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fall 2024 > econ exam 2 > Flashcards

econ exam 2 Flashcards

ch 4-8

1
Q

marginal cost

A

increase in cost associated with one unit increase in output

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2
Q

marginal revenue

A

increase in revenue associated with a one unit increase in sales

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3
Q

rules for production

A

Quantity Stable production occurs when Marginal Cost = Marginal Revenue unless Price is less than Average Variable Cost, Quantity equals 0

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4
Q

diminishing returns

A

prod increase at decreasing rate because fixed capital

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5
Q

division of labor

A

production increase at increasing rate because dividing tasks

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6
Q

list one type of cost that would be both an accounting and an economic cost to the Widget-R-US business

A

cost of materials

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7
Q

list one type of cost that would be an economic cost but not an accounting cost for the Widgets-R-US business

A

lost wages from old job

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8
Q

list assumptions for perfect competition

A

many buyers/sellers such that no one can control price
identical products
perfect information on prices
free entry/ exit

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9
Q

describe why, when P>ATC, there is pressure on the price to fall

A

P>ATC => Economic Profit => Entry => increase number of sellers => S-> => P decrease
When Price is greater than Average Total Cost, it causes economic profit, which causes entry, that leads to an increase in number of sellers. supply curve moves to the right meaning price decreases.

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10
Q

discuss why there is pressure on prices such that economic profit goes to zero under perfect competition and monopolistic competition but not under oligopoly or monopoly

A

entry brings economic profit to zero in Perfect Competition and Monopolistic Competition but there is no entry in Monopoly & Oligopoly

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11
Q

Monopolistic Competition

A

several firms producing similar but not identical products

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12
Q

how is Monopolist Competition different from Perfect Competition

A

PC there are many firms selling identical products

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13
Q

why is Monopolistic Competition different from a Monopoly

A

Monopoly only has one firm. MC has a monopoly on their own brand but face competition.

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14
Q

Oligopoly

A

Competition among very few firms

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15
Q

Explain why it is that GDP, gross domestic production, only counts final sales

A

to avoid double counting of intermediate products

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16
Q

structural unemployment

A

unemployment that results from a skill being obsolete in a location

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17
Q

cyclical unemployment

A

unemployment that results from a temporary downturn in the economy

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18
Q

frictional unemployment

A

unemployment that results from the fact that it takes time to get an appropriate job

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19
Q

cost push inflation

A

inflation caused by a decrease in aggregate supply

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20
Q

Demand pull inflation

A

inflation caused by an increase in AD, aggregate demand

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21
Q

explain the difference between real and nominal GDP, gross domestic pay

A

real adjusts nominal for inflation

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22
Q

list reasons the unemployment rate may not accurately reflect the problems of unemployment

A

underemployment: people work below their skill level and people working fewer hours than they would like

Discouraged worker effect
encouraged worker effect

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23
Q

present value

A

interest adjusted value of future payment streams

24
Q

difference between real interest rates and nominal interest rates

A

real adjusts for nominal inflation

25
Q

aggregate demand

A

output demanded by C+I+G+NX
confidence + interest + government spending + net exports

26
Q

explain the intuitive reasons why aggregate demand is downward sloping using RBE, real-balance effect

A

higher prices, lower buying power for cash assets

27
Q

explain the intuitive reasons why aggregate demand is downward sloping using FPE, foreign purchase effect

A

higher US prices, higher imports, lower exports

28
Q

explain the intuitive reasons why aggregate demand is downward sloping using IRE, interest rate effect

A

higher prices, higher anticipated inflation, higher interest rates, lower Consumption and business investment

29
Q

discuss the shape of the Aggregate Supply curve

A

Backbending L

30
Q

list the reasons behind various ranges for the Aggregate Supply curve

A

keynesian range
classical
intermediate

31
Q

explain the reasoning why Keynesian range effects the aggregate supply curve

A

high levels of unemployment means that increases in aggregate demand will only employ the unemployed

32
Q

explain the reasoning why Classical effects the aggregate supply curve

A

low levels of unemployment means that increases in aggregate demand will only increase prices/wages and will not increase output

33
Q

explain the reasoning why Intermediate effects the aggregate supply curve

A

because different sectors of the economy reach full employment at different times, some will already be at full employment while others will not. Increases in aggregate demand will increase prices some and output some

34
Q

Calculate the price index in base using the following
price of market basket (base) 10,000
price of market basket 1981 10,100
price of market basket 1992 14,000

A

(10000/10000)x 100
or (base/base) x 100

35
Q

Calculate the price index in 1981 using the following
price of market basket (base) 10,000
price of market basket 1981 10,100
price of market basket 1992 14,000

A

(10100/10000)x100
or (year/base) x 100

36
Q

Calculate the inflation from base to 1981 using the following
price of market basket (base) 10,000
price of market basket 1981 10,100
price of market basket 1992 14,000

A

(101-100/100) x 100
or (2year-base/ base) x 100

37
Q

Calculate the percentage rise in prices from base to 1992 using the following
price of market basket (base) 10,000
price of market basket 1981 10,100
price of market basket 1992 14,000

A

(14000/10000) x 100 – (answer- 100/100)x 100
(3 year/base)x100 (answer - 100/100)x100

38
Q

If there are 109 people, 95 who work and 5 are looking for work, calculate the unemployment rate

A

looking/ looking + working x 100
5/ 5+ 95 x100

39
Q

If there are 109 people, 95 who work and 5 are looking for work, calculate and illustrate the encouraged worker effect on the employment rate

A

one person who is not looking for work starts looking for work
(looking +1)/ (looking + 1) +working x100
6/ 6+95 x100

40
Q

If there are 109 people, 95 who work and 5 are looking for work, calculate and illustrate the discouraged worker effect on the unemployment rate

A

(looking-1)/ (looking-1) + working x 100
(4/ 4+95) x 100

41
Q

explain why the present value of a flow of payment to be received in the future is less than the sum of those payments but the present value of flow of funds received in the past is greater than the sum of those payments.

A

The Present Value Formula is PV=PMT/(1+r)^n
where n is the number of periods into the future in which the payment occurs
If the payment occurred in the past, the payment has the opportunity to accrue interest, and n is negative, so the formula is PV=PMTx(1+r)^n.
That means PV is greater than PMT.
If the payment will occur in the future, the payment must be discounted for interest, and n is positive, so the formula is PV=PMT/(1+r)^n
That means PV is less than PMT

42
Q

list determinants of aggregate demand

A

taxes
interest rates
strength of dollar
government spending
consumer and business confidence

43
Q

list determinants of aggregate supply

A

input prices
Productivity
government regulation

44
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in government spending

A

Increase in aggregate demand
demand shifted right

45
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in government spending

A

Decrease in aggregate demand
demand shifted left

46
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in taxes

A

increase in aggregate demand
demand shifted right

47
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in taxes

A

decrease in aggregate demand
demand shifted left

48
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in confidence

A

increase in aggregate demand
demand shifted right

49
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in confidence

A

decrease in aggregate demand
demand shifted left

50
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in input prices

A

decrease in aggregate supply
supply shifted left

51
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in input prices

A

increase in aggregate supply
supply shifted right

52
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in productivity

A

increase in aggregate supply
supply shifted right

53
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in interest rates

A

decrease in aggregate demand
demand shifted left

54
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in productivity

A

decrease in aggregate supply
supply shifted left

55
Q

Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in interest rates

A

increase in aggregate demand
demand shifted right

56
Q

Describe why, when P<ATC, there is pressure on the price to rise

A

When price is less than Average Total Cost, it causes economic loss which leads to firm exit meaning a decrease would occur in the number of sellers. The supply curve would move left leading to price increases

fall 2024 (9 decks)

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