Econ Exam 1.2: Feb 6

Question 1

What are the exceptions to the law of demand?

Answer 1

Veblin Effect and Giffen Good

Question 2

Veblin Effect

Answer 2

conspicuous consumption, if you buy the higher priced item, you have a higher social status

Question 3

Giffen Good

Answer 3

2 requirements:

1) people must be really, really poor
2) good must be the cheapest item around

Question 4

Complete Market Supply Function

Answer 4

tells us the quantity of a good that producers would be willing and able to supply at all alternative market prices, and all alternative market circumstances

Question 5

Sx= f(Px, Ns, Pr, Tl, Es…)

Answer 5

complete market supply function

Question 6

Ns

Answer 6

number of sellers

Question 7

Pr

Answer 7

price of resources

Question 8

Tl

Answer 8

level of technology

Question 9

Es

Answer 9

expectations of suppliers

Question 10

Single Market Supply Function

Answer 10

tells us the quantity of a good that producers would be willing and able to supply at all alternative market prices, c.p.

Question 11

Sx=f(Px)

Answer 11

single market supply function

Question 12

Law of Supply

Answer 12

there is a direct or positive relationship between the quantity of a good supplied and the price in the short run

Question 13

Short Run

Answer 13

a period of time so short that the firm cannot change all inputs by the same proportion (some inputs will be fixed, and some will be variable)

Question 14

Long Run

Answer 14

A period of time in which a firm could vary all of its inputs by the same proportions

Question 15

Labor =

Capital =

Answer 15

labor = variable
capital = fixed

Question 16

Why does the supply curve slope to the right?

Answer 16

Law of diminishing returns

Question 17

Law of Diminishing Returns

Answer 17

as we add more and more of a variable resource (labor) to a fixed set of inputs (capital) with a fixed technology, the resulting output will increase over the relevant range, but at a decreasing rate.
(ex. milking cows, 2 ppl vs 3 ppl in parlor)

Question 18

Total Physical Product of Labor

Answer 18

the total amount of a product produced during a given time period by labor (TPPL)

Question 19

Marginal Physical Product of Labor

Answer 19

the extra physical product resulting from the addition of one more unit of labor (MPPL)

Question 20

What is the only way producers can afford to expand output?

Answer 20

By raising the selling price