EXAM 1-Ch. 2, 3, 4, 5 & price ceilings/floors (2/19)

Question 1

“ceteris paribus”

Answer 1

all else constant

Question 2

market

Answer 2

a group of buyers and sellers of a particular good or service

buyers determine demand for the product

sellers determine supply of the product

Question 3

product market

Answer 3

where goods/services are sold

Question 4

resource market

Answer 4

where resources (like labor) are bought and sold

think: a company buys labor by paying employees their salaries

Question 5

marginal analysis

Answer 5

basically asking youself if a certain thing is
“worth it to you”

Question 6

marginal definition

Answer 6

one more of something

Question 7

marginal benefit:

Answer 7

the dollar value placed on satisfaction if you buy one more of something

Question 8

marginal cost:

Answer 8

the dollar value of the sacrifice if you buy one more of something

Question 9

when marginal benefit is greater than marginal cost

MB>MC

Answer 9

we will take action

Question 10

positive statement

Answer 10

staten as if it’s a fact

Question 11

normative statement

Answer 11

a “should be” statement

like an opinion

Question 12

production possibilities frontier:

PPF

Answer 12

shows the maximum possible output of one good that can be produced with available resources, given the output of the alternative good over a set period of time

Question 13

PPF curve & efficiency

Answer 13

-any point on the PPF curve=using resources effeciently
-any point inside the PPF curve=inefficient
-any point outside the PPF curve=unattainable (can never happen)

Question 14

shifts in the PPF curve:

Answer 14

-change in quantity of resources
-change in quality of resources
-change in technology

Question 15

opportunity cost:

Answer 15

the value of the next best alternative

basically choosing one item/activity over the other

Question 16

the law of comparative advantage:

Answer 16

the individual, firm, or country with the lowest opportunity cost of producing a particular good should specialize in producing that good

if you have lowest opp. cost means that you should specialize in that!

opp. cost only involves the 2nd best choice (DO THE THING YOU’RE BEST AT DOING!)

Question 17

absolute advantage:

Answer 17

ability to produce a good or service using fewer resources (at lower cost) than other producers

Question 18

5 shifters of demand:

Answer 18

changes in:
-income of consumers
-price of related goods
-consumer expectations
-number of composition of consumers
-consumer tastes

Question 19

normal good:

Answer 19

when the demand for a good falls, income falls

*normal goods are the norm

Question 20

inferior good

Answer 20

when the demand for a good rises, income falls

*think: ramen noodles

Question 21

substitutes:

Answer 21

A
when a fall in the price of one good reduces the demand for another good, the two goods are called subsitutes

*think: hot dogs and hamburgers

Question 22

complements:

Answer 22

when a fall in the price of one good raises the demand for another good, the two goods are called complements

*think: peanut butter & jelly!

Question 23

competitive market:

Answer 23

describes a market where there are so many buyers and so many sellers that each has a negligible impact on the market price

*think: each ice cream seller has limited control over the price b/c other sellers offering similar products

Question 24

2 characteristics of a perfectly competitive market:

Answer 24

-the goods offered for sale are all exactly the same
-the buyers & sellers are so numerous that no single buyer or seller has any influence over the market price

Question 25

price takers:

Answer 25

must accept the price that the market determines

Question 26

monopoly:

Answer 26

market that only has one seller that sets the price

Question 27

quantity demanded:

Answer 27

the amount of the good that buyers are willing and able to purchase

Question 28

Law of Demand:

Answer 28

other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises

Question 29

Demand schedule:

Answer 29

a table that shows the relationship between the price of a good and the quantity demanded (holding everything else constant)

Question 30

Market demand:

Answer 30

the sum of all the individual demands for a particular good or service

Question 31

5 shifters of supply:

Answer 31

changes in: -technology -prices of inputs (relevant resources) -number of producers -producer expectations (about the future) -weather

Question 32

change in quantity demanded:

Answer 32

a change in price results in a change in quantity demanded ONLY

Question 33

Law of supply:

Answer 33

when price increases, more products are produced and when price decreases, less products are produced

Question 34

change in quantity supplied:

Answer 34

a change in price changes quantity supplied ONLY

Question 35

the market conflict:

Answer 35

producers want to sell product at highest price & buyers want to buy at the lowest price | so, leads to negogiation

Question 36

shortage

Answer 36

exists when the quantity demanded of a good exceeds the quantity supplied at a given price | not enough of the good to satisfy demand of customers

Question 37

surplus

Answer 37

exists when the quantity supplied of a good exceeds the quantity demanded at a given price | too much of the good available

Question 38

equilibrium

Answer 38

occurs when price of good=quantity sellers are willing/able to supply

Question 39

consumer surplus=

Answer 39

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays

Question 40

producer surplus=

Answer 40

the amount a seller is paid for a good minus the seller’s cost of providing it

Question 41

price floor:

Answer 41

the legal minimum price (price floor must be above equilibrium price to be effective) | often set by the government *remember: floor goes high, ceiling goes low ## Footnote basically it's the lowest price you can charge

Question 42

price ceiling:

Answer 42

the legal maximum price (must be set below equilibrium price to be effective) | *remember: floor goes high, ceiling goes low!

Question 43

price elasticity of demand:

Answer 43

a measure of how responsive consumers are to price changes

Question 44

elasticity of demand=

Answer 44

% change in qty demanded/% change in price | basically use the midpoint formula! ## Footnote elasticity of demand will always be negative!

Question 45

for a 1% change in the denominator (price)...

Answer 45

the numerator will change by the elasticity of demand %

Question 46

if the absolute value of elasticity of demand > 1

Answer 46

then the elasticty of demand is **elastic**, or very responsive to price changes | *raise price a little bit & lose lots of customers...

Question 47

if the absolute value of elasticty of demand=1

Answer 47

then elasticity of demand is **unit elastic**

Question 48

if the absolute value of the elasticity of demand < 1

Answer 48

then the elasticity of demand is **inelastic**, which means that consumers are not very responsive to price changes | *raise price a little bit & you won't lose many customers!

Question 49

total revenue=

Answer 49

price * quantity

Question 50

inelastic demand

Answer 50

raise price & total revenue increases, lower price & total revenue decreases

Question 51

elastic demand

Answer 51

raise price & total revenue decreases, lower price & total revenue increases

Question 52

unit elastic

Answer 52

raise or lower price & total revenue stays the same