FIN 512

Question 1

Present value (PV) equation

Answer 1

PV = FV / (1 + r)^t

Question 2

Future value (FV) equation

Answer 2

FV = PV (1 + r)^t

Question 3

General demand function

Answer 3

f(P, M, P_r, T, P_e, N)
P: price
M: per capita income
P_r: price of related good or service
T: taste patterns of consumers
P_e: expected future price
N: size of market

Question 4

Normal good vs inferior good

Answer 4

Normal good directly relates to demand

Inferior good inversely related to demand

Question 5

Substitute vs compliment good

Answer 5

Price of substitute good inversely related to demand

Price of complimentary good directly related to demand

Question 6

General supply function

Answer 6

f(P, P_i, P_r, T, P_e, F)
P: price (direct)
P_i: price of inputs (inverse)
P_r: price of related production goods
T: technology (direct)
P_e: price expectations (inverse)
F: number of firms in market (direct)

Question 7

Supply: substitute vs compliment good

Answer 7

Inverse supply for price of substitutes

Direct supply for price of compliment

Question 8

Total economic cost

Answer 8

Opportunity costs of market-supplied resources (explicit costs) + opportunity costs of owner-supplied resources (implicit costs)