Chapter 1 : Lecture

Question 1

Law of Unintended Consequences

Answer 1

When incentives change, peoples behavior can change

Question 2

Incentives are not objective fact,

Answer 2

subjective interpretation

Question 3

Positive

Answer 3

refers to what ‘is’ or ‘is not’

Question 4

Normative

Answer 4

refers to what ‘ought’ or ‘ought not’

Question 5

Economics is value ____;

Answer 5

neutral

Question 6

Comments about economics should be

Answer 6

positive

Question 7

value subjectivity

Answer 7

value is subjective; stems from alleviation of pressing needs

Question 8

Fact or Myth? Value stems from labor hours

Answer 8

MYTH

Question 9

Fact or Myth? Value stems from scarcity

Answer 9

MYTH

Question 10

Scarcity implies need for

Answer 10

trade-offs

Question 11

Theory of Markets

Answer 11

how individuals trade with each other

Question 12

First Law of Demand

Answer 12

All else being equal, inverse relationship between price of good and quantity of good

Question 13

T or F? upward demand curve

Answer 13

False; it would be inviable

Question 14

Ceteris paribus

Answer 14

“all things being equal”

Question 15

Marginal

Answer 15

Next Additional Unit

Question 16

Value stems from ability to

Answer 16

satisfy our pressing needs

Question 17

Law of Diminishing Marginal Utility

Answer 17

As consumption of good increases, satisfaction derived from consuming more of good will eventually decline

Question 18

Utility

Answer 18

our subjectivity determined benefits

Question 19

Rate of DMU will

Answer 19

vary, more pronounced for perishable goods

Question 20

Ex: Potato Blight

Answer 20

Does not violate 1st law - C.P.

Question 21

5 Shifters of Demand

Answer 21

1. Changes in income
2. Changes in price of related goods
3. Changes in preferences
4. Changes in # of consumers
5. Expectations of future prices

Question 22

Normal goods

Answer 22

buy more when income goes up

Question 23

Inferior goods

Answer 23

i. Income rise -> demand of inferior goods falls

Income falls -> demand of inferior goods rises

Question 24

Elasticity

Answer 24

sensitivity to price changes

Question 25

FLAT

Answer 25

Sensitive, elastic

Question 26

STEEP

Answer 26

not sensitive, inelastic

Question 27

Elasticity =

Answer 27

( % Change in Quantity ) / (% Change in Price)

Question 28

If E > 1

Answer 28

Elastic

Question 29

If E 0

Answer 29

Inelastic

Question 30

Elastic goods are

Answer 30

highly responsive to changes in price, inelastic goods are not

Question 31

he Second Law of Demand

Answer 31

Elasticity increases over time

Question 32

The Third Law of Demand

Answer 32

If you add levy to prices of 2 substitute goods, relative consumption of higher priced good will rise

Question 33

Four Behavior Postulates

Answer 33

1. People have preferences
   
   2. More of a good is preferred to less
   3. People are willing to substitute
2. Marginal value falls are you consume more