Exam 1

Question 1

What are the principles of Economics?

Answer 1

1. People face Tradeoffs
2. People responds to incentives
3. The cost of something is what you give up to get it
4. Rational people make decisions at the margin
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Government can sometimes improve market outcomes
8. Price level increases when the government ‘prints’ too much money
9. There is a short run trade off between inflation and unemployment.
10. A country’s standard of living depends on its ability to produce good and services

Question 2

Factors of Production

Answer 2

Land
Labour
Capital (not money)
Entrepreneurship

Question 3

Production Possibilities Prontiers

Answer 3

A line showing all the combinations of goods and services that can be produced given the available resources

Question 4

Opportunity Cost

Answer 4

Sacrifice of one or another, give it up to receive goods

loos/gain

Question 5

Factors of Production

Answer 5

Land
Labour
Capital
Entrepreneurship

Question 6

Production Possibilities Frontiers (PPF)

Answer 6

A line showing all the combinations of goods and services that can be produced given the available resources

Question 7

Shift

Answer 7

Resources or technology for both goods are affected

Question 8

Rotation

Answer 8

If the resources or technology are affected for only one good

Question 9

Slope of PPF

Answer 9

Opportunity cost of 1 unit of good x

Question 10

Positive Statement

Answer 10

Facts or can be tested

Question 11

Normative Statement

Answer 11

Subjective statement that cannot be tested and is someone’s opoion

Question 12

Correlation

Answer 12

Tells you if two variables move together, can sometimes not be related

Question 13

Exogenous Variables

Answer 13

Independent variables

Question 14

Endogenous Varianles

Answer 14

Dependent Variables

Question 15

Law of Demand

Answer 15

As the price of a good decreases, the quantity demanded increases

Question 16

How do you move along the demand curve?

Answer 16

If the price of a good changes and the quantity demanded changes

Question 17

How do you shift the demand curve?

Answer 17

Factors other than price of a good change

Question 18

Factors that shift demand curves

Answer 18

Income
Price and availability of related goods
Weather
Tastes/trends
Number of buyers
Expectations
Government Regulations

Question 19

Normal Good

Answer 19

Demand increases when income increases and demand decreases when income decreases

Question 20

Inferior Good

Answer 20

As income increases, demand decreases.

As income decreases, demand increases

Question 21

Law of Supply

Answer 21

As the price of a good increases, the quantity supplied increases

Question 22

Supply curve shifts

Answer 22

Change in technology
Changes in input costs
Number of sellers
Weather
Government regualtions
Expectation

Question 23

Types of changes in Equilibrium

Answer 23

Demand increases/decreases

Supply Increases/Decreases