Microeconomics Mastery

What is the law of demand?

• The law of demand states that price and quantity demanded are inversely related.

• The law of demand suggests that quantity demanded remains constant regardless of price changes.

• The law of demand indicates that higher prices lead to higher quantity demanded.

• The law of demand states that price and quantity demanded are directly related.

Explain the concept of equilibrium price.

• The equilibrium price is the price at which all goods are sold out.

• The equilibrium price is determined solely by government regulations.

• The equilibrium price is the price where quantity demanded equals quantity supplied.

• The equilibrium price is the highest price consumers are willing to pay.

What are the characteristics of perfect competition?

• Few buyers and sellers

• Products are highly differentiated

• Characteristics of perfect competition include many buyers and sellers, identical products, free market entry and exit, perfect information, and price-taking behavior.

• Restricted market entry and exit

Define price elasticity of demand.

• Price elasticity of demand refers to the quantity supplied at a given price.

• Price elasticity of demand measures consumer income levels.

• Price elasticity of demand is the total revenue generated from sales.

• Price elasticity of demand is the responsiveness of quantity demanded to a change in price.

How does consumer income affect demand?

• Higher consumer income decreases demand for all goods.

• Higher consumer income generally increases demand for normal goods and decreases demand for inferior goods.

• Consumer income has no effect on demand for luxury items.

• Increased income leads to a decrease in demand for normal goods.

What are fixed and variable costs in production?

• Fixed costs remain constant regardless of production levels, while variable costs change with production volume.

• Fixed costs are only incurred when production is at maximum capacity.

• Variable costs are always higher than fixed costs in production.

• Fixed costs vary with production levels, while variable costs remain constant.

What is a monopoly and how does it affect market prices?

• A monopoly is defined by government regulation of prices and services.

• A monopoly leads to lower prices and increased consumer choice.

• A monopoly is a market structure with multiple sellers competing for prices.

• A monopoly is a market structure with a single seller that controls prices, often leading to higher prices and reduced consumer choice.

Describe the impact of externalities on market efficiency.

• Externalities improve market efficiency by ensuring optimal resource allocation.

• Externalities have no effect on market efficiency or production levels.

• Externalities only affect consumer preferences, not market outcomes.

• Externalities lead to market inefficiency by causing misallocation of resources, resulting in either overproduction or underproduction.

What is the difference between short-run and long-run production costs?

• Short-run costs are only relevant for small businesses.

• Long-run costs include fixed inputs; short-run costs do not.

• Short-run costs are always higher than long-run costs.

• Short-run costs have fixed inputs; long-run costs have all variable inputs.

How do public goods lead to market failures?

• Public goods lead to market efficiency and competition.

• Public goods lead to market failures due to their non-excludable and non-rivalrous nature, causing underproduction.

• Public goods are only available to those who pay for them.

• Public goods are always provided in excess by the market.