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ECON 142 > Exam 3: Chapter 2, 9, 10 & 10's Appendix > Flashcards

Exam 3: Chapter 2, 9, 10 & 10's Appendix Flashcards

1
Q

Utility

A

Happiness or satisfaction you get from buying or doing something

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2
Q

What does utility drive

A

demand

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3
Q

What do we assume about how people consume to maximize their utility

A

they consume based on what they can afford

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4
Q

Does utility vary person to person on the same object

A

yes

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5
Q

Marginal Utility

A

the additional happiness you get when you consume one more of the same thing

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6
Q

Diminishing Marginal Utility

A

as you consume more units, you get more utility as a total but the additional utility you get per unit decreases

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7
Q

Describe a situation of diminishing marginal utility

A

When drinking beer (2nd beer is never as good as the 1st)

When eating a food (5th one is never as good as the 2nd)

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8
Q

What does the graph (plotted points connected with straight lines) look like for Total Utility

A

Starts increasing then levels out and then eventually goes down

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9
Q

What does the graph (plotted points connected with straight lines) look like for Marginal Utility

A

Starts high and then slowly decreases as more are consumed

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10
Q

Does diminishing marginal utility apply to money, if so explain why

A

YES because the more money you make, the higher the taxes you pay because it matters that you pay out as much of your salary as a poor person does (you both pay enough to hurt you the same amount even if it is different amounts of money)

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11
Q

What is the abbreviation for Marginal Utility

A

MU

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12
Q

As long as MU is > 0 you are getting…

A

satisfaction/happiness from what you are consuming

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13
Q

Demand isn’t only what we want…it is what we

A

are willing to pay for it

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14
Q

If consumers did not operate on a budget, how would we maximize our utility

A

we would just buy whatever gave us the most utility no matter the cost

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15
Q

How do we maximize our utility on a budget

A

We buy the thing with the highest utility per dollar

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16
Q

What is the formula for finding utility per dollar

A

MU/P

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17
Q

Calculate the utility per dollar for the following items:

Total Utility: 100 Price: $40
: 12 : $3
:90 : $30

A
  1. 2.5
  2. 4
  3. 3
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18
Q

Which of the following is true?

a) As consumption increases, total utility must increase
b) Total utility increases initially but then decreases as marginal utility approaches zero
c) If marginal utility is greater than zero, total utility is increasing
d) If marginal utility is zero, total utility is at a minimum

A

C

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19
Q

How does utility drive demand?

A

as price goes up, we get less MU per dollar than before so we buy less

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20
Q

Indifference Curve

A

set of combinations of goods that provide the same level of utility

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21
Q

Marginal Rate of Substitution

A

how many of one thing would you give up to get more of another and be just as happy

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22
Q

if there is a steep indifference curve (more like L shape) which good do you like more… the top or bottom

A

Bottom

23
Q

If there is a small sloped indifference curve (L on long side w/ short side sticking up vertical axis) which good do you like more…the top or bottom

A

Top

24
Q

The higher the indifference curve… the higher or lower the utility

A

Higher

25
Q

What are the top four countries we import from

A

China
Canada
Mexico
European Union

26
Q

What are the top four countries that we export to

A

Canada
Mexico
China
European Union

27
Q

What is a PPF and what is the other abbreviation/name for it

A

Production Possibilities Frontier

PPC- Production Possibilities Curve

28
Q

What is a Production Possibilities Frontier/Curve

A

All posible combinations of output that can be produced using all inputs efficiently

29
Q

How do companies get gains from trade

A

specialize in the thing that they do best in and then trade

30
Q

What side of the PPF is all things the company cannot produce on it’s own

A

top/right

31
Q

Comparative Advantage

A

Where opportunity cost is lowest

32
Q

Should a company export the good with or without the competitive advantage

A

with

33
Q

Absolute Advantage

A

a party can produce more of a good than its competitors using the same amount of resources

34
Q

autarky

A

not trading

35
Q

What are the two steps to figure out the terms of trade

A
  1. Calculate the opportunity cost of making 1 of each good in each country
  2. Take any ratio in between and that is the terms of trade
36
Q

What do you need to make sure to do when you write the terms of trade on the test

A

LABEL BOTH NUMBERS WITH WHAT GOOD IT IS

37
Q

Can trade make both countries better off

A

yes

38
Q

who are the losers from free trade and what do they do about losing

A

the individual companies that experience loses. they ask for tariffs and quotas to be placed in action

39
Q

What is a tariff

A

a tax on an import

40
Q

what are the two types of tariffs

A

specific and ad valorem

41
Q

what is a specific tariff

A

a specific dollar amount

42
Q

what is a ad valorem tariff

A

a percentage of the value of the import

43
Q

why do we care about tariffs

A

because they not only raise the price of the imported good but also the domestic good

44
Q

Smoot-Hawley

A

Act from the 1930s that was attempting to protect the industries in america only it made the depression worse

45
Q

does the Smoot-Hawley act still affect us today

A

yes

46
Q

what are the four punchlines of tariffs

A
  1. under a tariff, economic surplus is reduced…
  2. even taking into account $ earned by the government (tax revenue)…
  3. Tariffs create waste (deadweight loss)
  4. Most economists do not support tariffs
47
Q

what is the difference between tariffs and quotas in terms of revenue

A

the revenue goes to the foreign producers

48
Q

Price will be bid up in a quota until…

A

the quantity that is the quota exactly fills the gap between quantity demanded and quantity supplied by domestic producers

49
Q

What are the four arguments in support of tariffs and quotas

A
  1. Saving jobs
  2. Protecting higher wages
  3. Protecting infant industries
  4. Protecting national security
50
Q

Describe and then tear apart the national security argument for quotas

A

if we put a quota on the food imported from a country so that they don’t supply all of our food, then if we go to war with them they cannot cut off our complete supply and starve us. ARGUMENT: why don’t we then just get our food from someone else because unless we are at war with the world then their will be no issue of starving.

51
Q

Describe and tear apart protecting infant industries argument for quotas

A

some industry new to america will one day compete in the market but right now it needs help so it doesn’t go under. ARGUMENT: if we protect them then they will never learn to flourish

52
Q

describe and tear apart the saving jobs and protecting higher wages arguments for quotas

A

trying to save jobs and wages by setting a quota on the goods benefits very few and hurts many, 5000 people might get to keep jobs but everyone else pays $10 more for a pair of shoes, benefit of tariff: $200 million cost of tariff: $250 million

53
Q

Elasticity formula

A

Change in Quantity Demanded/Average Quantity Demanded _______________________________________________________________

                         Change in Price/Average Price
54
Q

How do you calculate opportunity cost (give example)

A

If a country can make 16 wheat or 8 oil…what is the opp. cost of making 1 wheat?

If they make 16 wheat…then they make no oil
Make the wheat 1 (16/16) and the oil (8/16)

When they make 1 wheat, they do not make 1/2 an oil

ECON 142 (3 decks)

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