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ECON 2150 > MIDTERM 1 - Textbook Review > Flashcards

MIDTERM 1 - Textbook Review Flashcards

1
Q

What is Economics?

A

Economics is the science that deals with the allocation of limited resources to satisfy unlimited human wants.

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2
Q

What is Economics?

A

Economics is the science that deals with the allocation of limited resources to satisfy unlimited human wants.

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3
Q

Economics is often described as the science of

A

constrained choice.

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4
Q

Economics is often described as the science of

A

constrained choice.

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5
Q

What is an exogenous variable

A

An exogenous variable is one whose value is taken as GIVEN in a model.

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6
Q

An endogenous variable is…

A

determined WITHIN the model being studied.

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7
Q

In the following example about a ball falling, determine which variables listed below are exogenous and endogenous:

  • gravity
  • density of air
  • speed of ball
  • time elapsed till ball hits ground
A

Exogenous: gravity, density of air
Endogenous: speed of ball, time elapsed till ball hits ground.

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8
Q

What is constrained optimization?

A

An analytical tool for making the best (optimal) choice, taking into account any possible limitations or restrictions on the choice.

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9
Q

There are two parts of a constrained optimization problem, these are?

A

(1) the objective function
(2) the constraint(s)

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10
Q

What is the objective function?

A

The relationship that a decision maker seeks to maximize or minimize.

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11
Q

Constraints:

A

The restrictions or limits imposed
on a decision maker in a constrained optimization problem.

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12
Q

marginal change

A

how a dependent variable changes as a result of adding ONE unit of an independent variable.

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13
Q

What does marginal cost measure?

A

incremental impact of last unit of the independent variable (out-put) on the dependent variable (total cost)

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14
Q

What does marginal cost measure?

A

incremental impact of last unit of the independent variable (out-put) on the dependent variable (total cost)

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15
Q

Equilibrium

A

A state or condition that will continue indefinitely as long as factors exogenous to the system remain unchanged.

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16
Q

Equilibrium

A

A state or condition that will continue indefinitely as long as factors exogenous to the system remain unchanged.

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17
Q

In a competitive market, equilibrium is achieved at what price?

A

When the price at which the quantity offered for sale just equals the quantity demanded by consumers.

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18
Q

In a competitive market, equilibrium is achieved at what price?

A

When the price at which the quantity offered for sale just equals the quantity demanded by consumers.

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19
Q

Comparative Statics:

A

Analysis used to examine how a change in some exogenous variable will affect the level of some endogenous variable in an economic system.

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20
Q

What does the change of exogenous variables do to supply and demand curve?

A

shifts the curve.

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21
Q

Positive Analysis:

A

Analysis that attempts to explain how an economic system works or to predict how it will change over time.

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22
Q

normative analysis

A

Analysis that typically focuses on issues of social welfare, examining what will enhance or detract from the common good.

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23
Q

Microeconomics examines:

A

the economic behavior of individual economic decision units, such as a consumer or a firm, as well as groups of economic agents, such as households or industries.

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24
Q

market demand
curve

A

A curve that
shows us the quantity of
goods that consumers are
willing to buy at different
prices.

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25
A market can be characterized along three dimensions?
Commodity, geography, and time.
26
derived demand
Demand for a good that is derived from the production and sale of other goods. (ex. corn syrup as a sweetener is dependant on soft drinks)
27
direct demand
Demand for a good that comes from the desire of buyers to directly consume the good itself. (ex. demand for soft drink itself)
28
law of demand
The inverse relationship between the price of a good and the quantity demanded, when all other factors that influence demand are held fixed.
29
market supply curve
A curve that shows us the total quantity of goods that their suppliers are willing to sell at different prices.
30
market supply curve
A curve that shows us the total quantity of goods that their suppliers are willing to sell at different prices.
31
Law of supply
The positive relationship between price and quantity supplied, when all other factors that influence supply are held fixed.
32
factors of production
Resources such as labor and raw materials that are used to produce a good.
33
factors of production
Resources such as labor and raw materials that are used to produce a good.
34
equilibrium
A point at which there is no tendency for the market price to change as long as exogenous variables remain unchanged.
35
excess supply
A situation in which the quantity supplied at a given price exceeds the quantity demanded.
36
excess demand
A situation in which the quantity demanded at a given price exceeds the quantity sup- plied.
37
price elasticity of demand
A measure of the rate of percent- age change of quantity demanded with respect to price, holding all other determinants of demand constant.
38
perfectly inelastic demand
Price elasticity of demand equal to 0.
39
inelastic demand
Price elasticity of demand between 0 and −1.
40
unitary elastic demand
Price elasticity of demand equal to −1.
41
unitary elastic demand
Price elasticity of demand equal to −1.
42
elastic demand
price elasticity of demand between −1 and −∞.
43
perfectly elastic demand
Price elasticity of demand equal to −∞.
44
linear demand curve
A demand curve in the form Q = a − bP.
45
inverse demand curve
An equation for the demand curve that expresses price as a function of quantity.
46
choke price
The price at which quantity demanded falls to 0.
47
constant elasticity demand curve
A demand curve of the form Q = aP^−b, where a and b are positive constants. The term −b is the price elasticity of demand along this curve.
48
total revenue
Selling price times the quantity of product sold.
49
Factors that effect price elasticity of demand:
(1) Demand tends to be more price elastic when there are good substitutes for a product (2) Demand tends to be more price elastic when a consumer’s expenditure on the product is large (either in absolute terms or as a fraction of total expenditures) (3) Demand tends to be less price elastic when the product is seen by consumers as being a necessity
50
income elasticity of demand
The ratio of the percentage change of quantity demanded to the percentage change of income, holding price and all other determinants of demand constant.
51
cross-price elasticity of demand
The ratio of the percentage change of the quantity of one good demanded with respect to the percentage change in the price of another good.
52
demand substitutes
Two goods related in such a way that if the price of one increases, demand for the other increases
53
demand substitutes
Two goods related in such a way that if the price of one increases, demand for the other increases
54
demand complements
Two goods related in such a way that if the price of one increases, demand for the other decreases.
55
demand complements
Two goods related in such a way that if the price of one increases, demand for the other decreases.
56
price elasticity of supply
The percentage change in quantity supplied for each percent change in price, holding all other determinants of supply constant.
57
long-run demand curve
The demand curve that pertains to the period of time in which consumers can fully adjust their pur- chase decisions to changes in price.
58
short-run demand curve
The demand curve that pertains to the period of time in which consumers cannot fully adjust their purchase decisions to changes in price.
59
long-run supply curve
The supply curve that pertains to the period of time in which producers can fully adjust their supply decisions to changes in price.
60
long-run supply curve
The supply curve that pertains to the period of time in which producers can fully adjust their supply decisions to changes in price.
61
short-run supply curve
The supply curve that pertains to the period of time in which sellers can- not fully adjust their supply decisions in response to changes in price.
62
durable goods
Goods, such as automobiles or airplanes, that provide valuable services over many years.
63
basket
A combina- tion of goods and services that an individual might consume.
64
consumer prefer- ences
Indications of how a consumer would rank (compare the desirability of) any two possible baskets, assuming the baskets were available to the consumer at no cost.
65
ordinal ranking
Ranking that indicates whether a consumer prefers one basket to another, but does not contain quantita- tive information about the intensity of that preference.
66
cardinal ranking
A quantitative measure of the intensity of a preference for one basket over another
67
utility function
Utility function: a function that measures the level of satisfaction a consumer receives from any basket of goods and services.
68
marginal utility
The rate at which total utility changes as the level of consumption rises.
68
marginal utility
The rate at which total utility changes as the level of consumption rises.
69
principle of diminishing marginal utility
The principle that after some point, as consumption of a good increases, the marginal utility of that good will begin to fall.
69
principle of diminishing marginal utility
The principle that after some point, as consumption of a good increases, the marginal utility of that good will begin to fall.
70
indifference curve
A curve connecting a set of consumption baskets that yield the same level of satisfaction to the consumer.
70
indifference curve
A curve connecting a set of consumption baskets that yield the same level of satisfaction to the consumer.
71
marginal rate of substitution
The rate at which the consumer will give up one good to get more of another, holding the level of utility constant.
72
diminishing marginal rate of substitution
A feature of consumer preferences for which the marginal rate of substi- tution of one good for another good diminishes as the consumption of the first good increases along an indifference curve.
73
perfect substitutes
(in consumption) Two goods such that the marginal rate of substitution of one good for the other is constant; therefore, the indifference curves are straight lines.
73
perfect substitutes
(in consumption) Two goods such that the marginal rate of substitution of one good for the other is constant; therefore, the indifference curves are straight lines.
74
perfect comple- ments
(in consump- tion) Two goods that the consumer always wants to consume in fixed proportion to each other.
75
Cobb–douglas utility function
A function of the form U = Ax^αy^β, where U measures the consumer’s utility from x units of one good and y units of another good and where A, α, and β are positive constants.
76
Cobb–douglas utility function
A function of the form U = Ax^αy^β, where U measures the consumer’s utility from x units of one good and y units of another good and where A, α, and β are positive constants.
77
quasilinear utility function
A utility function that is linear in at least one of the goods consumed, but may be a nonlinear function of the other good(s).
78
budget constraint
The set of baskets that a consumer can purchase with a limited amount of income.
79
budget line
The set of baskets that a con- sumer can purchase when spending all of his or her available income.
80
budget line
The set of baskets that a con- sumer can purchase when spending all of his or her available income.
81
optimal choice
Con- sumer choice of a basket of goods that (1) maximizes satisfaction (utility) while (2) allowing him to live within his budget con- straint.
82
Corner Point
A solution to the consumer’s optimal choice problem at which some good is not being consumed at all, in which case the optimal basket lies on an axis.
83
Corner Point
A solution to the consumer’s optimal choice problem at which some good is not being consumed at all, in which case the optimal basket lies on an axis.
84
Composite good
A good that represents the collective expenditures on every other good except the commodity being consid- ered.
85
Composite good
A good that represents the collective expenditures on every other good except the commodity being consid- ered.

ECON 2150 (2 decks)

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