Exam 1

Question 1

Opportunity Cost

Answer 1

Actual cost + time

Question 2

Decision at the Margin

Answer 2

Marginal/Additional/Gain – Finished amount – initial amount

Question 3

Scarcity, Opportunity Cost, and Marginal Analysis

Answer 3

Resources are scarce – It is always necessary to make choices
All costs are opportunity costs
How much?
People usually exploit opportunities to make themselves better off.

Question 4

Distribution Systems and Incentives

Answer 4

First-come, first-serve: People have an incentive to spend time in line
Given to those willing to pay the most: People have an incentive to earn money
Government policy assigns goods: People have an incentive to lobby the government

Question 5

Inflation and Unemployment

Answer 5

Increase in printing money increases the economy’s demand leading to higher prices and more good. Lowering unemployment.
Higher inflation leads to lower unemployment

Question 6

The circular flow model

Answer 6

Households earn income when firms purchase resources in resource markets
Spend money is Product Market
Earn money is Resource Market

Question 7

Efficiency in the production possibilities model

Answer 7

Under line - Inefficient/Feasible
On line - Efficient/Feasible
Over line - Infeasible

Question 8

Opportunity Cost

Answer 8

In term of other element

Question 9

Microeconomics

Answer 9

how prices and quantities are determined through interaction of buyers and sellers

Question 10

Macroeconomics

Answer 10

Factors that affect the entire economy

Question 11

Positive Statement

Answer 11

seeks to describe the world as it is

Question 12

Normative statement

Answer 12

offers an opinion as to the way the world should be

Question 13

Bowed-out PPFs

Answer 13

opportunity cost in the curvature

Question 14

Linear PPFs

Answer 14

opportunity cost in the slope

Question 15

Quantity Demanded

Answer 15

The amount of a good that buyers are willing and able to purchase at a given price

Question 16

Demand Curve

Answer 16

A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase

Question 17

Demand Schedule

Answer 17

A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase

Question 18

Law of Demand

Answer 18

The claim that the quantity demanded of a good falls when the price of that good rises

Question 19

Movement Along the Demand

Answer 19

Actions such as price

Question 20

Shift of the Demand

Answer 20

Change in taste, increase in consumers, change in factors that determine demand.

Question 21

Disequilibrium

Answer 21

Surplus means the price is higher than at equilibrium

Question 22

Price Elasticity of Demand

Answer 22

Inelastic – no close substitutes, do not change purchasing behavior, medical
Elastic – Close substitutes, can change, do change purchasing behavior, luxury
Most, Between, Least – Red bell pepper, Vegetables, Food
%Change – 100 x Change / Average

Question 23

Mid Point

Answer 23

For Q and P 100 x (Y-X)/((Y+X)/2))
Elasticity = Q/P
< 1 in, 1 unit , >1 El

Question 24

Income Elasticity

Answer 24

%Q/%I
> 0 Normal
< 0 Inferrior
Substitutes, complements

Question 25

Substitutes, complements

Answer 25

Cross-Price - %Q/%P
> 1 Substitute
< 1 Compliment

Question 26

Supply

Answer 26

Supply is typically more elastic in the long run

Question 27

Consumer Surplus

Answer 27

Difference between what a buyer is willing to pay and what they pay

Question 28

Producer Surplus

Answer 28

Difference between the price a seller receives and how low they are willing to go.