Exam 1

Question 1

Incentives, trade-offs, opportunity cost, marginal thinking, trade

Answer 1

reasons to study econ

Question 2

the changing of only one variable at a time and holding all other things constant

Answer 2

ceterisparibas

Question 3

a factor that is controlled in a model

Answer 3

endogenous

Question 4

a factor that is outside of the model

Answer 4

exogenous

Question 5

a statement that is testable and verified

Answer 5

positive statement

Question 6

a statement that can not be tested or verified

Answer 6

normative

Question 7

the highest valued next best alternative that must be sacrificed to obtain something or satisfy a want

Answer 7

opportunity cost

Question 8

model that shows the maximum amount of any 2 products that can be produced by a society with a fixed amount of resources

Answer 8

production possibilities frontier

Question 9

when a person can produce a good at a lower opportunity cost they have the …

Answer 9

comparative advantage

Question 10

If a person has the comparative advantage they should … and …

Answer 10

specialize and trade

Question 11

there exists an inverse relatioinship between the price of the good and the amount buyers are willing to purchase

Answer 11

the Law of Demand

Question 12

Movement along the demand curve is only caused by (change in quantity demanded)

Answer 12

change in price

Question 13

Occurs when something other than price changes (called a change in demand)

Answer 13

a shift in the entire curve

Question 14

Shifters for ? are changes in income levels, tastes and preferences, prices of related goods, future expectations

Answer 14

Demand

Question 15

there exists a direct relationship between the price of a good and the amount of it that will be offered for sale

Answer 15

the Law of Supply

Question 16

Shifters for ? are changes in input costs, technology, taxes and subsidies, expectations

Answer 16

Supply

Question 17

the market force that pushes markets to equilibrium

Answer 17

Adam Smith’s “Invisible Hand”

Question 18

the flexibility of a consumer’s desire for a product

Answer 18

price elasticity of demand

Question 19

looks at how sensitive % change in quantity demanded is to % change in price

Answer 19

price elasticity of demand

Question 20

more substitutes, a bigger share of the budget, more time, and convenience all cause increased …

Answer 20

elasticity of demand

Question 21

something is … if the elasticity of demand = 0

Answer 21

perfectly inelastic

Question 22

something is … if the elasticity of demand is between -1 and 0

Answer 22

relatively inelastic

Question 23

something is … if the elasticity of demand is between -infinity and -1

Answer 23

relatively elastic

Question 24

something is … if the elasticity of demand is -infinity

Answer 24

perfectly elastic

Question 25

measures how a change in income affects spending

Answer 25

income elasticity of demand

Question 26

income elasticity of demand equation

Answer 26

% change in quantity demanded / % change in income

Question 27

what type of good is it if the income elasticity of demand is greater than 0

Answer 27

normal good

Question 28

what type of good is it if the income elasticity of demand is greater than 1

Answer 28

luxury good

Question 29

what type of good is it if the income elasticity of demand is less than 0

Answer 29

inferior good