ENG 2001 Quiz 2

Question 1

Economics is whats?

Answer 1

Social science. Study of how humankind provides for its material well being, science of making optimal choices

Question 2

Three fundamental questions

Answer 2

Which goods and services to produce?
How to produce?
How do we distribute output?

Question 3

Economic costs

Answer 3

Accounting costs + opportunity costs

Question 4

What is opportunity cost?

Answer 4

Cost of the next best alternative. The benefit you lose from choosing to engage in an activity by choosing the next best alternative.

Question 5

Microeconomics deals with what

Answer 5

Individuals, firms, their choices, and how their choices respond to changes in prices, incentives and information.
Demand, supply, and markets at a fundamental level

Question 6

What is macroeconomics

Answer 6

Deals with aggregate economy. How a large group such as governments or countries interact. Inflation, recession, econ growth, budget…

Question 7

What is Demand

Answer 7

Willingness and ability to purchase commodity/product at given price and time.
Willingness without ability is just want.

Question 8

Factors affecting demand

Answer 8

Preferences, price of related good, number of consumers, income, expected future prices

Question 9

Elasticity (demand)

Answer 9

Higher elasticity refers to flatter demand curve, more elastic.

Question 10

Factors of production

Answer 10

Land, labour, capital, entrepreneur

Question 11

Marginal costs

Answer 11

The cost of producing the last unit. ex: tenth unit changes total cost from 100 to 115, then tenth unit cost is 15

Question 12

Supply

Answer 12

Willingness and ability of individuals or firms to sell a product at a given price and time

Question 13

Factors affecting supply

Answer 13

Technology, environment, price of inputs, price of related goods/services, number of firms, expected future prices

Question 14

Market

Answer 14

Interaction between market demand and market supply determines market price

Question 15

Monopolistic competition

Answer 15

Firms produce similar products which are differentiated in terms of characteristics, allowing firms to enjoy a limited degree of market power.
Firms can engage in non-price competitions, price discrimination

Question 16

Oligopoly

Answer 16

Few large firms dominate the market, collude with eachother, non-price competition

Question 17

Reasons for market failure

Answer 17

Public, merits and demerit goods, externalities(pos/neg)

Question 18

Externalities

Answer 18

Spillover effects/side-effects, not accounted for in free market prices

Question 19

Merit goods

Answer 19

Socially desirable, typically under produced and under consumed

Question 20

Market power

Answer 20

Where marginal social costs and marginal social benefits coincide

Question 21

Comparative advantage

Answer 21

Entity can produce something at a lower opportunity cost compared to others

Question 22

Absolute advantage

Answer 22

Ability to produce more of a good using the same amount of inputs as others

Question 23

GDP, GNP

Answer 23

GDP - total value of all final goods and services produced within geographical area of a country
GNP - Total value of all goods and services produced by citizens of the country

Question 24

Ricardian trade model

Answer 24

2 country, 2 good model, focuses on comparative advantage which arises due to differences in tech or natural resources

Question 25

Hecksher ohlin model

Answer 25

Idea that country will export goods that it is generously endowed with

Question 26

Firm behaviour

Answer 26

Price taker or price maker depending of market power. Maximize economic profit

Question 27

Market power sources

Answer 27

number of other firms in the market, nature of output produced, regulations

Question 28

Scale of production

Answer 28

Increase output or produce at a larger scale with advantages

Question 29

Perfect competition

Answer 29

Large # of identical buyers and sellers interact
Buyer/seller have perfect information, and are price takers
Sell homogenous products

Question 30

Price discrimination 3 degrees

Answer 30

(monopolistic behaviour)
First degree - charges each buyer different price according to willingness
Second degree - Volume discount / wholesale pricing
Third degree - Segments market into two or more different groups(seniors, students)

Question 31

Market concentration

Answer 31

Herfindahl hirschman index to measure concentration. Function of n firms and their shares in the market