Exam 1; 9/26

Question 1

Cost benefit principle

Answer 1

The principle of weighing all costs & benefits to base your decision off which is greater

Question 2

Willingness to pay

Answer 2

Maximum monetary amount you are willing to spend on a product

Question 3

Economic Surplus

Answer 3

Total benefits minus total costs from a decision

Question 4

Opportunity Cost Principle

Answer 4

The principle of the true cost of something being the next best alternative you are giving up

Question 5

Scarcity

Answer 5

Understanding that resources are limited

Question 6

Sunk cost

Answer 6

a cost that has been incurred and cannot be reversed

Question 7

Marginal Principle

Answer 7

breaking “how many” decisions down into smaller parts, weighing marginal benefits & costs, incremental decisions

Question 8

Marginal Benefit

Answer 8

extra benefits from one additional unit

Question 9

Marginal cost

Answer 9

Extra cost from one additional unit

Question 10

Interdependence principle

Answer 10

The principle of your best choice depending on your other choices/choices of others

Question 11

Ceteris Paribus

Answer 11

Latin for “Holding other things constant”

Question 12

Law of demand

Answer 12

tendency for demand to be higher when price is lower

Question 13

Rational rule for buyers

Answer 13

Keep buying until price equals marginal benefit

Question 14

Rational rule for sellers

Answer 14

Keep selling until price equals marginal cost

Question 15

Four step process of Market Demand?

Answer 15

Survey, add up total quantity demanded at each price by all customers, scale up, plot quantity demanded at each price

Question 16

Six demand shifters?

Answer 16

income, preferences, prices of related goods, expectations, congestion & network effects, type & number of buyers

Question 17

Normal Good

Answer 17

Higher income causes an increase in demand

Question 18

Inferior good

Answer 18

higher income causes a decrease in demand

Question 19

Complementary good

Answer 19

Good that goes well with another good

Question 20

Substitute good

Answer 20

goods that can replace one another

Question 21

5 Supply shifters?

Answer 21

Input prices, productivity and technology, prices of related outputs, expectations, the type & number of sellers

Question 22

Complements in production

Answer 22

Goods that are made together

Question 23

Substitutes in production

Answer 23

alternative uses of resources

Question 24

Perfectly competitive market

Answer 24

A market where all firms in an industry sell the same good, and there are lots of buyers and sellers

Question 25

Planned economy

Answer 25

Centralized decisions are made regarding what is produced, by whom, how, and who gets what

Question 26

Market economy

Answer 26

Each individual makes their own production & consumption decisions, buying and selling in markets

Question 27

Equilibrium

Answer 27

Where quantity supplied meets quantity demanded