (Ch. 3) Total Producer Surplus - answersMeasured by the area above the supply curve and below the price (Ch. 3) Surplus - answersSituation in which the quantity supplied is greater than the quantity demanded (Ch. 4) Shortage - answersSituation in which the quantity demanded is greater than the quantity supplied (Ch. 4) Equilibrium Price - answersPrice at which the quantity demanded is equal to the quantity supplied (Ch. 4) Equilibrium Quantity - answersQuantity at which the quantity demanded is equal to the quantity supplied (Ch. 4) Elasticity of Demand - answersMeasures how responsive the quantity demanded is to a change in price; more responsive equals more elastic (Ch. 5) Elasticity of Supply - answersMeasures how responsive the quantity supplied is to a change in price (Ch. 5) Great Economic Problem - answersTo arrange our limited resources to satisfy as many of our wants as possible (Ch. 7) Speculation - answersAttempt to profit from future price changes (Ch. 7) Futures - answersStandardized contracts to buy or sell specified quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future (Ch. 7) Prediction Market - answersSpeculative market designed so that prices can be interpreted as probabilities and used to make predictions (Ch. 7) Price Ceiling - answersMaximum price allowed by the law (Ch. 8) Deadweight Loss - answersTotal of lost consumer and producer surplus when not all mutually profitable gains from trade are exploited. Price ceilings create a deadweight loss. (Ch. 8) Rent Control - answersPrice ceiling on rental housing (Ch. 8) Price Floor - answersA minimum price allowed by law (Ch. 8) Protectionism - answersEconomic policy of restraining trade through quotas, tariffs, or other regulations that burden foreign producers but not domestic producers (Ch. 9) Tariff - answersA tax on imports (Ch. 9) Trade Quota - answersRestriction on the quantity of goods that can be imported: Imports greater than the quota amount are forbidden or heavily taxed (Ch. 9) Private Cost - answersCost paid by the consumer or the producer (Ch. 10) External Cost - answersCost paid by people other than the consumer or the producer trading in the market (Ch. 10) Social Cost - answersThe cost to everyone: the private cost plus the external cost (Ch. 10) Externalities - answersExternal costs or external benefits that fall on bystanders (Ch. 10) Social Surplus - answersConsumer surplus plus producer surplus plus everyone else's surplus (Ch. 10) Efficient Equilibrium - answersPrice and quantity that maximizes social surplus (Ch. 10) Efficient Quantity - answersThe quantity that maximizes social surplus (Ch. 10) Pigouvian Tax - answersTax on a good with external costs (Ch. 10) External Benefit - answersBenefit received by people other than the consumers or producers trading in the market (Ch. 10) Pigouvian Subsidy - answersSubsidy on a good with external benefits (Ch. 10) Transaction Costs - answersAll the costs necessary to reach an agreement (Ch. 10) Long Run - answersTime after all exit or entry has occurred (Ch. 11) Short Run - answersPeriod before exit or entry can occur (Ch. 11) Total Revenue (TR) - answersPrice times the quantity sold. TR = P x Q (Ch. 11) Total Cost - answersCost of producing a given quantity of output (Ch. 11) Explicit Cost - answersCost that requires a money outlay (Ch. 11) Implicit Cost - answersCost that does not require an outlay of money (Ch. 11) Economic Profit - answersTotal revenue minus total costs including implicit costs (Ch. 11) Accounting Profit - answersTotal revenue minus explicit costs (Ch. 11) Fixed Costs - answersCosts that do not vary with output (Ch. 11) Variable Costs - answersCosts that do vary with output (Ch. 11) Marginal Revenue (MR) - answersChange in total revenue from selling an additional unit - MR is equal to delta TR over delta qty. For a firm in a competitive industry, MR=Price (Ch. 11) (Ch. 13) Marginal Cost (MC) - answersThe change in total cost from producing an additional unit (Ch. 11) To maximize profit, a firm increases output until MR = MC (Ch. 13) Average Cost - answersOf production, is the cost per barrel, that is, the cost of producing Q barrels divided by Q - AC equals TC over Q (Ch. 11) Zero Profits - answersOr normal profits, occur when P=AC. At this price the firm is covering all of its costs, inducing enough to pay labor and capital their ordinary opportunity costs (Ch. 11) Sunk Cost - answersCost that once incurred can never be recovered (Ch. 11) Increasing Cost Industry - answersAn industry in which industry costs increase with greater output; shown with an upward sloped supply curve (Ch. 11) Constant Cost Industry - answersAn industry in which industry costs do not change with greater output; shown with a flat supply curve (Ch. 11) Decreasing Cost Industry - answersAn industry in which industry costs decrease with an increase in output; shown with a downward sloped supply curve (Ch. 11) Elimination Principle - answersAbove-normal profits are eliminated by entry and below-normal profits are eliminated by exit (Ch. 12) Market Power - answersThe power to raise price above marginal cost without fear that other firms will enter the market (Ch. 13) Monopoly - answersA firm with market power (Ch. 13) Economies of Scale - answersAdvantages of large-scale production that reduce average cost as quantity increases (Ch. 13) Natural Monopoly - answersSaid to exist when a single firm can supply the entire market at a lower cost than two or more firms (Ch. 13) Barriers to Entry - answersFactors that increase the cost to new firms of entering an industry (Ch. 13) Price Discrimination - answersSelling the same product at different prices to different customers (Ch. 14) Arbitrage - answersTaking advantage of price differences for the same good in different markets by buying low in one market and selling high in another market (Ch. 14) Perfect Price Discrimination (PPD) - answersEach customer is charged his or her maximum willingness to pay (Ch. 14) Tying - answersOccurs when to use one good, the consumer must use a second good that is sold (only) by the same firm. A firm can price discriminate by tying two goods and carefully setting their prices (Ch. 14) Bundling - answersRequiring that products be bought together in a bundle or package (Ch. 14) Cartel - answersGroup of suppliers that tries to act AS IF they were a monopoly (Ch. 15) Oligopoly - answersMarket that is dominated by a small number of firms (Ch. 15) Monopolistic Competition - answersA market with a large number of firms selling similar but not identical products (Ch. 15) Strategic Decision Making - answersDecision making in situations that are interactive (Ch. 15) Dominant Strategy - answersStrategy that has a higher payoff than any other strategy no matter what the other player does (Ch. 15) Prisoner's Dilemma - answersDescribes situations where the pursuit of individual interest leads to a group outcome that is in the interest of no one (Ch. 15) Antitrust Laws - answersGive the government the power to regulate or prohibit business practices that may be anticompetitive (Ch. 15) Network Good - answersA good whose value to one consumer increases the more that other consumers use the good (Ch. 16) Nash Equilibrium - answersSituation in which no player has an incentive to change his or her strategy unilaterally (Ch. 16) Coordination Game - answersOne in which the players are better off if they choose the same strategies than if they choose different strategies and there is more than one strategy on which to potentially coordinate (Ch. 16) Contestable - answersA market is if a competitor could credibly enter and take away business from the incumbent (Ch. 16) Switching Costs - answersThe costs of switching purchase from one firm to another. Firms sometimes try to raise switching costs to reduce competition for their customers (Ch. 16) Marginal Product of Labor (MPL) - answersIncrease in a firm's revenues created by hiring an additional laborer (Ch. 17) Human Capital - answersTools of the mind, the stuff in people's heads that makes them productive (Ch. 17) Compensating Differential - answersDifference in wages that offsets differences in working conditions (Ch. 17) Statistical Discrimination - answersUsing information about group averages to make conclusions about individuals (Ch. 17) Nonexcludable - answersA good, if people who don't pay cannot be easily be prevented from using the good (Ch. 18) Nonrival - answersA good, if one person's use of the good does not reduce the ability of another person to use the same good (Ch. 18) Private Goods - answersExcludable and rival (Ch. 18) Public Goods - answersNonexcludable and nonrival (Ch. 18) Free Rider - answersEnjoys the benefits of a public good without paying a share of the costs (Ch. 18) Forced Rider - answersSomeone who pays a share of the costs of a public good but who does not enjoy the benefits (Ch. 18) Nonrival Private Goods - answersExcludable but nonrival (Ch. 18) Common Resources - answersNonexcludable but rival (Ch. 18) Public Choice - answersStudy of political behavior using the tools of economics (Ch. 19) Rational Ignorance - answersOccurs when the benefits of being informed are less than the costs of becoming informed (Ch. 19) Median Voter Theorem - answersWhen voters vote for the policy that is closest to their ideal point on a line, then the ideal point of the median voter will beat any other policy in a majority rule election (Ch. 19) Positive Economics - answersDescribing, explaining, or predicting economic events (Ch. 20) Normative Economics - answersRecommendations or arguments about what economic policy should be (Ch. 20) Piece Rate - answersAny payment system that pays workers directly for their output (Ch. 21) Corporate Culture - answersShared collection of values and norms that govern how people interact in an organization or firm (Ch. 21) Budget Constraint - answersShows all the consumption bundles that a consumer can afford given their income and prices (Ch. 23)