question

True or False: When both the demand and supply curve shift, the curve that shifts with the smaller magnitude determines the effect on the undetermined equilibrium object.

answer

False

question

True or False: When both the demand and supply curve shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts.

answer

False

question

True or False: Value of the price elasticity of demand is not equal to the slope of the demand curve

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True

question

Happens when two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage.

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Overall increase in production for both parties and they will obtain consumption outside the PPF

question

Dispassionate development and testing of theories about how the world works.

answer

Scientific Method

question

Highly simplified representation of a more complicated reality. -Used to study economic issues -i.e. Road map, model of human anatomy, model airplane

answer

Model

question

Visual model of economy, shows how dollars flow through markets among households and firms.

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Circular - Flow Diagram

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1. Own factors of production, sell/rent to firms for income. 2. Buy and consume goods and services.

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Households

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1. Buy/hire factors of production, used to produce goods and services. 2. Sells goods and services

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Firms

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The resources the economy uses to produce goods and services. - i.e. Land, Labor, and Capital (buildings and machines used in production)

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Factors of Production

question

Graph showing the combinations of 2 goods economy can possibly produce given available resources and available technology.

answer

Production Possibilities Frontier (PPF)

question

What does the PPF look like when there is increasing opportunity cost? May be cause by: -Different workers have different skills -Different opportunity costs of producing one good in terms of other -Other resource or mix of resource with varying opportunity costs

answer

Bow Shaped

question

What must be given up to obtain that item

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Opportunity Cost

question

Tells you the opportunity cost of one good in terms of the other -Consider lowest opportunity cost.

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Slope of PPF

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Study of how households and firms make decisions and how they interact in markets.

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Microeconomics

question

Study of economy-wide phenomena, including inflation, unemployment, and economics growth.

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Macroeconomics

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Attempt to describe the world as it is. Can be confirmed or refuted. -Economists = Scientists

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Positive Statements

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Attempt to describe how world should be. Cannot be confirmed or refuted. -Include opinions? -Economists = Policy Advisors

answer

Normative Statements

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A simplified representation of some aspect of the economy.

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Economic Model

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Movement along the PPF or Shift? -Technological advancement in a specific product.

answer

Shift

question

Movement along the PPF or Shift? -Change in consumer preferences.

answer

Movement along the PPF

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Goods produced domestically and sold abroad

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Exports

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Goods produces abroad and sold domestically.

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Imports

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Ability to produce a good using fewer inputs than another producer.

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Absolute advantage

question

Ability to produce a good at a lower opportunity cost than another producer. Formulas: -Time: Current/other -Production: Other/Current

answer

Comparative Advantage

question

Which goods will a nation typically import?

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Those goods in which other nations have a comparative advantage.

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True or False: If trade is good for a country, it must be good for everyone in the country.

answer

False

question

-Income (Normal-Positive vs. Inferior-Negative) -Price of related goods (Substitute-positive vs. Complement-Negative) -Tastes (i.e. increase in the number of consumers) -Expectations -Number of buyers *Curve shifts when there is a change in a relevant variable that is not measured on either axis

answer

Variables that can shift the demand curve

question

A change in price of the good itself.

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Movement along the demand/supply curve

question

-Input Prices -Technology -Expectations -# of Sellers *Curve shifts when there is a change in a relevant variable that is not measured on either axis

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Variables that shift the supply curve

question

Formula for Price Elasticity of Demand

answer

((% Change in Qdemanded) / (% Change in Price))

question

Midpoint Formula

answer

((Q2-Q1) / (Average of Q) / (P2 - P1) / (Average of P))

question

Relationship between price and total revenue when demand is INELASTIC

answer

Price and Total Revenue are directly related

question

Relationship between price and total revenue when demand is ELASTIC

answer

Price and Total Revenue are inversely related

question

Relationship between price and total revenue when demand is UNIT ELASTIC

answer

Total Revenue remains constant when price changes

question

Do luxuries tend to have large or small income elasticities?

answer

Large

question

Do necessities, such as food and clothing, tend to have large or small income elasticities?

answer

Small

question

Income Elasticity of Demand Formula -Positive = ? -Negative = ?

answer

((% Change in Qdemanded) / (% Change in income)) -Positive = Normal Good -Negative = Inferior Good

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Cross - Price Elasticity of Demand -Positive = ? -Negative = ?

answer

((% Change in Qdemanded of good 1) / (% Change in price of good 2)) -Positive = Substitute -Negative = Complement

question

What parts of the demand and supply curve is elastic and inelastic?

answer

Demand: -Upper Portion = Elastic -Lower Portion = Inelastic Supply: -Upper Portion = Inelastic -Lower Portion = Elastic

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Price Elasticity of Supply Formula

answer

((% Change in Qsupplied) / (% Change in Price))

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True or False: Price Elasticity of Supply is more elastic in the long-run

answer

True

question

Which is more elastic? : Beethoven recordings or classical music recordings

answer

Beethoven - Narrower Market

question

Group of buyers and sellers of a particular product

answer

Market

question

One with many buyers and sellers, each has a negligible effect on price

answer

Competitive Market

question

-All goods exactly the same -No one can affect market price - each is "price taker"

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Perfectly Competitive Market

question

Amount of good buyers are willing and able to purchase.

answer

Quantity Demanded

question

Claim that the quantity demanded of a good falls when the price of the good rise , other things equal (downward sloping)

answer

Law of Demand

question

Table that shows the relationship between price of a good and Qdemanded.

answer

Demand Schedule

question

Sum of the quantities demanded by all buyers at each price.

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Market Demand

question

Amount seller is willing and able to sell.

answer

Quantity Supplied

question

Quantity supplied rises when price of good rises (Upward Sloping)

answer

Law of Supply

question

Table showing the relationship between price of good and quantity supplied

answer

Supply Schedule

question

Sum of quantity supplied by all sellers at each price.

answer

Market Supply

question

Numerical measure of the responsiveness of Quantity demanded or Quantity Supplied to one of its determinants

answer

Elasticity

question

% Change Formula

answer

((End Value - Start Value) / (Start Value)) * 100

question

Price Elasticity is higher when...

answer

-Close Substitutes are available -Narrowly defined goods -Luxuries -Demand Curve is flatter

question

-Extent to which close subs are available -Necessity or luxury -Broad or narrow -Long Run vs. Short Run

answer

Determinants of price elasticity

question

-Greater than 1 - % Change in Quantity > % Change in Price

answer

Elastic

question

-Less than 1 -% Change in Quantity < % Change in Price

answer

Inelastic

question

-How easy sellers can change Quantity Produced -Short run vs. long run (Greater in long run)

answer

Determinants of Supply Elasticity

question

True or False: An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied.

answer

False

question

True or False: When the demand curve and the supply curve shift in the direction previously indicated, the effect on the equilibrium price is clear even without knowing the magnitude of the shifts.

answer

False

question

A legal max on the price of a good or service.

answer

Price Ceiling

question

A legal minimum on price of good or service.

answer

Price Floor

question

True or False: With binding constraint, supply and demand are more price-elastic. Therefore, the shortage is larger.

answer

True

question

This will cause a surplus in labor (unemployment). This illegal.

answer

Price Floor Binding

question

The ability of firms to enter and exit a market over time means that, in the long run,

answer

The supply curve is more elastic

question

A price change causes the quantity demanded of a good to decrease by 30%, while the total revenue of that good increases by 15%. True or False: The demand curve is elastic in this region.

answer

False

question

A price ceiling below eq price is binding or not binding?

answer

Binding

question

True or False: If the price is above the max willingness to pay then, he/she will not purchase it (zero consumer surplus)

answer

True

question

Studies how the allocation of resources affects economic well-being.

answer

Welfare Economics

question

Max amount buyer will pay for good. Measures how much the buyer values the good.

answer

Willingness to Pay (WTP)

question

The buyer who would leave the market if price were any higher.

answer

Marginal buyer

question

Amount a buyer is willing to pay minus the amount buyer actually pays.

answer

Consumer Surplus

question

Value of everything a seller must give up to produce a good (i.e. opportunity cost).

answer

Cost

question

The seller who would leave the market if price were any lower.

answer

Marginal Seller

question

The amount a seller is paid for a good minus the seller's cost.

answer

Producer Surplus

question

Total Surplus Formula

answer

Value to buyers - Cost to seller CS + PS

question

Allocation of resources is efficient if...

answer

Total Surplus is Maximized

question

Goods are consumed by buyers who value them most highly. Goods are produced by producers with lowest costs. Raising or lowering quantity of good would not increase total surplus.

answer

Efficiency

question

When a good is taxed, the burden of the tax falls mainly on consumers if

answer

supply is elastic, and demand is inelastic.

question

True or False: Price ceiling set above equilibrium (non-binding) will effect equilibrium price and quantity.

answer

False

question

If the government places a $500 tax on luxury cars, the price paid by consumers will rise by...

answer

Less than $500

question

True or False: The size of the effect on employment depends only on the elasticity of demand.

answer

True

question

True or False: The size of the effect on unemployment depends on the elasticity of demand and the elasticity of supply.

answer

True

question

Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is...

answer

positive but less than the marginal seller's cost.

Econ 102 (Exam 1 – Ch. 2-7) – Flashcards

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