MTTC Economics Flashcards

When the government imposes a price ceiling below the equilibrium price, what is the most likely result?

Answer: A shortage of goods

A price ceiling set below equilibrium keeps prices artificially low, causing quantity demanded to exceed quantity supplied, resulting in a shortage.

Which economic indicator measures the average change over time in prices paid by urban consumers for a basket of goods and services?

Answer: Consumer Price Index

The Consumer Price Index (CPI) tracks price changes for a representative basket of goods and services purchased by urban households.

A firm is a natural monopoly when:

Answer: Its average total cost continuously declines as output increases over the relevant range of demand

A natural monopoly exists when economies of scale are so significant that one firm can supply the entire market at a lower average cost than multiple competing firms.

Which of the following best describes the concept of comparative advantage?

Answer: A country should produce goods in which it has the lowest opportunity cost

Comparative advantage means specializing in producing goods where your opportunity cost is lowest relative to trading partners, enabling mutually beneficial trade.

In a recession, which automatic stabilizer would most immediately increase government spending?

Answer: Increased unemployment insurance payments

Unemployment insurance payments automatically rise during recessions as more workers qualify, increasing government spending without new legislation.

The multiplier effect in macroeconomics means that:

Answer: An initial change in spending leads to a larger total change in GDP

The multiplier effect occurs because an initial injection of spending cycles through the economy as recipients re-spend their income, amplifying the total GDP impact.

Which market structure is characterized by many sellers offering differentiated products and relatively easy entry and exit?

Answer: Monopolistic competition

Monopolistic competition features many firms selling similar but differentiated products, with low barriers to entry and some pricing power due to product differentiation.