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Econ Midterm 1
Xie lili UCSD chapters 1-3 Spring14
| Question | Answer |
|---|---|
| What does Economics study? | How society manages or allocates its scarce resources. |
| Scarce or limited resources means? | A society cannot produce all the goods and services people wish to have. |
| What is a trade off? | When you give up one thing to get another. |
| What is opportunity cost? | The value of the next best alternative or the value of what you give up or could have been doing. |
| When should one use the Cost-Benefit Principle? | Only if the extra benefits are equal to or greater than the extra costs. |
| What is an Economic Surplus? | the difference between benefit and cost. |
| What is a marginal change? (MC) | a small incremental change to an existing plan of action. |
| What is a marginal cost? and what is a marginal benefit? | a) A cost acquired due to (MC) b) A benefit obtained from (MC) |
| What is Microeconomics? | The study of how households and firms make decisions and how they interact with specific markets and industries. |
| What is Macroeconomics? | The study of economy wide phenomena. |
| What are sunk costs? | A cost that has been incurred and can not be recovered. |
| What is an average cost? | Total cost of taking a number of units divided by n. Cost/units |
| What is an average benefit? | Total benefit of undertaking a number of units divided by n. Benefits/units |
| What is self sufficiency? | When each person relies on self to produce needs. production = consumption |
| What does production technology mean? | Basically what a person can or cant do. |
| What is the Production Possibility Curve? (PPC) | a curve showing the maximum attainable combinations of products that may be produced with available resources and current technology. |
| Referring to the PPC: what are points called above the line? | Unattainable points. |
| Referring to the PPC: what are points called on the line? | Attainable and efficient. |
| Referring to the PPC: what are points called under the line? | Attainable and inefficient |
| What does 'Specialization and Trade' promote? | That each person should specialize in what they are better at and trade with each other. |
| What are two ways to decide who specializes in what? | a) Absolute Advantage b) Comparative Advantage |
| What is absolute advantage? | Whoever requires less time to produce a unit of output. time/unit |
| What is comparative advantage? (Preferred way) | Whoever has the lowest Opportunity cost in producing a unity of output. |
| What is a Consumption Possibilities Curve? | a curve showing the max attainable combinations of products that may be consumed |
| Cause: If we produce more of a good then... | Effect: The Opportunity cost of that good increases. |
| What can cause a bow shaped PPC? | A rise in the opportunity cost of an item. |
| What does a linear PPC signify? | A constant opportunity cost. |
| What can cause an outward shift in the PPC curve? | A change in technology, improvements in knowledge, and increase in the amount of productive resources available |
| When is a trade not beneficial | when the price of opportunity cost is greater than the trading price. |
| How do you compute opportunity cost? | Divide product b by product a to find the O.C of product a. |
| What is the definition of Market? | A group of buyers and sellers of a particular product. |
| What is Demand? | the relationship between price and quantity demanded. |
| What is the relationship between price and quantity in the demand curve? Basically what is the law of demand. | Negative; As the price of a good increases less quantity is demanded. |
| What is Reservation Price? | the highest price the customer is willing to pay for the good. |
| What factors cause a shift in demand? What does PINTE stand for? | PINTE: P-Price of Good; I-Income of Buyers; N-Number of Buyers; T-Taste and Preferences; E-Expectations |
| How does changing the price of a substitute of a product affect its quantity demanded? | Demand decreases ex. water vs beer |
| How does changing the price of a complement of a product affect its quantity demanded? | Demand increases ex. snacks and beer |
| How would quantity demanded of a normal good be affected by an increase in income? | Demand increases; Positive Relationship ex. higher income = more steak |
| How would quantity demanded of an inferior good be affected if there was an increase in income? | Demand decreases; Negative Relationship ex. higher income = no more eating spam meat |
| How does the number of buyers affect quantity demand? | As # of buyers increases so does demand. Positive Relationship. |
| How does expectations of increased price affect quantity demanded? | If the expected price of something rises the current demand will increase (buy it while its cheap) |
| What is quantity supplied? | the quantity produced at a certain price. |
| What relationship does price and quantity have on the supply curve? | Positive Relationship. When price increases we want to sell more. |
| What factors cause a shift in supply? In other words what does WINTE stand for? | WINTE: W-Weather; I-Input prices (labor, raw mats.); N-Number of Sellers; T-Technology; E-Expectations |
| How does weather affect quantity supplied? | Positive Relationship, IF there is good weather for the product then there will be more of the product. |
| How does price of input affect quantity supplied? | As price of input decreases, quantity will increase. Negative relationship of price of input and quantity supplied. |
| How do the number of sellers affect quantity supplied? | # of sellers increases quantity supplied; Positive Relationship |
| How does a change in technology affect quantity supplied? | As technology increases supply increases because cost to produce goes down; Positive Relationship. |
| How does expectation of future price change affect current supply. | As expected price increases there will be a decrease in current supply; Negative Relationship. |
| What is market equilibrium? | When quantity supplied = quantity demanded. |
| What is surplus? | When there is less quantity demanded in a product than a higher quantity supplied. |
| What is shortage? | When there is more quantity demanded than the amount of quantity that can be supplied. |
| What is price ceiling? | The max price of a product by law. ex. Rent |
| What is price floor? | The min price of a product by law. ex. Wage |
| What is Rule #1? | As quantity demanded increases so does Price and quantity supplied. |
| What is Rule #2? | When quantity supplied increases price decreases and quantity demanded increases. When Q of S decreases Price and Q demanded increases |
| What happens when the supply curve shifts left? right? | left- decreases; right- increases; |
| What happens when the demand curve shifts left? right? | left- decreases; right- increases; |
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