Microeconomic Principles Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Microeconomic Principles flashcards as text
When a firm's marginal revenue equals zero, which of the following is true about demand elasticity?
Answer: Demand is unit elastic
When MR = 0, total revenue is maximized, which occurs at the unit-elastic point on a linear demand curve.
A perfectly competitive firm's short-run supply curve is best described as the portion of its:
Answer: MC curve above the AVC curve
A competitive firm shuts down if price falls below AVC, so its supply curve is the MC curve at and above the minimum AVC.
Which market structure is characterized by many sellers, differentiated products, and free entry and exit?
Answer: Monopolistic competition
Monopolistic competition features many firms selling differentiated but substitutable products with no significant barriers to entry.
The concept of 'derived demand' refers to demand for a good that arises from:
Answer: The demand for a final product that uses it as an input
Derived demand is the demand for a factor of production that stems from the demand for the final good it helps produce.
If two goods have a positive cross-price elasticity of demand, they are best classified as:
Answer: Substitutes
A positive cross-price elasticity means when the price of one good rises, demand for the other increases — the hallmark of substitutes.
A monopsonist in a labor market pays wages that are:
Answer: Below the competitive equilibrium wage
A monopsonist restricts employment below the competitive level, resulting in a wage below what would prevail in a competitive labor market.
Which of the following best describes the 'income effect' of a price decrease for a normal good?
Answer: Consumers buy more because their real purchasing power rises
When the price of a normal good falls, real income rises, inducing consumers to buy more of it via the income effect.