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Econ Unit 1
| Question | Answer |
|---|---|
| Macro | study of choice by groups (nationally) |
| Markets | where things are bought and sold. 2 Groups: buyers and sellers |
| Buyer and sellers | Interact with each other |
| Buyer model | demand |
| seller model | Supply |
| Demand definition | intentions of buyers. The relationships between various prices of a good and quantities which buyers are willing and able to purchase. |
| Ceteris Paribus | (latin) everything else and other things held constant |
| Inverse Relations | prices go down, quantity goes up |
| Supply definition | The relationship between various prices of a good used the quantities which sellers are willing and able to purchase. |
| Direct Relationship | Prices go up the more you give up |
| What is the force to equilibrium | bidding mechanism *Invisible Hand |
| Completive Market | Lost of buyers and sellers so many in fact that no single individual can influence market equilibrium |
| Equilibrium | prices will continue to be lowered until equilibrium is met |
| Shortage | as long as there is a shortage more money will be offered |
| Determinants of Demand | 1) Income: Normal goods (most things) Inferior goods 2) taste/preferences 3) prices of related goods: Substitutes (price of Sub goes down, demand goes down. Complements Price of Complements go up demand goes down. |
| Determinants of Demand #4 and #5 | 4) expectations of future prices and income 5) # of buyers number of people that could buy the good in question not the people that have bought it |
| Income | have more money you buy more |
| Interior goods | what we want buy can't afford. Income goes up and demand goes down. |
| Normal Goods | income up and demand goes up |
| Supply and Demand Curve Increase | rise. Move to the right graphically |
| Supply and Demand Curve Decrease | fall. Move to the left graphically |
| Demand Curve | assume that none of the S things changed. If things change then its no longer accurate. |
| Determinants of Supply | 1) cost of production (To produce a good): Cost of Inputs goes up then supply goes down Technology goes up cost goes down supply goes up 2) Expectations of future price (expected Price goes up supply goes down 3) # of sellers |
| Determinants of Supply # 3 | More sellers market goes up Less sellers market down |
| Price Elasticity of Demand | in this is infinite, a seller pays all of a tax |
| Price Elasticity of Supply | if this equals 0, a seller pays all of tax |
| Income Elasticity of demand | Used to determine if a good is normal or inferior |
| Cross Price Elasticity of demand | this is used to determine if goods are complements or substitutes |
| Elasticity | a relative measure of the responsiveness of one variable to change in another |
| Cross Price equation | % change of Quantity Demand A over % change of Price b |
| Price Elasticity | Ed= {% change of Quantity Demand over % of change of Price} |
| Income Elasticity | Ey= % of change of Quantity Demand/ % change of Y |
| Ey>0 | Normal |
| Ey<0 | Inferior |
| ExPd >0 | Subs |
| ExPd<0 | comp. |
| The quantity demanded of a good is the amount that buyers are | willing and able to purchase |
| One economist has argued that rent control is the best way to destroy a city other than bombing. Why would an economist say this | He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city |
| The minimum wage if it is binding, lowers the incomes of | only those workers who become unemployed |
| for a good that is a necessity, demand | tends to inelastic |
| when demand is inelastic, a decrease in price will cause | a decrease in total revenue |
| Cause equilibrium quantity to rise | demand and supply both increase |
| Not Correct | taxes levied on sellers and taxes levied on buyers are not equivalent |
| A minimum wage that is set above a markets equilibrium wage will result in an excess | supply of labor, that is, unemployment |
| if the demand for a product decreases, then we would expect equilibrium price | and equilibrium quantity to both decrease |
| Price controls | can generate inequities of their own |
| when studying how some event or policy affects a market, elasticity provides information on the | magnitude of the effect on the market |
| a good will have a more inelastic demand the | broader the definition of the market |
| a binding price ceiling | causes a shortage, is set at a price below the equilibrium price |
| Competitive Market | if a seller chargers more than the going price, buyers will go elsewhere to make their purchases |
| if at the current price there is a surplus of a good then | sellers are producing more than buyers wish to buy |
| if two goods are complements, their cross-price elasticity will be | negative |
| if the price elasticity of supply for a good is equal to infinity then the | supply curve is horizontal |
| when demand is inelastic an increase in price will cause | an increase in total revenue |
| If demand is price, inelasticity then | buyers do not respond much to a change in price |
| a tax imposed on the buyers of a good will | raise the price buyers pay and lower the effective price sellers receive |
| if a decrease in income increases the demand for a good then the good is a(n) | inferior good |
| an improvement in production technology will | decrease a firm's costs and increase its supply |
| the price elasticity of supply measures how responsive | sellers are to a change in supply |
| a price ceiling | a legal maximum in the price at which a good can be sold |
| the imposition of a binding price ceiling on a market cause quantity demand to be | greater than quantity supplied |
| the supply curve for a good is a line that relates | price and quantity supplied |
| Tax incidence | depends on the elasticities of supply and demand |
| a decrease in input costs to firm in a market will result in an | decrease in equilibrium price and an incase in equilibrium quantity |
| in a competitive market, the quantity of a product produced and the price of the product are determine by | both buyers and sellers |
| minmum wag-law dictate | a minimum wage that firms may pat workers |
| when price of a good or service changes | there is a movement along a given supply curve |
| when quantity supplied decreases at every possible price, we know that the supply curve has | shifted to the left |
| in a market economy, supply and demand determine | both the quantity of each good produced and the price at which it is sold |
| Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price the | flatter the demand curve will be |
| if an increase in income results in a decrease in the quantity demanded of a good, then for that good the | income elasticity of demand is negative |
| the imposition of a binding price floor on a market causes quantity demanded to be | less than quantity supplied |
| when demand is elastic a decrease in price will cause | an increase in total revenue |
| the minimum wage is an example of a (Surplus) | price floor |
| Shortage | Price ceiling |
| a person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is | inelastic |
| two major macro problems | inflation and employment |
| how to measure inflation | GPD Deflator, and price index |
| how to measure employment | GDP Gap, and survey data |
| three types of money demand | transactionary, precautionary, speculative |
| three functions of money | medium of exchange, store of value, unit of account |
| three reasons that there are different tax rates | different default risk, different terms of maturity, different tax rates, determinate |
| two fiscal policies combat inflation | taxes raise government spending goes down |
| what open market operation could be used to combat inflation | FBB demand government goes down, taxes go up |
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