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Econ 110 > exam II > Flashcards

exam II Flashcards

1
Q

define the paradox of value

A

questions what is most valuable to an individual

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2
Q

the paradox of value is _________ __________

A

context-dependent

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3
Q

give an example of paradox value

A

diamonds vs water

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4
Q

define exchange value

A

one good will be more valuable money-wise (ie :diamond)

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5
Q

define use value

A

one good will be more valuable use-wise (ie: water)

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6
Q

define utility

A

reconciles the exchange and use value differences
how well something satisfies a person’s wants and needs

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7
Q

utility is ___________ and _________-__________

A

subjective; context-dependent

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8
Q

how is utility measured

A

willingness to pay

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9
Q

define willingness to pay

A

determined by the marginal utility; not by any inheritance property of the good and not by the amount of labor needed to produce a good

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10
Q

define marginal utility and give an example

A

value resulting from 1 additional unit
ex: if stranded in a desert, one gains more happiness from water than diamonds

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11
Q

define the law of diminishing marginal utility

A

each additional quantity of consumption provides less utility than before
eventually one good will outweigh another

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12
Q

if utility is best measured by _________ __ ___, and each addition unit provides _____ utility than the unit before, then there should be a ________ relationship between price and quantity demand

A

willingness to pay; less; negative

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13
Q

define the law of demand

A

there is a negative relationship between price and quantity

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14
Q

what are the three reasons a curve slopes downwards

A
  1. diminishing utility of consumption
  2. income effects
  3. substitution effect
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15
Q

an increase in price leads to what?

A

a reduction in the quantity demand

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16
Q

define quantity demand

A

the exact quantity demanded at a specific price

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17
Q

Q(P)=

A

a-b(P)

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18
Q

a decrease in price does not lead to…

A

a higher demand

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19
Q

define demand

A

the function of price and quality

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20
Q

what does a change in price cause

A

a movement along the demand curve

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21
Q

what does a change in demand cause

A

a shift in the demand curve

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22
Q

what five things determine demand? describe them

A
  1. taste and preferences
    as something becomes more popular, demand increases
  2. population of potential buyers
    as groups/ages/etc move/change, demand changes
  3. income
    normal- demand is positively related to income
    inferior- demand is negatively related to income
  4. price of complements/substitutions
  5. expectations
    increase/decrease in an exception of future prices lead to an increase/decrease in demand today
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23
Q

define complements

A

price of y negatively relates to demand of x

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24
Q

define substitute

A

price of y is positively correlated to demand of x

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25
Q

define elasticity

A

degree to which a change in price will affect the change in quantity

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26
Q

what does elasticity represent

A

how much something will change

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27
Q

what is elasticity effected by

A

by the strength of preference and availability of substitutes

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28
Q

suppliers of inelastic products have _____ leverage than consumers

A

more

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29
Q

suppliers of elastic products have ____ leverage than consumers

A

less

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30
Q

define consumer surplus

A

the sum of the differences between a consumer’s maximum willingness to pay the market price
a way of measuring consumer welfare

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31
Q

define supply

A

reflects the minimum amount that owners are willing to be compensated for different qualities of a good

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32
Q

define the law of supply

A

there is a positive relationship between price and quantity supply

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33
Q

what is the supply curve

A

profits incentivize forms to produce more
upward slope

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34
Q

what are the four determinants of supply?

A
  1. cost of inputs
  2. productivity
  3. number of producers
  4. expectations
35
Q

define producer surplus

A

sum of the difference between a producers minimum willingness to pay the the market price

36
Q

where is the producer surplus found

A

between the supply curve and market price

37
Q

define mondels in economics

A

the most basic and powerful model is supply and demand

38
Q

define model

A

a representation used to understand the way in which a particular system works

39
Q

define ceterius paribus

A

the assumption that all else is equal/constant

40
Q

comparisons are in ___________ equilibrium

A

partial

41
Q

define equilibrium

A

simultaneous interaction of supply and demand determine price for a good or service

42
Q

what is the equilibrium key

A

buyers compete with buyers, and sellers compete with sellers

43
Q

define price theory

A

as price changes so does demand

44
Q

what purposes do higher prices serve

A

consumers will conserve their (usage of a) good
incentivizes suppliers to bring more to market

45
Q

what purposes do lower prices serve

A

sends a strong signal that a product is not wanted
frees up scared resources for other goods

46
Q

as demand increases, supply ________ and price __________

A

decreases; increases

47
Q

as demand goes up, price _________ and quantity ___________

A

increases, increases

48
Q

as demand decreases, price _________ and quantity __________

A

decreases, decreases

49
Q

as supply goes up, price __________ and quantity ___________

A

decreases; increases

50
Q

as supply goes down, price ________ and quantity __________

A

increases; decreases

51
Q

as demand and supply go up, what happens to price and quantity

A

unknown price; increased quantity

52
Q

as demand increases and supply decreases, what happens to price and quantity

A

price goes up, unknown quantity

53
Q

as demand goes down and supply goes up, what happens to price and quantity

A

price goes down, unknown quantity

54
Q

as demand and supply go down, what happens to price and quantity

A

unknown price; quantity decreases

55
Q

how are principles of economics created

A

by spontaneous collaboration of people

56
Q

no centralized commission is needed to:

A

figure out how to adjust a products price
decide which supermarkets in which cities will get how many products to sell
which company would be best to process the remaining supply
which consumers will ultimately be allowed to consume it

57
Q

define free market

A

economic system in which prices are determined by unrestricted competition between individuals and firms

58
Q

what causes unequilibrium

A

minimum wage
price gouging laws
rent control
zoning

59
Q

define price control

A

arise from governmental intervention regarding the legality of certain activities

60
Q

define price floor

A

legal minimum set on prices for a particular good or service, such as minimum wage

61
Q

define price ceiling

A

legal maximum set on prices for a particular good or service, such as rent

62
Q

define direct cost

A

associated with price controls about shortages and products

63
Q

define indirect cost

A

associated with product quality, wait time, and substitution

64
Q

define dead weight loss

A

binding price controls lead to fewer goods being sold in a market

65
Q

what creates DWL

A

a reduction in number of mutually beneficial exchanges

66
Q

price ceilings ________ amount of supplies

A

decrease

67
Q

what are the four indirect effects of price control

A
  1. long-run supply/demand adjust
  2. enforcement cost increases
  3. quality declines
  4. black markets develop
68
Q

describe the long-run supply/demand adjust

A

it is a price floor, but if it is above equilibrium quantity is a surplus.

69
Q

describe enforcement cost increase

A

a small misdemeanor can cost millions of dollars, if not lives.
must be enforced by laws or people

70
Q

describe quality declines

A

a price ceiling that is higher than the equilibrium
supply decreases

71
Q

describe black markets

A

price controls replace lawful, competitive and mutually beneficial exchange with black markets
endanger both consumers and producers

72
Q

define taxes

A

a wedge between price consumers pay and the price suppliers receive

73
Q

what are taxes commonly represented by?

A

a decrease in supply or demand

74
Q

what is the goal of taxes

A

studying tradeoff associated with different goods to minimize market distortion

75
Q

what do taxes attempt to limit?

A

DWL

76
Q

what is Pb

A

price paid by buyer

77
Q

what is Ps

A

price received by seller

78
Q

what does taxing in an elastic supply or demand generate?

A

the least revenue with creating the most DWL

79
Q

what does taxing imply

A

goods with few substitutes should be more heavily taxed

80
Q

what type of tradeoff is taxes

A

efficiency vs. equity

81
Q

define tax incident

A

a degree to which individuals are burdened by the tax

82
Q

as elasticity increases, tax burdens ____________

A

decrease

83
Q

as inelasticity increases, tax burdens ___________

A

increase

84
Q

what happens to tax cuts if elasticity is greater than demand

A

tax cuts will disproportionately help consumers

Econ 110 (4 decks)

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