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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
aggregate demand
output demanded by C+I+G+NX confidence + interest + government spending + net exports
26
explain the intuitive reasons why aggregate demand is downward sloping using RBE, real-balance effect
higher prices, lower buying power for cash assets
27
explain the intuitive reasons why aggregate demand is downward sloping using FPE, foreign purchase effect
higher US prices, higher imports, lower exports
28
explain the intuitive reasons why aggregate demand is downward sloping using IRE, interest rate effect
higher prices, higher anticipated inflation, higher interest rates, lower Consumption and business investment
29
discuss the shape of the Aggregate Supply curve
Backbending L
30
list the reasons behind various ranges for the Aggregate Supply curve
keynesian range classical intermediate
31
explain the reasoning why Keynesian range effects the aggregate supply curve
high levels of unemployment means that increases in aggregate demand will only employ the unemployed
32
explain the reasoning why Classical effects the aggregate supply curve
low levels of unemployment means that increases in aggregate demand will only increase prices/wages and will not increase output
33
explain the reasoning why Intermediate effects the aggregate supply curve
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
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
(10000/10000)x 100 or (base/base) x 100
35
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
(10100/10000)x100 or (year/base) x 100
36
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
(101-100/100) x 100 or (2year-base/ base) x 100
37
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
(14000/10000) x 100 -- (answer- 100/100)x 100 (3 year/base)x100 (answer - 100/100)x100
38
If there are 109 people, 95 who work and 5 are looking for work, calculate the unemployment rate
looking/ looking + working x 100 5/ 5+ 95 x100
39
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
one person who is not looking for work starts looking for work (looking +1)/ (looking + 1) +working x100 6/ 6+95 x100
40
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
(looking-1)/ (looking-1) + working x 100 (4/ 4+95) x 100
41
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.
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
list determinants of aggregate demand
taxes interest rates strength of dollar government spending consumer and business confidence
43
list determinants of aggregate supply
input prices Productivity government regulation
44
Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in government spending
Increase in aggregate demand demand shifted right
45
Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in government spending
Decrease in aggregate demand demand shifted left
46
Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in taxes
increase in aggregate demand demand shifted right
47
Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in taxes
decrease in aggregate demand demand shifted left
48
Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in confidence
increase in aggregate demand demand shifted right
49
Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in confidence
decrease in aggregate demand demand shifted left
50
Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in input prices
decrease in aggregate supply supply shifted left
51
Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in input prices
increase in aggregate supply supply shifted right
52
Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in productivity
increase in aggregate supply supply shifted right
53
Use an Aggregate Demand-Aggregate Supply diagram to illustrate an increase in interest rates
decrease in aggregate demand demand shifted left
54
Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in productivity
decrease in aggregate supply supply shifted left
55
Use an Aggregate Demand-Aggregate Supply diagram to illustrate a decrease in interest rates
increase in aggregate demand demand shifted right
56
Describe why, when P
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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