exam 1

Question 1

economics

Answer 1

the study of how people individually and collectively, manage resources

Question 2

microeconomics

Answer 2

the study of how individuals and firms manage resources

Question 3

macroeconomics

Answer 3

the study of the economy on a regional, national, or international scale

Question 4

rational behavior

Answer 4

making choices to achieve goals in the most effective way possible

Question 5

four questions of economics

Answer 5

1. what are the wants and constraints of those involved?
2. what are the trade-offs?
3. How will others respond?
4. Why isn’t everyone already doing it?

Question 6

Scarcity

Answer 6

the condition of wanting more than we can get with available resources

Question 7

opportunity cost

Answer 7

the value of what you have to give up in order to get something; the value of your next best alternative

Question 8

marginal decision making

Answer 8

comparison of additional benefits of a choices against the additional costs it would bring without considering realted benefits and costs of past choices

Question 9

sunk costs

Answer 9

costs that have already been incurred and cannot be recovered or refunded

Question 10

incentive

Answer 10

something that causes people to to behave in a certain way by changing the trade-offs they face

Question 11

nonnormal ways the market may be working

Answer 11

• innovation
• market failure
• intervention
• goals other than profit

Question 12

positive statement

Answer 12

a factual claim about how the world actually works

Question 13

normative statement

Answer 13

a claim about how the world should be

Question 14

four characteristics of perfectly competitive markets

Answer 14

• standarized good
• full information
• no transaction costs
• participants are price takers

Question 15

price taker

Answer 15

a buyer or seller who cannot affect the market price

Question 16

law of demand

Answer 16

all else equal, quantity demanded rises as prices falls

Question 17

nonprice determinants of demand

Answer 17

• consumer preferences
• prices of related goods
• incomes
• expectations
• number of buyers

Question 18

shifts in the demand curve are caused by_____

Answer 18

nonprice determinants of demand

Question 19

movement along the demand line

Answer 19

increase/decrease in quantity demanded

Question 20

law of supply

Answer 20

all else held equal, quantity supplied rises as price rises

Question 21

nonprice determinants of supply

Answer 21

• price of related goods
• technology
• price of inputs
• expectations
• number of sellers

Question 22

surplus

Answer 22

excess supply

Question 23

shortage

Answer 23

excess demand

Question 24

midpoint formula

Answer 24

(((Q2-Q1)/((Q1+Q2)/2)) / (((P2-P1)/((P1+P2)/2))

Question 25

determinants of price elasticity of demand

Answer 25

• availability of substitutes
• degree of necessity
• cost relative to income
• adjustment time
• scope of the market

Question 26

perfectly elastic demand curve

Answer 26

horizontal

Question 27

perfectly inelastic demand curve

Answer 27

vertical

Question 28

elastic

Answer 28

demand that has an absolute value of elasticity greater than 1

Question 29

inelastic

Answer 29

demand that has an absolute value of elasticity less than 1

Question 30

unit-elastic

Answer 30

demand that has an absolute value of elasticity exactly equal to 1

Question 31

quantity effect

Answer 31

decrease in revenue that results from selling fewer units of the good

Question 32

price effect

Answer 32

increase in revenue that results from receiving a higher price from each unit sold

Question 33

total revenue _____ when demand is elastic and price goes up

Answer 33

falls

Question 34

total revenue _____ when demand is inelastic and price goes up

Answer 34

increases

Question 35

determinants of price elasticity of supply

Answer 35

• availability of inputs
• flexibility of the production process
• adjustment time

Question 36

cross-price elasticity of demand

Answer 36

(%change in quantity of A demanded) / (% change in price of B)

Question 37

income elasticity of demand

Answer 37

(%change in quantity demanded) / (% change in income)

Question 38

missing market

Answer 38

there is no place for potential buyers and sellers to exchange a particular good or service

Question 39

three reasons for govt. to intervene in market

Answer 39

• market failure
• changing the distribution of surplus
• encouraging or discouraging consumption

Question 40

price ceilings are nonbinding if the ceiling is set _____ the equilibrium price

Answer 40

above

Question 41

price floors are nonbinding if the floor is set ______ the equilibrium price

Answer 41

below

Question 42

does a tax on sellers affect supply?

Answer 42

yes, supply decreases

Question 43

does a tax on sellers affect demand

Answer 43

no, demand stays the same

Question 44

how does a tax on sellers affect the market eq.

Answer 44

eq price rises, quantity demanded falls

Question 45

does a tax on buyers affect the supply curve

Answer 45

no supply stays the same

Question 46

does a tax on buyers affect the demand curve

Answer 46

yes, demand decreases

Question 47

how does a tax on buyers affect market eq.

Answer 47

eq price and quantity demanded both fall

Question 48

government tax revenue

Answer 48

Tax* quantity post-tax

Question 49

does a subsidy affect supply curve

Answer 49

yes, supply increases

Question 50

does a subsidy affect demand curve

Answer 50

no demand stays the same

Question 51

how does a subsidy affect the market eq

Answer 51

eq price decreases and eq quantity increases