Review

Question 1

diminishing marginal benefit

Answer 1

The marginal benefit of a task decreases at an increasing rate the more hours you spend on it

Question 2

opportunity cost

Answer 2

the task that will give you the next best level of benefits

Question 3

price floor

Answer 3

a lower limit on the price of a market good (above equilibrium)

Question 4

price ceiling

Answer 4

a cap or maximum price of a good (below equilibrium)

Question 5

income elasticity of demand

Answer 5

measure the percentage change in quantity demanded due to a percentage change in income

Question 6

income elasticity formula

Answer 6

percentage change in quantity demanded/percentage change in income

Question 7

price elasticity of demand

Answer 7

measure the percentage change in quantity demanded of a good due to a percentage change in its price

Question 8

price elasticity of demand formula

Answer 8

percentage change in quantity demanded/percentage change in price

Question 9

Utility

Answer 9

a measure of benefit/satisfaction/happiness that comes from consuming a good or service

Question 10

opportunity cost (a)

Answer 10

loss in b/gain in a

Question 11

Substitution effect

Answer 11

movement along an indifference curve

Question 12

income effect

Answer 12

change to a different indifference curve

Question 13

|𝜀_D| > 1

Answer 13

Elastic demand

Question 14

|𝜀_D| < 1

Answer 14

Inelastic demand

Question 15

|𝜀_D| = 1

Answer 15

Unit elastic demand

Question 16

|𝜀_D| = ∞

Answer 16

Perfectly elastic demand

Question 17

|𝜀_D| = 0

Answer 17

Perfectly inelastic demand

Question 18

inelastic goods have

Answer 18

few substitues

Question 19

elastic goods have

Answer 19

many substitutes

Question 20

Elasticity of Demand-point method

Answer 20

(ΔQ/ΔP)×(P/Q)

Question 21

Elasticity of Demand-Arc Method

Answer 21

(Q₂ −Q₁)/[(Q₂ +Q₁)/2] / (P₂ −P₁)/[(P₂ +P₁)/2]

Question 22

perfectly competitive market

Answer 22

1. No buyer or seller is big enough to influence the market price
2. Sellers in the market produce identical goods
3. Free entry and exit in the market
4. Perfectly competitive input markets

Question 23

Seller’s Optimization Problem

Answer 23

1. Making the good: turning the inputs/raw materials into a good
2. Costs of producing the good: the costs of inputs/raw materials
3. Benefits from selling the good: profits