D089 Principles of Economics - Set 5 - Part 1

Correct Answer: The cost of producing one more unit of a good

Marginal cost refers to the additional cost incurred when producing one more unit of a good or service. It helps businesses in deciding how much to produce.

Correct Answer: How much the quantity demanded responds to changes in price

Price elasticity of demand measures the responsiveness of consumers to changes in price. A higher elasticity means demand is more sensitive to price changes.

Correct Answer: To prevent monopolies and promote competition

Antitrust laws are designed to prevent monopolies, promote competition, and protect consumers by ensuring no single company can dominate a market unfairly.

Correct Answer: It sets the maximum price that can be charged for a good or service

A price ceiling is a government-imposed limit on how high a price can be charged for a good or service, often leading to shortages if the ceiling is below equilibrium price.

Correct Answer: It leads to excess supply or a surplus

When a price floor is set above the equilibrium price, suppliers are willing to produce more than consumers are willing to buy, leading to a surplus.

Correct Answer: A market dominated by a single seller

A monopoly exists when a single company or entity dominates a market, controlling the supply of a good or service and setting prices without competition.

Correct Answer: A market dominated by a few large producers

An oligopoly is a market structure where a small number of firms dominate the industry. These firms may collude to set prices or output levels.

Correct Answer: To generate revenue for the government

Taxes are imposed by governments to raise revenue for public services, infrastructure, and other governmental functions.

Correct Answer: An increase in the general price level of goods and services over time

Inflation refers to the sustained increase in the overall price level of goods and services in an economy over a period of time, reducing the purchasing power of money.

Correct Answer: To manage monetary policy and control inflation

The Federal Reserve, as the central bank of the U.S., manages the money supply and interest rates to maintain price stability and control inflation.

Correct Answer: A good that is non-excludable and non-rivalrous

Public goods, like street lighting or national defense, are non-excludable and non-rivalrous, meaning they are available to everyone without diminishing in supply.

Correct Answer: To encourage the production or consumption of a particular good

Subsidies are financial aid provided by the government to encourage the production or consumption of certain goods, reducing the cost to consumers.

Correct Answer: The benefit lost when choosing one alternative over another

Opportunity cost represents the value of the next best alternative that is forgone when making a choice.

Correct Answer: A market where firms have no control over prices and all products are identical

In perfect competition, many firms sell identical products, and no single firm can influence the price, which is determined by supply and demand.

Correct Answer: Costs that do not change regardless of the level of output

Fixed costs remain constant, regardless of how much is produced. Examples include rent, insurance, and salaries of permanent staff.

Correct Answer: The concept that as more units of a variable input are added to fixed inputs, the additional output will eventually decrease

The law of diminishing returns states that after a certain point, each additional unit of input results in a smaller increase in output.

Correct Answer: A tax on imported goods

A tariff is a tax imposed on goods imported into a country, often to protect domestic industries from foreign competition or raise government revenue.

Correct Answer: A record of all monetary transactions between a country and the rest of the world

The balance of payments summarizes all economic transactions, including trade, services, and capital flows, between residents of a country and the rest of the world.

Correct Answer: A situation where free markets lead to inefficient outcomes

Market failure occurs when the free market does not allocate resources efficiently, leading to outcomes like pollution or inequality.

Correct Answer: The benefits or costs imposed on third parties not involved in a transaction

Externalities occur when a transaction affects someone other than the buyer or seller. Positive externalities provide benefits, while negative externalities impose costs.