ECON Exam 1

  1. _________ is when people often make the mistake of thinking that what is true or best for one person is necessarily true for all.



    B.
  2. Stealing internet from your neighbor is good for you, but what if everyone did it?  There would be no internet. This is an example of ________.



    B.

    It is the theory that what is good for you is not always good for everyone else.
  3. You take a shortcut to avoid traffic on the way to class. If everyone took this shortcut it would not make the trip shorter. This is an example of _________.



    D.
  4. Child-proof aspirin bottles actually caused more children to get access to drugs since the adults just left the caps off because they were too hard to open. What is the unintended and intended consequence?
    • Intended Consequence: Stopping children from using aspirin
    • Unintended Consequence: Adults had trouble opening up the tops and would leave tops open.
  5. _______ is when people choose to be in the group being studied.  Because of this, the stats are based on these people and not on those who did not choose to be in the group.  Just think about who the stats apply to.



    D.
  6. Car insurance commercials are biased because “People on average saved … by switching to Geico.” It is not representative of a large population. This is an example of ________.



    B.
  7. Goods and services are scarce because ________ are scarce.



    A.
  8. What are the four main resources used to make goods?
    1.
    2.
    3.
    4.
    • 1. Labor
    • 2. Capital
    • 3. Natural Resources (Land)
    • 4. Entrepreneurial Ability
  9. ________ is human effort and _________ is human creations.
    A. Capital, labor
    B. Labor, capital
    B.

    Labor is physical and mental effort, while capital is what we have created.
  10. Factories are an example of _________ and education is an example of ___________.
    A. physical capital, human capital
    B. human capital, physical capital
    A.
  11. Explain the meaning behind the slogan, "There are no free lunches."
    We give up some goods and services to get others (opportunity cost).  Everything has a cost!

    Why? Time is money.
  12. What are the 2 types of markets?



    C.


    • Meaning:
    • Product markets–Goods and services (or “outputs”
    • Resource markets–Resources or “inputs”
  13. In many way, econ is like a science.  Perhaps most importantly, we rely on the _______ when doing research.



    C.
  14. ____________ is costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred.



    A.
  15. If something is worth its value, the marginal benefit ________ the marginal cost.


    A.
  16. Opportunity costs are also known as _________.



    B.
  17. ________ the best alternative that we forgo, or give up, when we make a choice or a decision.



    B.
  18. _________ means to be “absolutely” better at something.
    Absolute advantage
  19. ___________ means to be “comparatively” better at something.
    Comparative advantage
  20. Something that is monetarily free(you don’t have to pay for) has no cost.
    A. True
    B. False
    B.

    Opportunity cost is time.
  21. There is a teacher and a basketball player. Who is better at basketball. The basketball player is better so he has a(n) ____________.



    A.
  22. You and your roommate need to do two things: cook and clean. Your roommate is a great cook and a really fastidious cleaner.  You are a decent cleaner (but not as good as your roommate) and you can not cook at all. Your roommate has a(n) ____________.
    A. absolute advantage
    B. comparative advantage
    A.

    However, you care comparatively better at cooking, so cook.
  23. Law of specialization means ___________.



    C. do not let someone specialize in a task if they are not as efficient as you in everything.
    B.

    Specialize in what you suck at less
  24. Look at Lecture 3 slide 8 to understand comparative advantage charts.
    Learn how to find who has the comparative advantage and how to calculate opportunity costs.
  25. When trying to find the opportunity costs, we divided __________ by ____________.
    What we are not doing/ what we are doing = the opportunity costs of what we are not doing
  26. I can wash 3 dishes or bake 6 pies. If I wash dishes, my opportunity costs is _______.
    My opportunity cost is 2 pies.

    • 6/3 =2
    • you ARE NOT doing/you ARE doing = Opportunity costs of what you ARE NOT doing
  27. I can clean 8 rooms or cook 4 dinners. If I clean 8 rooms, my opportunity costs is _______.
    A. 1/2 rooms
    B. 1/2 dinners
    C. 4 rooms
    D. 4 dinners
    4/8 = 1/2 dinners

    you ARE NOT doing/you ARE doing = Opportunity costs of what you ARE NOT doing
  28. When your opportunity costs is less of doing an activity, then you should ________.


    A.
  29. If Colleen gathers one bushel of food, she is giving up gathering one log (10/10).  If Bill gathers one bushel of food, he is giving up gathering ½ of a log (4/8).  Who should gather food?
    A. Colleen
    B. Bill
    B.

    His opportunity costs are lower.
  30. If one person has comparative advantage in one thing, then the other person must have comparative advantage in the other thing.
    A. True
    B. False
    A.
  31. It is possible to have absolute advantage in two activities.
    A. True
    B. False
    A.
  32. ____________ is when each person specializes in one small part of the production process.



    B.
  33. _____________ is a graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently.



    B.

    • What does it exemplify?
    • PPF: society can produce millions of goods so we use this graph to simplify.
  34. At what point on the Production Possibilities Frontier should we produce at to maximize our production?



    B.

    • Underneath the curve: we are not using all resources
    • Above the curve: we do not have the resources to reach that amount of production
    • On curve: we are using all resources possible
  35. What are signs that tell us that countries are not producing at their maximization point?
    Check all that apply
    A. when industrial plants run at less than their total capacity
    B. unemployment of labor
    C. unemployment of capital
    D. inefficient use of resources
    • A.
    • B.
    • C.
    • D.
  36. __________ is the law that states that as society makes more of one output good, it needs to give up more and more of the other output good.



    D. The Law of Increasing Opportunity Cost
  37. What can shift the PPF?
    • 1. Changes in resource availability
    •       -skill of labor
    • 2. Increases in capital stock
    •       -more output (we produce more cars, houses, boats)
    • 3. Technological change
    •       - employs resources more efficiently (same output/less time)
    • 4. Improvements in the rules of the game
    •       -economic growth
  38. _______ goods are produced for present consumption, and __________ goods are used in the production of other goods and services.



    B.
  39. When dealing with the PPF, very poor countries cannot afford to invest much at all as all available resources are used to keep people alive and keep society operating. They cannot invest in _______.


    B.
  40. When dealing with the PPF, rich countries can consume a lot AND invest a lot in new _____ – which makes them even richer over time.


    B.
  41. When the curve of the PPF is farther from the origin, what does it mean?



    D.
  42. ___________ economy is an economy in which tradition alone determines the nature of economic activity.



    B.
  43. _______ economy is an economy in which a central government either directly or indirectly sets output targets, incomes, and prices.



    C.
  44. North Korea is an example of a __________ economy.



    C.
  45. _________ economy is an economy in which individual people and firms pursue their own self-interests without any central direction or regulation.  The market determines what is produced, how it is produced, and who gets it.



    C.

    Market economies are also known as "laissez-faire or pure capitalism"
  46. ________ the idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).



    A.
  47. __________ the freedom of individuals to start and operate private businesses in search of profits.



    A.
  48. Market economies are rare, however, the two places that are close to being a market economy are:



    B.
  49. The United States is mostly a ________ economy.



    C.

    They do say that it is a mix of traditional, command, and market.
  50. Reasons why economies are "mixed" and "not market."
    • Markets are sometimes inefficient.
    • Firms get too much power.
    • Rewards are not distributed evenly.
    • Market economies have their ups and downs.
    • Pollution is an issue.
    • There is a lack of knowledge.
    • People do not know what they are buying.
  51. Free-market meaning that prices are free to change.
    A. True
    B. False
    A.
  52. What are the 4 conditions that need to be meet to have a market economy?
    • 1.There must be a market for resources (especially labor)  and those resources must be paid for.
    • 2.There must be a market for goods and services. People must be able to own private property.
    • 3.People must be able to own private property.
    • 4. The economy must allow economic winners and losers.
  53. What are the 3 elements to the model of supply and demand?
    • 1.buyers / consumers / customers/ households
    • 2.sellers / producers / firms
    • 3.the markets where consumers and producers interact
  54. Households consume ______, and supply ______.


    B.
  55. Firms consume ______ and supply _______.


    A.
  56. Product or output markets  The markets in which goods and services are exchanged (Households demand, firms supply).

    AND

    Input or factor markets  The markets in which the resources used to produce products are exchanged. (Households supply, firms demand)
    Facts
  57. What are the 3 input markets? Check all that apply.
    A. land market
    B. labor market
    C. capital market
    D. output market
    • A.
    • B.
    • C.
  58. ________ market: the input/factor market in which households supply work for wages to firms that demand labor.


    B.
  59. _________ market: the input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.


    B.
  60. ______ market: The input/factor market in which households supply land or other real property in exchange for rent.


    C.
  61. __________ is a relationship between the price of a good and the quantity of that good that consumers are willing and able to buy per period, other things constant (Line or Curve).



    A.
  62. __________ is the amount (number of units) of a product that a consumer would buy in a given period if it could buy all it wanted at the current market price.



    A.
  63. ___________ is when price and quantity are inversely related.  As price goes up, quantity that people want to buy falls (all else equal).



    D.
  64. ________ effect is as the price of one good rises, people switch from buying that good to buying other goods.



    A.
  65. _________ effect is as the prices of anything you buy goes up, you feel poorer so you buy less of everything (including the good whose price rose).



    B.
  66. Coke is too expensive and so you switch to another product that is cheaper. This is an example of ________.



    A.
  67. If your rent goes up, you have less money overall to buy other things. This is an example of _________.



    B.
  68. If price of gas goes way up you try to cut back on gas. This is an example of _________.



    B.
  69. ___________ is a table showing how much of a given product a household would be willing to buy at different prices (during a fixed time period).



    A.
  70. ________ is a graph illustrating how much of a given product a household would be willing to buy at different prices (giving a fixed time period).



    B.
  71. As prices rises, quantity demanded ______.



    B.
  72. As price falls, quantity demanded _________.



    A.
  73. If price changes, the curve does not move, we just move to a different point along the curve.
    A. True
    B. False
    A.
  74. Thinking about demand.
    There is no good that you can consume for an endless period.
  75. ___________ is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.



    B.
  76. How do you find the market demand?
    To find the market demand, you add up all the quantities from each household.

    Household demands are separate graphs so find the quantities(not price) then add.
  77. What 5 factors can cause a shift in the demand curve?
    • 1.A change in consumers’ income or wealth.
    • 2.A change in the price of other available products (substitutes or compliments).
    • 3.A change in consumers’ tastes.
    • 4.A change in consumers’ expectations about things like future income or prices.
    • 5.A change in the number or composition of consumers.
  78. ________ is the sum of all a household’s wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time.  It is a flow measure.



    A.

    Income is how much we earn per period/money coming into our household.
  79. __________is the total value of what a household owns minus what it owes.  It is a stock measure.



    C.

    It is basically how much money you have currently.
  80. A college student has low wealth because he has a lot of debt from college and has a large income if he is making 250,000 dollars a year.
    A. True
    B. False
    A.
  81. _________ goods for which demand goes up when income is higher and for which demand goes down when income is lower.



    D.
  82. ________ goods for which demand tends to fall when income rises.



    C.
  83. ________ goods for which demand tends to fall when income rises.



    A.
  84. Potatoes, ramen noodles, Genesee Cream Ale, generic anything, used cars (not “vintage” or “antique,” just used) are all examples of ______.



    A.
  85. If income goes up, our demand shifts ______.



    A.
  86. At first I go to the movies 3 times a month, but now I go to the movies 6 times a month because I make more money. This is an example of what kind of goods?



    A.

    You have more money to buy movie tickets.
  87. College students buy cheap beer. This is an example of what kind of good?



    D.
  88. ____________ goods that can serve as replacements for one another:  when the price of one increases, demand for the other goes up.


    C.
  89. Bacon and sausage are an example of ________.


    B.
  90. _________ are identical or interchangeable products.


    A.
  91. _________ are goods that “go together”:  a decrease in the price of one results in an increase in demand for the other, and vice versa.


    C.
  92. Peanut butter and jelly are examples of ___________.


    C.
  93. If the price of blue ray DVD players falls, then you might want to buy more blue ray disc. These products are ___________.


    B.
  94. If the price of Pepsi goes up, then people want to buy more Coke. These products are ________.


    B.
  95. If the price of Pepsi goes up, then people want to buy more Coke. What happens to the curves?


    A.
  96. If you think that you will lose your job in a month, you probably won’t buy a new car.

    If you think prices of TVs will fall next year, you might be less likely to buy one now. These are examples of which one of the 5 factors that influence demand?




    A.
  97. When there is a fad for a product, the demand curve shifts __________.


    C.
  98. A diet was started that said pasta contains carbohydrates and should not be eaten. The demand curve shifts ________.


    A.
  99. The market skyrockets based in baby booms. This is an example of which of the five factors that influence the demand curve to shift?




    C.
  100. When your income increases, you buy _______.



    B.
  101. __________ is the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.



    A.
  102. __________ is a relation between the price of a good and the quantity of that good that firms are willing and able to sell per period, other things constant.



    C.
  103. ________ is the positive relationship between price and quantity of a good supplied:  An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.



    B.
  104. ____________ is a table showing how much of a product firms will sell at different prices.



    D.
  105. __________ is a graph illustrating how much of a product a firm will sell at different prices.



    C.
  106. ___________ the sum of all that is supplied each period by all producers of a single product.



    B.
  107. What are the 5 factors that shift the supply curve?
    • 1. a change in technology
    • 2. a change in the price of inputs
    • 3. a change in the price of other (alternative) goods
    • 4. a change in producer expectations
    • 5. a change in the number of producers
  108. A pizza industry is Blacksburg is thriving. Other companies join the industry. There are now more producers, so the supply curve will ______.



    D.

    For any product, if more firms produce a product for the total, the supply curve shifts out more.
  109. If producers think that their product will become very popular in the future, they will ________ supply today so they will have more left over to sell tomorrow. 



    B.
  110. If they think that their product will become unpopular tomorrow, they will empty their warehouses, shifting the current supply ________.



    A.

    They are increasing the supply because they are trying to get rid of it.
  111. If next week was the 4th of July, you might store ice in the stock room because you expect to sell it for a higher price in the future. This would cause your supply to _________.



    B.

    They are decreasing their supply at the moment because they are storing the supply for later.
  112. For a phone that might be obsolete in the future a firm will try to sell them all as soon as possible. This would cause the supply to ___________.



    A.

    They are increasing the supply because they want to get rid of the product.
  113. What happens to the supply curve if there is a change in price?
    A. the supply curve will shift rightward
    B. the supply curve will shift leftward
    C. the supply curve will move to another point along the line
    D. the supply curve will stay the same.
    • Product A's supply curve will shift rightward, while Product B's supply curve will shift leftward.
    •  
    • There is an increase in the supply of Product A and a decrease in the supply of Product B.
  114. What happens to the supply curve if there is a change in price?



    C.
  115. What happened to the supply curve of soybeans when researchers created a new disease-resistant seed strain?



    D.

    This new technology causes the supply curve to shift rightward because they can produce more. There is an increase in the supply.
  116. Which factor does not lead to a shift in the supply curve?




    E.
  117. A change in technology, input costs,  prices of alternative products, producer expectations or number of producers leads to a shift in the supply.
    A. True
    B. False
    A.
  118. Explain why there is a shift in the supply curve when there is a change in inputs.
    When the prices of the inputs changes, producers react to this.

    If the input price increases, producers supply less of the product.

    If the output price decreases, producers supple more of the product.
  119. If the price of cheese goes up, then the supply curve of pizzas will shift __________.



    B.

    The price of the input went up, so the producers want to supply less of the pizza. It is more costly for them to produce it now.
  120. If the price of fruits goes down, Tropical Smoothie will supply more smoothies. This causes the supply curve to _________.



    A.
  121. When the assembly line was established. Henry Ford used this feature to produce his cars. This caused the supply curve to ____________.



    A.

    He could now produce more because technology helped him to produce products faster and cheaper.
  122. What is the best example of a vertical supply curve?



    D.

    • Why?
    • No matter how high the price goes, there will always be the same quantity supplied. There is only a certain quantity in the world.
  123. Demand curve:
    price more -->consumers buy less
    price less -->consumers buy more
    Facts
  124. Supply curve:
    price more -->producers supply more
    Price less --> producers supply less
    Facts
  125. At what point is the market equilibrium?



    A.
  126. Equilibrium is not just where the quantity bought is equal to the quantity sold. 
    A. True
    B. False
    A.

     In order for something to have been bought it must be sold and vice versa.  Therefore this is not a correct definition.
  127. At equilibrium, there is no tendency for price to change.
    A. True
    B. False
    A.
  128. ________ is the condition that exists when quantity demanded exceeds quantity supplied at the current price.


    A.

    People want a lot of the item but there is not enough being supplied --> shortage
  129. When there is a big storm, prices go up because there is a high demand for items like milk. This causes a _________.


    B.

    This is also known as excess demand
  130. Draw what a shortage looks like.
    The price should be less than the equilibrium price.
  131. When there is a shortage, the price slowly begins to _____ and eventually they reach equilibrium.
    A. raise
    B. fall
    A.
  132. _______ is the condition that exists when quantity supplied exceeds quantity demanded at the current price.



    A.
  133. Once you pass over the equilibrium point, you are in the ________ zone.



    A.
  134. When the price is higher than the equilibrium price, the economy is suffering from a _________.



    B.

    The price is so high --> the demand is less than the supply
  135. When the price is lower than the equilibrium price, the economy is suffering from a __________.



    A.

    The price is so low -->the demand is more than the supply
  136. 1.Excess supply leads to a _______ in price. Excess demand leads to an _______ in price.



    D.

    • Surpluses cause a decrease in supply until it reaches equilibrium.
    • Shortages cause an increase in supply until it reaches equilibrium.
  137. In a pure market there are no surpluses or shortages.
    A. true
    B. false
    A.
  138. Toyota Priuses became so popular that there was a _______. The price went up and now there is a waitlist for the product.
    shortage
  139. If the demand curve shifts out (demand increases), equilibrium price and quantity will ______.



    B. rise
  140. If the demand curve shifts back (demand decreases), equilibrium price and quantity will ________.



    B.
  141. If the supply curve shifts out (supply increases), equilibrium price will ____ but quantity will _____.



    D.
  142. If the supply curve shifts back (supply decreases), equilibrium price will ____ but quantity will ____.



    B.
  143. If the supply curve shifts back (supply decreases), and demand shifts back, the equilibrium quantity will fall but price could rise or fall.
    KNOW THIS
  144. if the supply curve shifts out (supply increases), and demand shifts out, the equilibrium quantity will rise but price could rise or fall.
    KNOW THIS
  145. If both curves shift in the same direction, quantity will go in that direction, price can do whatever the heck it wants.
    Realization
  146. If the supply curve shifts back (supply decreases), and demand shifts out, the equilibrium price will rise but quantity could either rise or fall.
    KNOW THIS
  147. If the supply curve shifts out (supply increases), and demand shifts back, the equilibrium price will fall but quantity could either rise or fall.
    KNOW THIS
  148. Supply Curve shifts out, demand curve shifts back

    What happens to price and quantity?
    • Price falls
    • Quantity can rise/fall
  149. Supply curve shifts back, demand curve shifts out

    What happens to price and quantity?
    • Price rises
    • Quantity can fall/rise
  150. Supply shifts back, demand shifts back

    What happens to price and quantity?
    • Quantity falls
    • Prices can rise/fall
  151. Supply shifts out, demand shifts out

    What happens to price and quantity?
    • Quantity rises
    • Prices can rise/fall
  152. An auction is a market where the _________ is reached out loud.



    C.
  153. In an American or English auction, the auctioneer attempts to find the maximum price that consumers are willing to pay for a given good.  Prices start low and then move up (think eBay). This is an example of a market reaching _________.
    equilibrium
  154. Say that there is a shortage for Product A. 40 people got pushed out of the market because the price goes up. Originally 120 people wanted Product A but not when the price went up.
    The idea that when there is a shortage, prices will rise until the market reaches equilibrium.
  155. People that are willing to pay the high price will get the product in a market economy.
    A. True
    B. False
    A.
  156. __________ is the process by which the market system allocates goods and services to consumers when quantity demanded exceeds a quantity supplied.



    B.
  157. A legal minimum price is a _______________.



    A.
  158. A legal maximum price is a _________.



    B.
  159. If the price floor is $5, you cannot sell below $5.
    A. True
    B. False
    A.

    Flo= the lowest you can go
  160. If the price ceiling is $5, you cannot charge higher than $5.
    A. True
    B. False
    A.
  161. Price ceilings cause __________.



    A.

    Price ceilings are set below the equilibrium.
  162. If there are long lines for a product it shows that there is a shortage. In the 1970s people would wait for gas in line because there was a ________ and caused a shortage.



    B.
  163. What are the 4 main consequences of price ceilings?
    • 1. queuing or searching
    • 2. the formation of black market
    • 3.“Add-ons” and “trade-ins” that become part of the cost of purchasing goods
    • 4. favored customers (discrimination by sellers)
  164. When there is a shortage, people search for the product and waste time(opportunity costs).
    This is a consequence of __________.



    A.

    Queuing and searching is one of the consequences of price ceilings.
  165. When there is a shortage, black markets sell legal products at prices above the legally mandated price set. This is a consequence of _____________.



    B.
  166. During WWII, there was a $1400 price ceiling on cars.   Dealers would not sell a car without a trade-in and would pay next to nothing for those trade-ins.  Thus increasing the amount of total payment ($$+ “trade-in”) for the new car. This is an example of which consequence of a price ceiling?
    Add-ons” and “trade-ins” that become part of the cost of purchasing goods
  167. Price ceilings on rental units in Israel have led to something called a “key charge.”  While the rent is still under the legal ceiling, Landlords charge their tenants large sums of money for the key to the unit – thus finding a way around the rent ceiling. This is an example of which consequence of price ceilings?
    “Add-ons” and “trade-ins” that become part of the cost of purchasing goods:
  168. Some customers receive special treatment from dealers during situations of excess demand.  Other customers are discriminated against and do not have equal opportunity to buy the product. This is an example of what consequence from price ceilings?
    favored customers
  169. Price floors lead to ___________.



    A.
  170. Tobacco has a _______.  So there is a surplus of tobacco in the US.



    D.
  171. Low skill labor has a _______ (called the minimum wage).



    A.
  172. The _______ from a price floor is called unemployment.



    B.
  173. In some places, there is a maximum on the interest rate that can be charged on loans – these are called usury laws. 



    C.

    Usury law: a price ceiling on interest rates.
  174. Arkansas has a usury law.  Texas does not.  TexArkana is a town on the border.   Everyone goes to the Texas half to get loansbecause no lenders want to operate in Arkansas.
    Issue of price ceilings
  175. Usury laws are a _______ and cause a ______.



    D.
  176. What is the overall consequence of usury laws?

    Usury laws are price ceilings that they put on interest rates.
    Even though the intention of the usury law is to protect lower income borrowers from excessively high rates.  The consequence, in reality, of these usury laws is to deny these low-income borrowers funds.
  177. What are the four consequences of usury laws?
    • Banks offer a loan for low but then they make sure that the consumers put their house up for collateral.
    • Banks also due add ons. They give you a good loan but then say that there is a $1000 processing fee.
    • They raise the qualification requirements and lower income individuals are thrown out of the market.
    • The unintended consequence of the low price ceilings is that low income people are thrown out because the banks work around the system.
  178. Which factor does not influence customer demand?





    F.
  179. __________ is a general concept used to quantify the response in one variable when another variable changes.



    C.
  180. The slope of the demand or supply curve tells us how much quantity demanded will change in response to price?
    A. True
    B. False
    B.
  181. ___________ is the ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in price.



    D.
  182. Go to Lecture 9, slides 8-13 to memorize all the formulas.
    These are hard to memorize
  183. ___________ is demand for which quantity drops to zero at the slightest increase in price (ED=-∞)  Infinitely responsive demand.



    D.
  184. ________ is demand for which the percentage change in quantity demanded is larger in absolute value than the percentage change in price (a demand elasticity with an absolute value greater than 1 (ED<-1)).  Very responsive demand.



    C.
  185. ________ is demand for which the percentage change in quantity demanded is less in absolute value than the percentage change in price. It always has a numerical value between zero and -1 (-1<ED<0).  Not very responsive demand.



    D.
  186. __________ is demand for which quantity demanded does not respond at all to a change in price (ED=0).  Not at all responsive demand.



    D.
  187. If the elasticity is between 0 and -1, it is _____.
    A. inelastic
    B. elastic
    A.
  188. If the price of insulin goes up we still buy it, therefore the curve for insulin is _______.



    A.
  189. Draw a perfectly elastic curve and a perfectly inelastic curve.
    • Perfectly elastic - horizontal
    • Perfectly inelastic - vertical
  190. The steeper the curve, the more __________ it is.
    A. elastic
    B. inelastic
    B.
  191. Telephone services are _________ because we constantly need to be in connect with people.



    D.
  192. Bananas are _________ because we do not want to pay a high price for them. When they go on sale everyone buys them.



    B.
  193. Electricity is _____________. We might cut back a little if the price rises, however, we are always in constant need of electricity.



    D.
  194. Elasticity is always negative, however, in economics we do not always use the negative sign.
    A. True
    B. False
    A.
  195. Name the 3 parts of a demand curve and label them --> elastic, unitary elastic, and inelastic.
    Elastic should be at the top(closer to y-axis), unitary elastic is in the middle, and inelastic should be at the bottom(closer to the x-axis)
  196. As price falls on a demand curve, we can more and more ________.
    A. elastic
    B. inelastic
    B.

    • Remember
    •  y axis ==> elastic
    •  x axis ==> inelastic

    ye and xi
  197. What is the equation to calculate total revenue?



    D.
  198. What is elasticity?



    A.
  199. For a inelastic demand curve, if price goes up and quantity demanded goes up, total revenue ________.
    A. goes down
    B. goes up
    B.
  200. For a elastic demand curve, if price goes up and quantity demanded goes down, total revenue ________.
    A. goes down
    B. goes up
    A.
  201. For an elastic demand curve, if price goes down and quantity demanded goes up, total revenue ________.
    A. goes up
    B. goes down
    A.
  202. For an inelastic curve, if price goes down and quantity demanded goes down, total revenue _______.
    A. goes up
    B. goes down
    B.
  203. You don't want to cute price with inelastic demand.
    A. True
    B. False
    A.
  204. You don't want to cut price with elastic demand.
    A. True
    B. False
    B.
  205. Total revenue reaches a maximum at the rate of output where D is unit elastic.
    A. True
    B. False
    A.
  206. What are the 3 determinants of price elasticity?
    • 1. availability of substitutes
    • 2. low price + infrequently purchased
    • 3. the time dimension
  207. Toilet paper has many brands meaning that it has a high _________.
    A. inelasticity
    B. elasticity
    B.


    We can switch from one product to another if price rises for one of the many brands.
  208. Salt is extremely cheap, and we buy it very infrequently. If the price of salt doubled, we would not know. The demand curve is overall __________.
    A. elastic
    B. inelastic
    B.

    We will usually by it at whatever price.
  209. In the longer run, demand is likely to become more elastic, or responsive, simply because households make adjustments over time and producers develop substitute goods. This is what determinant of price elasticity?
    time dimension
  210. In the _____ run, we find ways to save money and work around the price. Buy other things so there is a behavior change.Gasoline has an inelastic demand. We have seen more hybrid cars coming out and that is how people get around the price of gasoline.
    A. short
    B. long
    B.
  211. In the long run, we make adjustments to our use of what 2 mains products? This changes the price elasticity curve.



    C.
  212. Cigarettes are _______ because people will pay any price for them.
    A. inelastic
    B. elastic
    A.
  213. Medical care is ________.
    A. inelastic
    B. elastic
    A.
  214. Chevrolets are very _____ because people respond quite differently to changes in price.
    A. inelastic
    B. elastic
    B.

    When we buy a car, we take time to make our decisions.
  215. ___________ is a measure of the response of quantity of a good supplied to a change in price of that good.  Likely to be positive in output markets.



    B.
  216. For a __________ there is no change in supply for different prices.



    C.
  217. For a _______, if price goes up at all, the quantity will increase as a result.



    A.
  218. What are the 2 determinants of elasticity of supply?
    • 1. Time
    • 2. Production Technology
  219. When the price of something goes ______, producers want to supply more. However, in the short run it is difficult to respond to change very quickly.
    A. up
    B. down
    A.
  220. A steeper supply curve means more ______.
    A. elastic
    B. inelastic
    B.
  221. How quickly a firm can respond to a price change shows their elasticity.
    A. true
    B. false
    A.

    • more responsive --> elastic
    • less responsive --> inelastic
  222. _____________ measures the responsiveness of demand to changes in income
    Income elasticity of demand
  223. Go to Lecture 10, slide 12 to learn the equation for income elasticity of demand.
    It is hard
  224. The income elasticity is positive for _______ goods and negative for ______ goods.



    A.
  225. For Ramen noodles there is a ________ elasticity.



    B.
  226. For substitutes, when the price of Product A falls, the demand of Product B ______.



    B.
  227. If the cross price elasticity of demand is positive, then the goods are __________.



    A.
  228. If the cross price elasticity of demand is negative, then the goods are ___________.



    A.
  229. Bud has a _____ elastic curve than beer because there are not many substitutes for beer.
    A. less
    B. more
    C. equal
    more
  230. If they are not changing their services, their costs will remain the same, so the manager must be increasing fares to increase revenue.  The Metro manager is implicitly assuming the demand for Metro services is ________.
    A. inelastic
    B. elastic
    A.
  231. To assess the elasticity of a new product, companies will release the product indifferent cities at different prices.
    A. True
    B. False
    A.
  232. Birdseye can estimate elasticity by comparing sales volume in the three cities.
    Fact
  233. Review slides 19 and 20 in Lecture 10 to understand how unemployment affects society.
  234. __________ is the level of satisfaction or happiness a consumer derives from the consumption of a good or service.



    C.
  235. The units for utility is _________.



    C.
  236. It is not possible to compare utility across people, it is only possible to compare utility across products for one person at a time.
    A. True
    B. False
    A.
  237. ___________ is the additional satisfaction gained by the consumption or use of one more unit of something.
    Marginal utility
  238. _______ is the total amount of satisfaction obtained from consumption of a good or service.
    Total utility
  239. How do you find marginal utility?



    A.
  240. How do you calculate total utility?



    C.
  241. The law of _________________ states that the more of any one good a person consumes per period, the less additional satisfaction (utility) generated by consuming each additional (marginal) unit of the same good (holding the consumption of all other goods and services constant.)
    diminishing marginal utility
  242. The more you consume of a good, the more utility you get out of each product.
    A. True
    B. False
    B.
  243. Market systems do not maximize total social utility.
    A. True
    B. False
    A.
  244. __________ tried to make a system that allocates society’s scarce goods and services to those who would derive the most utility from consuming these goods and services.



    C.
  245. Cracker Jack used to have a motto“The more you eat, the more you want.” This motto goes against what law?



    A.
  246. The _____ line depicts all possible combinations of goods that a consumer can afford.



    C.

    The budget line is also known as the budget constraint.
  247. ___________ is all combinations of goods that a household can afford (i.e. all bundles of good that lie inside or on the budget constraint).



    D.
  248. Which name does not depict the demand curve?A. opportunity set
    B. choice set
    C. marginal cost
    D. none of the above
    C.
  249. What happens to the demand curve if your income increases from $10 to $20.



    B.
  250. __________is the set of opportunities to purchase real goods and services available to a household as determined by prices and money income.
    Real income
  251. Real income rises if money income rises and prices stay the same or if prices fall while money income stays the same.
    A. True
    B. False
    A.
  252. What are the 2 possible graphs that show income rising and prices staying the same, then prices lowering and income staying the same?
    • When only income changes --> the entire demand curve shifts
    • When only prices changes --> the demand curve peaks
  253. Understanding marginal utility and consumption
    The consumer will set the per dollar marginal utility to be the same across all goods and services. (they will equalize the “bang for their buck”)
  254. What is the equation for the utility-maximizing rule?
    • MUA
    • ------
    • PA    SHOULD EQUAL MUB
    •                                              ------
    •                                              PB
  255. To find the utility maximization, we need to know the marginal utility and price.
    A. True
    B. False
    A.

    We HAVE TO HAVE both
  256. The law of diminishing marginal demand curve is _________.



    B.
  257. For utilizing maximization, equilibrium means that we are spending all our income.
    A. True
    B. False
    A.
  258. When the price of a good changes, what are the 2 main effects?
    • 1. income effect
    • 2. substitution effect
  259. ________
    When the price of something we buy falls, we are better off. Our REAL INCOME (income in terms of what we can buy) rises as prices fall. 
    As real income rises, we want to buy more of all normal goods.

    When the price of something we buy rises, we are worse off.  Our REAL INCOME falls and we want to buy less of all normal goods.
    Income effect
  260. We our income rises we are more likely to buy _________.



    D.
  261. When our income falls we are more likely to buy ____________.



    B.
  262. ________
    If the price of one good falls (ceteris paribus), that good becomes less expensive relative to substitutes.  If this happens we are likely to buy more of the good whose price fell and less of other goods (to equalize MU/P).

    If the price of one good rises (ceteris paribus), that good becomes more expensive relative to substitutes.  If this happens we are likely to buy less of the good whose price rose and more of other goods (to equalize MU/P).
    Substitution effect
  263. If the cost of Coke rises, we are more likely to buy Pepsi. What effect is this?
    the substitution effect
  264. If the price of X falls and the consumer buys more X as well as more Y, we say that the _________ effect dominates.
    A. substitution
    B. income
    B.
  265. If the price of X falls and the consumer buys more X and less Y, we say that the ________ effect dominates.
    A. substitution
    B. income
    A.
  266. Tell me how LDMU can explain why soda machines only dispense one pack at a time, while newspaper stands expose all of the newspapers when you put your quarters in.
    The MU of another paper is very low, while the MU of another soda is higher.
  267. Draw the differences in graphs for the marginal utility of a newspaper machine and for a soda can machine.
    • 1. the newspaper MU (like a demand curve) is steep
    • 2. the soda can MU (like a demand curve) is more flat
  268. __________ is when you pay the same percentage of your income in taxes, regardless of your level of income.
    Flat Tax, proportional taxing
  269. ___________ is as your income increases, the amount of taxesyou pay (asa percentage of your income) increases.
    Progressive tax
  270. A progressive tax system is based on the belief that paying taxes should be equally “painful” for all, whether they are extremely wealthy or whether they are of more modest means.  A progressive tax system assumes the MU of income is a decreasing function of income. Which law is this?
    The law of diminishing marginal utility
  271. A _______ progressive tax system is where everyone receives the same income after taxes.



    D.
  272. A perfectly progressive tax system is what the ______ (is/are) looking for.



    A.
  273. What 4 assumptions hold true for a perfectly progressive tax system?
    • 1. income affects utility
    • 2. Everyone has the same utility function for income
    • 3. The LDMU applies to income
    • 4. Total income in society is fixed
  274. Draw the diagram for a perfectly progressive tax system.
    • It almost looks like a U.
    • Go to lecture 12, slide 15 for help.
    • It explains:
    • If I was paid more, my marginal utility would be really low.
    • If Steve was paid little, his marginal utility is really high.
  275. Reasons why a perfectly progressive tax system is impossible?
    1 and 3 are believable.  But 2 and 4 are not. 

    Not everyone has the same utility function for income.  i.e. some people value money more than others.

    Also, total income is not fixed.  The amount that people work can affect the total income.  Good workers can increase the total income.  Also, it is possible for very high taxes to discourage work and lower total income.
  276. __________ is the difference between what you are willing to pay and the price.
    Consumer surplus
  277. Say you go for a run and are really thirsty afterward.  You go into 7-11 and buy a Gatorade.  It costs you $1.  But you were so thirsty that you would have gladly paid $4 for it. What is the consumer surplus?
    It is $3.

    $4 - $1 = $3
  278. Draw a graph showing consumer surplus. You need to draw a demand curve and the price (then the CS).
    The consumer surplus should be a right triangle shaded below the demand and above the price.
  279. ____________ is a paradox stating that
    (1) the things with the greatest value in use frequently have little or no value in exchange(2) the things with the greatest value in exchange frequently have little or no value in use.



    D.
  280. Water is the greatest value of exchange. We are willing to pay for water. (Basically water is free and we are willing to pay the price.) That is a lot of consumer surplus.
    We buy diamonds for ourselves and others but it is not that useful. We have to fix a budget. You spend exactly what you budget. Say you only want to spend $5000, you only spend $5000. This explains _________.
    the diamond/water paradox
  281. _______ is the difference between the current market price and the full cost of production for the firm.
    Producer surplus
  282. Draw producer surplus. You will have to draw the supply curve and the price of the good.
    The producer surplus is the shaded right triangle above the supply curve and beneath the price.
  283. Draw a picture showing the total surplus.
    The total surplus is both the consumer and producer surplus. You should use both a demand and supply curve and a price line.
  284. Total surplus is maximized when ______.



    C.
  285. __________ is the net loss of producer and consumer surplus from underproduction or overproduction
    Deadweight loss
  286. For a product if consumers are supplying less or more than the equilibrium price, society is going to experience ________.



    C.
  287. With over production, cost is _______ benefit.



    B.
  288. With underproduction, benefit is _________cost.



    B.
  289. Which factor is not a reason for overproduction?



    C.
  290. Sometimes we are willing to pay _______ for a product, if somehow we save time.



    B.

    This is the issue of time and demand
  291. You can buy a product for $15 at Best Buy or for $10 online with a 5-7 day delivery time. This relates to the issue of ___________.



    D.
  292. __________ economics is what should be.



    A.
  293. _________ economics is what is.



    A.
  294. Suppose you go to a movie, and the ticket price is $7.00.  Suppose you could have earned $30 during that movie at a part time job. What is the accountant's costs and the economists costs?
    • Accountant cost ==> $7
    • Economists cost ==> $37
Author
rbeato
ID
218604
Card Set
ECON Exam 1
Description
Notecards for Exam 1
Updated