econ exam 1

Question 1

what is economics

Answer 1

the study of the allocation and use of scarce resources to satisfy unlimited human wants and needs

Question 2

define law of demand

Answer 2

the relationship between price and quantity demanded that is either negative or inverse

Question 3

identify the three reasons why law of demand makes sense

Answer 3

the substitution effect, the real balances effect, and the law of diminishing marginal utility

Question 4

what is the substitution effect

Answer 4

moves people toward the good that is now cheaper or away from the good that is now more expensive

Question 5

what is the real balance effect

Answer 5

when a price increases it decreases your buying power causing you to buy less

Question 6

what is the law of diminishing marginal utility

Answer 6

the amount of additional happiness that you get form an additional unit of consumption falls with each additional unit

Question 7

define the law of supply

Answer 7

the statement that there is a positive relationship between price and quantity supplied

Question 8

why does increasing marginal cost make sense in the law of supply

Answer 8

because firms require higher prices to produce more output

Question 9

why does law of supply make sense

Answer 9

many firms produce more than one good, an increase in the price of good A makes it more profitable so resources are diverted from good B to produce more of good A

Question 10

define demand

Answer 10

relationship between price and quantity demanded

Question 11

define quantity demanded

Answer 11

how much consumers are willing and able to buy at a particular price during a particular period of time

Question 12

what is the difference between demand and quantity demand

Answer 12

quantity demand is a point on a demand relationship

Question 13

define supply

Answer 13

the relationship between price and quantity supplied

Question 14

define quantity supplied

Answer 14

how much firms are willing and able to sell at a particular price during a particular period of time

Question 15

what is the difference between supply and quantity supplied

Answer 15

quantity supplied is a point on a supply relationship

Question 16

list the determinants of supply

Answer 16

price of inputs
technology
price of other potential output
number of sellers
expected future price
excise taxes
subsides

Question 17

list the determinants of demand

Answer 17

taste
income
normal goods
inferior goods
price of other goods
complement
substitute
population of potential buyers
expected price
excise taxes
subsidies

Question 18

define elasticity

Answer 18

the responsiveness of quantity to a change in another variable (like price)

Question 19

explain why elasticity is related to the slope of the curve but is not simply the slope of the curve

Answer 19

it is related to slope because a steeper demand curve has a smaller elasticity than a flatter one, but it is not the same because on a linear demand curve, elasticity is greater at a higher price

Question 20

define consumer surplus

Answer 20

the value you get that is in excess of what you pay to get it

Question 21

where is consumer surplus on a graph

Answer 21

the area below the demand curve and above the price line

Question 22

define producer surplus

Answer 22

the money the firm gets that is in excess of its marginal costs

Question 23

where is producer surplus on a graph

Answer 23

area below price line and above the supply curve

Question 24

what does a increasing opportunity cost graph look like

Answer 24

a curved line

Question 25

what does a constant opportunity cost graph look like

Answer 25

a straight line

Question 26

what would an increase in taste for a good look like on a graph

Answer 26

demand curve shifted to the right

Question 27

what would a decrease in the tase for a good look like on a graph

Answer 27

demand curve shifted left

Question 28

what would an increase in price of a complement for a good look like on a graph

Answer 28

demand curve shifted to the left

Question 29

what would a decrease in the price of a complement for a good look like on a graph

Answer 29

demand curve shifted to the right

Question 30

what would an increase in income if a good is considered inferior on a graph

Answer 30

demand curve shifted left

Question 31

what would a decrease in income if a good is considered inferior on a graph

Answer 31

a demand curve shifted to the right

Question 32

what would an increase in the population of the group of people likely to buy a good on a graph

Answer 32

a demand curve shifted to the right

Question 33

what would a decrease in the population of the group of people likely to buy a good on a graph

Answer 33

a demand curve shifted to the left

Question 34

what would an increase in an excise tax on a good where the excise tax is paid by the consumer on a graph

Answer 34

demand curve shifted to the left

Question 35

what would a decrease in an excise tax on a good where the excise tax is paid by the consumer on a graph

Answer 35

demand curve shifted to the right

Question 36

what would an increase in a subsidy on a good where the subsidy is paid to the consumer on a graph

Answer 36

demand curve shifted to the right

Question 37

what would a decrease in a subsidy on a good where the subsidy is paid to the consumer on a graph

Answer 37

demand curve shifted to the left

Question 38

what would an increase in technology in the market for anything on a graph

Answer 38

supply curve shifted to the right

Question 39

what would a decrease in technology in the market for anything on a graph

Answer 39

supply curve shifted to the left

Question 40

what would an increase in the price of an input in the market for anything on a graph

Answer 40

supply curve shifted to the left

Question 41

what would a decrease in the price of an input in the market for anything on a graph

Answer 41

supply curve shifted to the right

Question 42

what would an increase in the number of sellers in the market for anything on a graph

Answer 42

supply curve shifted to the right

Question 43

what would a decrease in the number of sellers in the market for anything on a graph

Answer 43

supply curve shifted to the left

Question 44

If two goods can be made with essentially the same inputs, show on a supply and demand diagram the result of an increase in the price of one on the market for the other on a graph

Answer 44

supply curve shifted to the left

Question 45

If two goods can be made with essentially the same inputs, show on a supply and demand diagram the result of a decrease in the price of one on the market for the other on a graph

Answer 45

supply curve shifted to the right

Question 46

what would an increase in an excise tax on a good where the excise tax is paid by the producer on a graph

Answer 46

supply curve shifted to the left

Question 47

what would a decrease in an excise tax on a good where the excise tax is paid by the producer on a graph

Answer 47

supply curve shifted to the right

Question 48

what would an increase in a subsidy on a good where the subsidy is paid to the produce on a graph

Answer 48

supply curve shifted to the right

Question 49

what would a decrease in a subsidy on a good where the subsidy is paid to the produce on a graph

Answer 49

supply curve shifted to the left

Question 50

show a supply and demand diagram the result of an increase in income

Answer 50

demand shifted right labeled normal good demand shifted left labeled inferior good

Question 51

19Show on a supply and demand diagram the result of an increase in the price of one good in the market for another good

Answer 51

demand shifted right labeled substitute demand shifted left labeled complement supply shifted left labeled input and alternative output

Question 52

Show on a supply and demand diagram the result of a decrease in income on a supply and demand diagram

Answer 52

demand shifted left labeled normal good demand shifted right labeled inferior good

Question 53

Show on a supply and demand diagram the result of a decrease in the price of one good in the market for another good

Answer 53

demand shifted left labeled substitute demand shifted right labeled complement supply shifted right labeled input and alternative output

Question 54

Show on a supply and demand diagram the result of an increase in the expected future price

Answer 54

demand shifting right as supply shifts left

Question 55

Show on a supply and demand diagram the result of a decrease in the expected future price

Answer 55

demand shifting left as supply shifts right