Econ 101 Test 1

Question 1

What is the difference between microeconomics and macroeconomics?

Answer 1

micro: individual consumer/firm behavior
macro: economy-wide phenomenons

Question 2

If a PPF is bowed out from the origin,

Answer 2

increasing costs

Question 3

If a PPF is linear,

Answer 3

costs are constant

Question 4

Any point along the PPF is

Answer 4

possible and efficient

Question 5

Any point inside the PPF is

Answer 5

possible but inefficient

Question 6

Any point outside the PPF is

Answer 6

impossible in the absence of trade

Question 7

Opportunity cost

Answer 7

what you give up to get something; tradeoff

Question 8

Absolute advantage

Answer 8

who can make the most in the same amount of time

Question 9

Comparative advantage

Answer 9

whose opportunity cost is the lowest in the same amount of time

Question 10

Determinants of demand

Answer 10

Income/Accumulated Wealth (normal/inferior goods)
Prices of Related Goods (subs/comps)
Tastes/Prefs
Expectations (of buyers)
Number of Buyers

Question 11

Determinants of supply

Answer 11

Technology
Input Prices
Prices of Related Goods
Number of Sellers
Expectations (of producers)
Natural Disaster/Weather

Question 12

If supply and demand shift in the same direction,

Answer 12

quantity is known, price is not

Question 13

If supply and demand shift in opposite directions,

Answer 13

price is known, quantity is not

Question 14

Elasticity

Answer 14

a measure of sensitivity of one variable to a change in some other variable

Question 15

Price Elasticity of Demand

Answer 15

%change in quantity demanded / %change in price

midpoint method

Question 16

If Ed > |-1|

Answer 16

elastic

Question 17

If Ed = 1

Answer 17

unitary elastic

Question 18

If Ed < |-1|

Answer 18

inelastic

Question 19

The profit-maximizing level of output is when

Answer 19

marginal revenue = marginal cost

Question 20

Example of something that would be perfectly INELASTIC

Answer 20

a drug needed to keep you alive

Question 21

Example of something that would be perfectly ELASTIC

Answer 21

goods w/ close substitutes (farmer’s market - buy at bargain price only)

Question 22

Determinants of Price Elasticity of Demand

Answer 22

availability of close substitutes (more = more elastic)
time horizon (long run = more elastic)
importance in consumer's budget (big chunk = more elastic)
market definition (broader = more elastic)
necessity or luxury (luxury = elastic)

Question 23

Price Elasticity of Supply

Answer 23

%change in quantity supplied / %change in price

midpoint method

Question 24

Es > 1

Answer 24

elastic

Question 25

Es = 1

Answer 25

unitary elastic

Question 26

Es < 1

Answer 26

inelastic

Question 27

Income Elasticity

Answer 27

%change in quantity demanded / %change in income

midpoint method

Question 28

Ey > 0

Answer 28

normal good (if magnitude between 0 and 1, necessity; if magnitude > 1, luxury/superior good)

Question 29

Ey < 0

Answer 29

inferior good

Question 30

Cross-Price Elasticity

Answer 30

%change in quantity demanded of good B / %change in price of good A

Question 31

Eab > 0.5

Answer 31

strong substitutes

Question 32

Eab < 0.5

Answer 32

not really strong substitutes

Question 33

Eab > 0

Answer 33

substitutes

Question 34

Eab < 0

Answer 34

compliments