Econ 103

Question 1

Economics

Ch 1: Introduction to Economics

Answer 1

A particular way of thinking about human behaviour. Ppl do the best they can w/ the circumstances they’re given.

Question 2

Economic Model Ch 1: Introduction to Economics

Answer 2

A set of assumptions, principals and constraints which lead to conclusions.

Question 3

What are the 2 main issues in Economics? Ch 1: Introduction to Economics

Answer 3

1. Issues related to volume of trade and terms of price 2. Issues related to how we trade

Question 4

Maximization Ch 2: Maximization

Answer 4

All individuals are motivated by greed, or self interest

Question 5

Scarcity What does this lead to (3)? Ch 2: Maximization

Answer 5

Less of a good is available than what is desired when the good is free. Trade offs, competition, ppl attempting to satisfy wants.

Question 6

what is scarcity usually confused with and why? Ch 2: Maximization

Answer 6

Rarity: just because there’s a limited amount DN mean it is WANTED

Question 7

What is the purpose of maximization? Ch 2: Maximization

Answer 7

To explain behaviour and drive the economic model. Since all individuals/firms want to maximize their utility or make them better off in a way.

Question 8

Substitution

Ch.3 Substitution

Answer 8

Everyone is willing to trade some amoutn of a good, for some amount of another.

Question 9

Indifference

Ch.3 Substitution

Answer 9

Cannot distinguish b/t two alternateives or don’t care to make a choice

Question 10

Magininal value/Marginal utility

What does it look like on the graph?

Ch.3 Substitution

Answer 10

The maximum amount one is willing to give up for an additional unit of a good

MV = Price, the height underneath the DC

Question 11

Priority of Consumption

Ch.3 Substitution

Answer 11

Insists that ppl take care of their most important needs first. Not consistent with Economics.

Goods are ranked

Question 12

Value

Ch.3 Substitution

Answer 12

The willingness to sacrifice or substitute one good for another

Question 13

Law of Demand

Chapter 4: The Law of Demand

Answer 13

Inverse relationship b/t the price of product and the quantity demanded, other things =

More of a good is always demanded when its price is lower and vice versa

when making the price high enough the quantity demanded will be zero

Question 14

Total Value/Expenditure

Ch 4: The Law of Demand

Answer 14

The area underneath the DC

Price x Quantity

Question 15

Principle 3: Diminishing marginal Value/Utility

Chapter 4: The Law of Demand

Answer 15

The more one has of a good, the less they are willing to give up for another unit of that good

Question 16

Value

Chapter 4: The Law of Demand

Answer 16

is measured in terms of goods

Question 17

Relative Prices

Chapter 4: The Law of Demand

Answer 17

Measure how many other goods one must sacrifice to obtain more of another good.

ex: Compared to other prices for other goods

Question 18

Real Income

Chapter 4: The Law of Demand

Answer 18

In terms of real goods one is able to purchase.

Ex: if your income was 100k but Big Mac cost 50K it won’t be worth that much

The 3 is meaningless unless you can compare it to an amount you can buy it with

Question 19

Budget Constraint

What is the formula for budget constraint?

Chapter 4: The Law of Demand

Answer 19

Resources are limited which prevents us from consuming w/e we want

M = Px*X + Py*Y

Question 20

Changes in Prices

Chapter 4: The law of demand

Answer 20

A change in the price of a good (very common) leads to a change in quanitity demanded

Question 21

What do demand curves include?

Chapter 4: The Law of Demand

Answer 21

1. price 2. quantity demanded 3. a demand function curve 4. marginal value 5. Total value 6. Consumer surplus 7. total expenditutre 8. Slope of demand curve

Question 22

Consumer Surplus

Lo-4 THE LAW OF DEMAND

Answer 22

the extra benefit enjoyed by the consumer in a market who pay less for a product than they were willing and able to pay for it

Question 23

Producer Surplus

LO 4- THE LAW OF DEMAND

Answer 23

the extra benefit enjoyed by the PRODUCER in a market who SELL THEIR product FOR MORE than they were willingTO SELL IT FOR

Question 24

What is a demand curve?

What 4 factors affect a demand curve to change?

Answer 24

• a downward sloping line
• our measure of value
• 1. Principles of Preferences discussed 2. On income 3. On prices.