econ 1 quizzes 1 & 2

Question 1

what is “the invisible hand?”

Answer 1

the theory that when people follow their own best interests it benefits the price system and everything gets allocated properly

Question 2

what is specialization?

Answer 2

deciding to produce more of one thing than the other in order to maximize profits/resources

Question 3

what is opportunity cost?

Answer 3

what you give up when you do something

Question 4

what is absolute advantage?

Answer 4

who can make the most, regardless of what they can make more of

Question 5

what is comparative advantage?

Answer 5

lower opportunity cost

Question 6

how do you know how much to produce?

Answer 6

look at ppf/ppc

Question 7

what is the first law of supply?

Answer 7

as price goes up, sellers offer more aka supply curve slopes up
exceptions: antiques, labour

Question 8

what is the first law of demand?

Answer 8

as price goes up, people buy less aka demand curve slopes down
partial exceptions: diamonds, medication

Question 9

what is a binding price ceiling?

Answer 9

a maximum price set below equilibrium

Question 10

how does a price ceiling create a shortage?

Answer 10

creates a gap where the price lines up with a particular supply which is less than the corresponding demand, and that gap is the shortage

Question 11

what is a binding price floor?

Answer 11

a minimum price set above equilibrium

Question 12

how does a price floor create a surplus?

Answer 12

creates a gap where the price lines up with a particular demand which is less than the corresponding supply, and that gap is the surplus of goods

Question 13

how do you solve for equilibrium?

Answer 13

set equations for supply and demand equal to each other

Question 14

what is elasticity?

Answer 14

responsiveness of demand to change in price (%ΔQ / %ΔP)

extra accurate equation: [(ΔQ/Q) / (ΔP/P)]; not slope, but kind of like slope

Question 15

if E > 1 ..

Answer 15

inelastic - steeper

Question 16

if E < 1 ..

Answer 16

elastic - flatter

Question 17

Elasticity for gas, grapes, pepsi, salt

Answer 17

gas — relatively inelastic
grapes — relatively elastic
pepsi — perfectly elastic
salt — perfectly inelastic

Question 18

what is the second law of supply?

Answer 18

supply is more elastic in the long run

Question 19

what is the second law of demand?

Answer 19

demand is more elastic in the long run

Question 20

where is CS

Answer 20

area below the demand and above equilibrium

Question 21

where is PS

Answer 21

area above the supply curve and below equilibrium

Question 22

where is TC

Answer 22

area below the supply curve and left of the equilibrium quantity

Question 23

where is TR

Answer 23

area below equilibrium price and left of the equilibrium quantity (PS + TC)

Question 24

what is a trade deficit and why is it harmless?

Answer 24

importing more goods than you export
not inherently bad because you are still exporting cash, and you are getting something you need — cahs outflow to a grocery store is a trade deficit, but it’s good because you need food
also, likely to be exporting goods to other places

Question 25

who holds a tax burden?

Answer 25

no matter who the tax is officially imposed on, the steeper line pays more of tax (whichever is more elastic)

Question 26

effect of a tax on S/D graph

Answer 26

tax can shift demand down, shift supply left, or create a wedge between supply and demand (all equal methods)

Question 27

examples of subsidies

Answer 27

education, passenger trains, solar panels, windmills, healthcare, steel

Question 28

effect of a subsidy

Answer 28

increases CS and PS, but it decreases the total wealth of the nation because the government’s expense is greater than the increases and results in a DWL to the nation overall

Question 29

P =

Answer 29

TR - TC

Question 30

TC =

Answer 30

FC + VC

Question 31

TR =

Answer 31

P x Q

Question 32

AC =

Answer 32

TC / Q = AFC + AVC

Question 33

AFC =

Answer 33

FC / Q

Question 34

AVC =

Answer 34

VC / Q

Question 35

AR =

Answer 35

TR / Q

Question 36

MC =

Answer 36

ΔTC / ΔQ

Question 37

MR =

Answer 37

ΔTR / ΔQ

Question 38

Three rules of average and marginal functions

Answer 38

if A is decreasing, then M < A
if A is increasing, then M > A
if A is constant, then M = A