Perfectly Competitive Markets - AP Microeconomics

A public good is non-rival, which means that one person's consumption of a good does not affect another person's consumption of the good, and non-excludable, which means that a person cannot be prevented from consuming the good. The only answer that is non-rival and non-exculdable is the neighborhood park.

Comparative advantage refers to the ability of a party to produce a particular good at a lower opportunity cost than another party. When trading, countries will always gain by trading the good in which they have comparative advantage in producing. Since the US is trading computers for cars from Germany, the US must have comparative advantage in computer production while Germany has comparative advantage in car production.

Elasticity is a measurement used in economics to show the responsiveness of the quantity supplied of a good to a change in its price. Thus, a more elastic supply curve would cause a greater change in price as the quantity demanded increases.

The only factor that would cause a leftward shift of the supply curve of computers is the increase in wages for workers who manufacture computers. The other choices would result in a rightward shift of the supply curve.

The difference between a consumer's willingness to pay and the actual market price of a product quantifies the consumer surplus associated with that product. It occurs when the consumer is willing to pay more for a product than its current market price. For example, if a consumer is willing to pay $3 for a cupcake, but its market price is $2, then the consumer surplus for him/her is $1.

Monopolies often arise because of barriers to entry, which helps prevent firms from entering the market. Barriers to entry can enable one firm to dominate the market without the threat of competition from other firms.

Price elasticity of demand is the measure of the responsiveness of the quantity demanded of a good to the change in its price. Elasticity is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity demand of movie tickets is 2 (20% change in quantity demanded divided by 10% change in price). If a good's elasticity is greater than 1, it is considered elastic.

Average total cost is the sum of the average fixed cost and average variable cost of producing a good. For the fifth good, the average fixed cost would be $40 while the average variable cost would be $120, which gives you a sum of $160.

The firm will continue to produce until marginal cost equals marginal revenue. In this case, the market price of the good is the firm's marginal revenue, since that is the amount it receives for selling each good. Thus, the firm will continue to produce the good as long as its marginal cost is lower than $125.

From the information provided, we know that the total fixed cost of production is $200. The average fixed cost can be calculated by dividing the total fixed cost of production by the number of goods produced. In the case of 10 goods produced, the average fixed cost would be $200 (Total fixed cost) divided by 10 (Number of goods produced), which is $20.

Consumer surplus is the diffence between what an individual is willing to pay for a good and its market price. Consumer surplus occurs when the consumer's willingness to pay is higher than the good's market price, as in the example where the hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it.

The only factor that would shift the pizzeria's cost upward is an increase in the price of cheese, one of the pizzeria's inputs. A decrease in wages would shift the cost curve upward. Changes to the pizzeria's output or prices would not shift the pizzeria's cost curve in any direction.

If an increase in the price of pizza causes a decrease in the demand for soda, then the two goods are complementary goods, or goods that are typically consumed together. Thus, the two goods' demand are affected by the demand of the other good. As the price of pizza increases, its demand will likely decrease. The decrease in demand for pizza causes a decrease in demand for soda because the two goods are complementary.

Price elasticity of demand is the measure of the responsiveness of the quantity demanded of a good to the change in its price. Elasticity is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity demand of movie tickets is 0.5 (10% change in quantity demanded divided by 20% change in price). If a good's elasticity is less than 1, it is considered inelastic.

A pure public good is non-rival, which means that use by one individual does not reduce its availability to others, and non-excludable, which means that an individual cannot be prevented from consuming the good. Because of its non-rivalrous nature, a public good's consumption has zero marginal cost. A lighthouse is a classic example of a public good. An additional person's use of the lighthouse does not have any associated marginal cost, since its use is non-rivalrous.

A private good is rivalrous, which means that one person's use of the good reduces the availability of the good for others, and excludable, which means that individuals can be effectively excluded from consuming the good. The only choice that fits both descriptions is the bicycle.

When a a perfectly competitive market is in equilibrium, the marginal revenue curve is a horizontal line at the price level in contrast to monopolies, where the marginal revenue is below price.

All of the other answer choices are key characteristics of perfectly competitive markets.

An increase in the demand for pizza will increase its price and quantity, while a decrease in the supply of pizza will increase its price and decrease its quantity. Thus, the price of pizza will unambiguously increase, but the quantity can either increase or decrease, depending on which change has the greater effect on supply.

When two countries trade two goods with one another, they will trade the goods that they have a comparative advantage in producing. One nation can have an absolute advantage in the production of both goods, but each nation will still have a comparative advantage in producing one of the two goods.