Econ Exam: Final May 13 ( tests 1 & 2) Flashcards
The law of demand:
tells us that demand curves slope down to the right
When the slope of a curve is positive, this means:
an increase in the independent variable will cause an increase in the dependent variable
When the slope of a curve is negative, this means
a decrease in the independent variable will cause an increase in the dependent variable
What are the three economic agents?
firms, government, household
what are the 4 economic questions?
How to produce? How much to produce? Who are we producing for? what are we producing?
Which of these 4 concepts are illustrated in the ppc curve?
a. scarcity
b. equity
c. efficiency
d. choices
scarcity, efficiency, choices
What are variables that affect the demand of a product?
price of substitutes, price of compliments, price of good x
What are variables that affect the demand of a product?
expectations of consumers, income of consumers, price of good x
What are reasons for the law of demand holding true?
the substitution effect, the income effect, law of diminishing marginal utility
Which of the following is consistent with the law of demand?
an increase in the price of salads will cause a decrease in the quantity of salads demanded
Which of the following is consistent with the law of demand?
an increase in the price of fusions causes a decrease in the quantity of fusions demanded
which statement best illustrates the concept of diminishing marginal utility?
a typical consumer will receive less extra satisfaction from consuming the fourth hamburger per week than the third hamburger per week
the term economic scarcity in economics refers to the fact that
no country can produce enough to satisfy everyone’s wants
The main difference between the long run and short run is that
in the short run, at least one input is fixed
which expression is another way of saying marginal benefit?
extra benefit
the law of supply is illustrated by a supply curve that is
upward sloping
economic scarcity is:
a problem every economy must deal with
an example of capital is :
an office computer
when a demand schedule is drawn on a graph:
the resulting curve has a negative slope, price is measured on the vertical axis, other variable are held constant
When the price of good (j) decreases the demand for good (k) increases. this means that j and k are:
complements
microeconomics covers which two goals?
efficiency and equity
the law of diminishing marginal utility means that as a typical consumer consumes units of a product:
total utility increases and marginal utility decreases
Which of the following is not held constant when a demand curve is drawn?
the price of the product itself
Which is an example of a normal good?
steak
which is a variable that affects supply?
technology
the law of demand is illustrated by a demand curve that is
downward sloping
There are four job offers available to you: a job that pays $80,000, $70,000, $65,000, and $55,000. If you were to choose the $70,000 option what would your opportunity cost be?
$80,000
A normative statement is one which
is based on value judgements
assume an economy is operating at some point on its ppc which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods
must also be decreased
The demand curve shows the relationship between
price and quantity demanded
the relationship between quantity supplied and price is ____ while the relationship btwn quantity demanded and price is____.
direct, inverse
camera and film are
complementary goods
utility refers to the
satisfaction which a consumer receives from a good or service
we would see an upward sloping demand curve for a
giffen good
T or F. economic scarcity deals with the fact that our economy runs out of certain resources.
FALSE
T or F. This is an example of a positive statement. Students should come to class everyday.
FALSE
T or F. ice cream and chocolate sauce would be examples of substitute goods
FALSE
T or F. purses and shoes would be examples of substitute goods
FALSE
T or F. a BMW is an example of a normal good
TRUE
T or F. a ppc that is a straight line has an increasing opportunity cost as we trade production of one good for another
false
t or f. there are many good giffen goods in our economy
false
the difference between the complete market demand function and single market demand function is the use of the concept ceteris paribus
true
T or F. market prices give us an idea of the relative value of products
true
the value of the marginal utility for a given unit is the same as the slope of the total utility at that quantity
true
T or F. the law of diminishing returns is a short run concept because capital can be changed in the long run
true
T or F. our economy determines the allocation of resources through prices and competitive markets
true
The market for ragu spaghetti sauce changes due to a price decrease in spaghetti. this change causes the following:
the demand curve will shift to the right, equilibrium price will rise, equilibrium quantity will rise
the market for wooden shelves changes due to a price decrease in lumber. this change causes the following:
the supply curve will shift to the right, equilibrium price will fall, equilibrium quantity will rise
the market for galaxy 17s changes due to a tax refund of $1000 going to every resident of Fargo. this change causes the following:
the demand curve will shift to the right, equilibrium price will rise, equilibrium quantity will rise
recent studies have shown that price elasticity of demand for theatrical plays are at current prices is approximately .150.
plays are relatively inelastic
if the price of plays increased by 10%:
consumers would decrease their purchases by less than 10%
to increase total revenue, theaters should
increase the price
recent studies have shown that the price elasticity of demand for snowmobiles at current prices is approximately 3.00
snowmobiles are relatively elastic
if the price of snowmobiles increased by 10%
consumers would decrease their purchase by more than 10%
to increase total revenue, snowmobile dealers should
decrease price
Calculate cross price elasticity for the following situation. The price of (a) increases from $8 to $9, which causes quantity demanded of (b) to increase from 10 to 11.
0.814
What is the significance of this?
these two goods are substitutes
Calculate the income elastic of demand for the following situation. A consumers income falls from $500 per week to $480 per week, which causes q demanded of (f) to decrease from 7 to 5.
8.350
what is the significance of the answer?
this good is normal
Want to make up a new elasticity to measure the responsiveness of consumers of ice cream to changes in the daily temperature. What is the formula used to calculate elasticity?
Q(new)-Q(old)/Q(new)+Q(old) all divided by T(new)-T(old)/T(new)+T(old)
in the previous question, what would be important?
the value of the calculated answer
if we were to calculate the price elasticity of supply and derive the answer .623, what would be the significance of your answer?
it is relatively inelastic
an increase in income shifts the consumers:
budget line to the right
a change in the slope of a budget line is solely the result of a change in
the price of one or both goods
a consumer with a fixed income will maximize utility when each good is purchased in amounts such that the
marginal utility per dollar spent is the same for all goods
cross price elasticity of demand measures how sensitive purchase of a specific product are to changes in:
the price of some other product
an indifference curve shows all
combinations of two products yielding the same total utility to a consumer
What are characteristics of indifference curves?
they are downsloping, they are convex to origin, their slope diminishes as we move from northwest to southeast on a given curve
in class we:
discuss concepts
t or f. a price ceiling would create a shortage in the market
true
t or f. most governments would more likely place a tax on an elastic item
false
eggs would be an example of an inelastic good
true
t or f. there would be no problem if indifference curves were to cross.
false
to be realistic, indifference curves have to be represented by straight lines most of the time.
false
t or f. the solution to the consumer maximization problem given in class is to find the point in which the budget line is just tangent to one indifference curve
true
t or f. consumer surplus is derived by a consumer that is willing to pay a higher price than the market price for a product
true
the government might impose a price flor on a market to protect consumers?
false
in economic models, we assume that consumers will be rational in their decision making
true
t or f. if a products current price is in the elastic portion of the demand curve, then total revenue could be increased by increasing the price
false
