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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
Q

A market can be characterized along three dimensions?

A

Commodity, geography, and time.

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26
Q

derived demand

A

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)

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27
Q

direct demand

A

Demand for a good that comes from the desire of buyers to directly consume the good itself.

(ex. demand for soft drink itself)

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28
Q

law of demand

A

The inverse relationship between the price of a good and the quantity demanded, when all other factors that influence demand are held fixed.

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29
Q

market supply curve

A

A curve that shows us the total quantity of goods that their suppliers are willing to sell at different prices.

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30
Q

market supply curve

A

A curve that shows us the total quantity of goods that their suppliers are willing to sell at different prices.

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31
Q

Law of supply

A

The positive relationship between
price and quantity supplied, when all other factors that influence supply are held fixed.

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32
Q

factors of production

A

Resources such as labor and raw materials that are used to produce a good.

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33
Q

factors of production

A

Resources such as labor and raw materials that are used to produce a good.

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34
Q

equilibrium

A

A point at which there is no tendency for the market price to change as long as exogenous variables remain unchanged.

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35
Q

excess supply

A

A situation in which the quantity supplied at a given price exceeds the quantity demanded.

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36
Q

excess demand

A

A situation in which the quantity demanded at a given price exceeds the quantity sup- plied.

37
Q

price elasticity of demand

A

A measure of the rate of percent- age change of quantity demanded with respect to price, holding all other determinants of demand constant.

38
Q

perfectly inelastic demand

A

Price elasticity of demand equal to 0.

39
Q

inelastic demand

A

Price elasticity of demand between 0 and −1.

40
Q

unitary elastic demand

A

Price elasticity of demand equal to −1.

41
Q

unitary elastic demand

A

Price elasticity of demand equal to −1.

42
Q

elastic demand

A

price elasticity of demand between −1 and −∞.

43
Q

perfectly elastic demand

A

Price elasticity of demand equal to −∞.

44
Q

linear demand curve

A

A demand curve in the form Q = a − bP.

45
Q

inverse demand curve

A

An equation for the demand curve that expresses price as a function of quantity.

46
Q

choke price

A

The price at which quantity demanded falls to 0.

47
Q

constant elasticity demand curve

A

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
Q

total revenue

A

Selling price times the quantity of
product sold.

49
Q

Factors that effect price elasticity of demand:

A

(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
Q

income elasticity of demand

A

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
Q

cross-price elasticity of demand

A

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
Q

demand substitutes

A

Two goods related in such a way that if the price of one increases, demand for the other increases

53
Q

demand substitutes

A

Two goods related in such a way that if the price of one increases, demand for the other increases

54
Q

demand complements

A

Two goods related in such a way that if the price of one increases, demand for the other decreases.

55
Q

demand complements

A

Two goods related in such a way that if the price of one increases, demand for the other decreases.

56
Q

price elasticity of supply

A

The percentage change in quantity supplied for each percent change
in price, holding all other determinants of supply constant.

57
Q

long-run demand curve

A

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
Q

short-run demand curve

A

The demand curve that pertains to the period of time in which consumers cannot fully adjust
their purchase decisions to changes in price.

59
Q

long-run supply
curve

A

The supply curve that pertains to the period of time in which producers can fully adjust their supply decisions to changes in price.

60
Q

long-run supply
curve

A

The supply curve that pertains to the period of time in which producers can fully adjust their supply decisions to changes in price.

61
Q

short-run supply
curve

A

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
Q

durable goods

A

Goods, such as automobiles or airplanes, that provide valuable services over many years.

63
Q

basket

A

A combina- tion of goods and services that an individual might consume.

64
Q

consumer prefer- ences

A

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
Q

ordinal ranking

A

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
Q

cardinal ranking

A

A quantitative measure of the intensity of a preference for one basket over another

67
Q

utility function

A

Utility function: a function that measures the level of satisfaction a consumer receives from any basket of goods and services.

68
Q

marginal utility

A

The rate at which total utility changes as the level of consumption rises.

68
Q

marginal utility

A

The rate at which total utility changes as the level of consumption rises.

69
Q

principle of diminishing marginal
utility

A

The principle that after some point, as consumption of a good increases, the marginal utility of that good will begin to fall.

69
Q

principle of diminishing marginal
utility

A

The principle that after some point, as consumption of a good increases, the marginal utility of that good will begin to fall.

70
Q

indifference curve

A

A curve connecting a set of consumption baskets that yield the same level of satisfaction to the consumer.

70
Q

indifference curve

A

A curve connecting a set of consumption baskets that yield the same level of satisfaction to the consumer.

71
Q

marginal rate of substitution

A

The rate at which the consumer will give up one good to get more of another, holding the level of utility constant.

72
Q

diminishing marginal rate of substitution

A

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
Q

perfect substitutes

A

(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
Q

perfect substitutes

A

(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
Q

perfect comple-
ments

A

(in consump- tion) Two goods that the consumer always wants to consume in fixed proportion to each other.

75
Q

Cobb–douglas utility function

A

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
Q

Cobb–douglas utility function

A

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
Q

quasilinear utility function

A

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
Q

budget constraint

A

The set of baskets that a consumer can purchase with a limited amount of income.

79
Q

budget line

A

The set of baskets that a con- sumer can purchase when spending all of his or her available income.

80
Q

budget line

A

The set of baskets that a con- sumer can purchase when spending all of his or her available income.

81
Q

optimal choice

A

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
Q

Corner Point

A

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
Q

Corner Point

A

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
Q

Composite good

A

A good that represents the collective expenditures on every other good except the commodity being consid- ered.

85
Q

Composite good

A

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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