#1
What does the law of demand state?
As the price of a good increases, the quantity demanded decreases.
ExplanationPrice up, demand down.
#2
What is the primary goal of a firm in a perfectly competitive market?
Maximize profit
ExplanationProfit maximization.
#3
What is the concept of consumer surplus?
It is the difference between the highest price a consumer is willing to pay and the price they actually pay.
ExplanationDifference: willing to pay vs. actual pay.
#4
What is a negative externality?
It occurs when the consumption or production of a good causes harm to third parties not involved in the transaction.
ExplanationHarm to third parties from consumption/production.
#5
What does elasticity of demand measure?
The change in quantity demanded in response to a change in price
ExplanationResponsiveness of demand to price.
#6
In a monopoly market, what determines the price and quantity of a good?
Firm's profit maximization strategy
ExplanationPrice and quantity by profit maximization.
#7
What is the difference between a normal good and an inferior good?
Normal goods have a positive income elasticity of demand, while inferior goods have a negative income elasticity of demand.
ExplanationNormal: demand up with income; Inferior: demand down with income.
#8
What is the role of government in a market economy according to the theory of public goods?
To provide public goods and regulate externalities
ExplanationProvide public goods, regulate externalities.
#9
What is the significance of the price elasticity of supply for producers?
It measures the responsiveness of quantity supplied to a change in price.
ExplanationResponsiveness of supply to price change.
#10
What is the Coase theorem?
It states that in the absence of transaction costs, an efficient outcome will be reached through bargaining regardless of the initial allocation of property rights.
ExplanationEfficient outcome through bargaining.