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88 Cards in this Set
- Front
- Back
If the supply of a product decreases, then we would expect equilibrium price to ? and equilibrium quantity to ?
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Increase and quantity to decrease
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An increase in the price of a good will ?
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increase quantity supplied
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Which markets are represented in the simple circular flow diagram?
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markets for goods and services and markets for factors of production
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Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of
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crystal to increase
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Comparative advantage is related most closely to what?
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opportunity cost
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Mark is refinishing a cabinet that he spent $180 on to restore it. He expects to be able to sell the cabinet for $360. He discovers that he must do an additional $200 of work on it to make it worth $360 to potential buyers. He could sell the cabinet now, without doing any work and make $100. What should he do?
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He should complete the work and sell the cabinet for $360.
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At equilibrium price, the quantity of the good that the buyers are willing and able to buy
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exactly equals the quantity that sellers are willing and able to sell
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If the price of apple pies rose to $100 per pie, consumers would purchase fewer pies than if the price were $5 per pie. If the price of ice cream fell to $0.30 per scoop, consumers would purchase more ice cream than if the price were $5 per scoop. These relationships illustrate the
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law of demand
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Pizza is a normal good if the demand for pizza
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rises when income rises
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The opportunity cost of obtaining more on one good is shown on the production possibilities frontier as the
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amount of the other good that must be given up
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Production is efficient if the economy is producing at a point
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on the production possibilities frontier
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When a society is cannot produce all the goods and services people wish to have, it is said that the economy is experiencing
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scarcity
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When computing the opportunity cost of attending a concert you should include
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the price you pay for the ticket and the value of your time
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If muffins and bagels are substitutes, a higher price for bagels would result in a
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increase in the demand for muffins
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When quantity demanded decreases at every possible price, the demand curve has
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shifted to the left
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A university's football stadium is never more than half full during football games. This indicates the ticket price is
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above the equilibrium price
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A decrease in the price of a good will
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increase quantity demanded
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An increase in demand is represented by a
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rightward shift of a demand curve
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Making rational decisions "at the margin" means that people
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compare the marginal costs and marginal benefits of each decision
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Which of the following is not an example of a positive, as opposed to normative, statement? Equality if more important than efficiency or higher gasoline prices will reduce gasoline consumption?
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Equality if more important than efficiency.
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For an economist, the idea of making assumptions is regarded generally as a
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good idea, since doings so helps to simplify the complex world and make it easier to understand
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Suppose that consumer incomes rise and the demand for cocoa beans rises. This implies that cocoa beans are a ? good and the new price in the market will be ?
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normal; higher
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Suppose that US general surgeon general reports that the consumption of chocolate reduces the incidence of cancer, so that individuals live, on average, three years longer. This will cause the ? to shift out. The new equilibrium price would be ?
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demand; higher
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A new harvesting system for cocoa beans has been developed, resulting in less damage to the beans and a much faster harvest. As a result of this new technology, the ? curve shifts out and the new equilibrium quantity will be ?
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supply; larger
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A serious cocoa blight occurs. This affects the ? side of the market. The new equilibrium price would be ? and the new quantity would ?
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supply; higher; smaller
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The US is suffering through a colder winter than usual, so that more people consume hot chocolate to warm themselves. This will do what?
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cause a shift in the demand curve and result in a increase in quantity supplied
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If the price of milk drops, then the demand curve for cocoa beans would shift ? and the new equilibrium price would be ?
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out; higher
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If the government removes a binding price ceiling from a market, then the price paid by buyers will
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increase, and quantity sold in the market will increase
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Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of a demand for the good is
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positive; and the good is a normal good
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If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,
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the country will be an importer of that good
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What happens to the total surplus in a market when the government imposes a tax?
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total surplus decreases
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Suppose sellers of a perfume are required to send $1 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $.60 per bottle. What would be an accurate statement to make?
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The effective price received by sellers is $.40 per bottle less than it was before the tax.
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Measures the benefit buyers receive from participating in a market.
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Consumer surplus
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The decrease in total surplus that results from a market distortion, such as a tax, is called
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deadweight loss
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For which pairs of goods is the cross-price elasticity most likely positive?
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Substitutes, such as pens and pencils
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A perfectly inelastic demand implies that buyers
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purchase the same amount as before when the price rises or falls
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If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
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one year after the price increase
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The price elasticity of demand measures
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buyers' responsiveness to a change in the price of a good
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If the price elasticty of demand for a good is -0.2, then a 3 percent decrease in the price results in a
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0.6 percent increase in the quantity demanded
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If the price of walnuts rises, many people would switch from walnuts to pecans. But of the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
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the availability of close substitutes in determining the price elasticity of demand
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A city wants to raise revenues to build a new pool new year. The mayor suggests that the coty raise the price of admission to the current pool this year to raise revenues. The city manager suggests that the city lower the price admission to raise revenues. Who is correct?
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The answer depends on the price elasticity of demand
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Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is
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$150
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Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the
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buyers will bear a greater burden of the tax than the sellers
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If a price ceiling is not binding, then
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the equilibrium price is below the price ceiling
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Price ceilings cause ? and price floors cause
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shortages; surpluses
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A $3.50 tax per gallon of paint is placed on the sellers and will shift the supply curve
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upward by exactly $3.50
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The marginal product of labor can be defined as the change in
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output divided by the change in in labor
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If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
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exactly triple
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the property whereby long-run average total cost falls as the quantity of output increase
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economics of scale
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the property whereby long-run average total cost rises as the quantity of output increases
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diseconomcis of scale
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Economists normally assume that the goal of a firm is to
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maximize its profit
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A firm that temporarily shuts down has to pay
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its fixed costs but not its variable costs
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A difference between explicit and implicit costs is that
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implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do
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Mrs. Smith operates a buisness in a competetive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost id $8, and the average total cost is $8.25. What should she do?
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Continue to operate in both the short and long run
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If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
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a one-unit increase in output will increase the firm's profit
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The cost of producing an additional unit of output is the firm's
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marginal cost
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Sam sells soybeans to a broker in New York. Because the market for soybeans in generally considered to be competitive, Sam maximizes his profit by choosing
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the quantity at which market price is equal to Sam's marginal cost of production
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John is in college and has a 1.5 GPA. His GPA will fall even further next semester if he performs worse than
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His cumulative GPA, he ever has performed before, but not worse than he did last semester.
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Economics of scale occur when a firm's
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long-run average total costs are decreasing as output increases
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Suppose that a doggie day care firm uses only two inputs: hourly workers (labor) and a building (capital) In the short run, the firm most likely considers
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labor to be variable and capital to be fixed
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When the marginal product of an input declines as the quantity of that input increases. the production function exhibits
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diminishing marginal product
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The difference between accounting and economic profit is
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implicit costs
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The short-run supply curve for a firm in a perfectly competitive market is
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the portion of its marginal cost curve that lies above its average variable cost
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A firm's opportunity costs of production are equal to its
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explicit costs+implicit costs
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Suppose that a firm operating in a perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?
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Marginal revenue equals $5. Average revenue equals $5. Price equals $5.
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What is NOT true about a competitive market?
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Price exceeds marginal revenue
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What normally happens in the market in the long run that is making a profit?
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The market price will fall as new firms enter the market because of increased output
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Reasons a business would shut down
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1. total revenue is less than variable cost
2. Price is less than average variable cost |
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Suppose a firm in a perfectly competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's total revenue if it produced and sold 4 units of output?
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4x$8=$32
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For a monopoly, when does marginal revenue exceed demand?
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Never
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When there is a surplus in a market there is a ? pressure on the ?
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downward; price
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The long run is a time period that is
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long enough to change the size of the firm's plant
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Consumer surplus is the
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amount the consumer is willing to pay less than the amount the consumer paid
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A firm that is a price taker faces a perfectly
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elastic demand curve
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New firms will exit a perfectly competitive market when
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price is less than the average total costs in the long run
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A drop in the price of cd's shifts the demand curve for tapes leftward so cds and tapes are
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complements
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What happens to the demand of a good if a complement's price increase?
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The demand decreases and the demand curve shifts leftward
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If a monopolist faces a downward sloping market demand curve. its
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marginal revenue is always less than the price of the units it sells
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Producer surplus is the
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difference between than the market price and the marginal cost of producing the good
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A higher price for ski lift tickets would
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decrease the number of skis sold
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Economic growth is shown on the production possibility frontier as
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an outward shift in the PPF
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When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have
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the Nash equilibrium
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The exit of firms out a competitive market causes the supply curve to
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shift leftward
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In the production of goods and services, tradeoffs exist because
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society has only a limited amount of productive resources
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In contrast to perfectly competitive markets, monopolists
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can earn an economic profit indefinitely
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Characteristic of monopolistic competition
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when firms are free to enter and exit the market
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The prisoner's dilemma provides insights into the
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difficultly of maintaining cooperation
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Profit-maximizing monopolist
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P>MR=MC
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