Question 1

Macroeconomics

Accepted Answer

focuses on the overall economic environment in which businesses operate. It analyses the spending decisions of different sectors of economy - the household, business, government, and foreign sectors. Macroeconomics policy deals with the issues of inflation, unemployment, and economic growth. Changes in the macroeconomic environment influence firms through the microeconomic issues of demand, cost, revenues, and profits.

Question 2

Microeconomics

Accepted Answer

focuses on the behavior of individual consumers, firms, and industries as they operate in a market economy. It analysis how these various groups respond to changes in prices that affect their consumption, production, and selling decisions. It also describes how firms and consumers interact in various types of markets and can be used as a basis for determining competitive strategies.

Question 3

Demand

Accepted Answer

is defined in economics as a functional relationship between the price of a good or service and the quantity demanded by consumers in a given period of time, all else held constant. Incorporates a consumer's willingness and ability to purchase a product

Nonprice Factors Influencing Demand:
1. Tastes and preferences
2. Income - higher demand for inferior (when income decreases) and higher demand for normal good (when income increases)
3. Price of related goods - substitutes (price of good Y causes consumers to increase demand in good X) and complimentary goods (price of good Y causes consumers to decrease in demand in good X)
4. Future Expectations
5. Number of Consumers

Question 4

Demand Curve

Accepted Answer

Price placed on the vertical axis and the quantity demanded on the horizontal axis. Generally downward sloping, showing a negative or inverses relationship between the price of a good and the quantity demanded. When price falls, quantity demanded increases. Price does not shift the demand curve. Only the Nonprice factors influencing demand will cause shift in demand. Price changes the quantity demanded. A shift in the demand curve will not change the price but rather change the quantity. If income increases, then demand will shift to the right (causing price to stay the same and quantity to increase)

Question 5

Shifts in Demand

Accepted Answer

1. Tastes and Preference - if people continue to like the product, then demand will shift to the right. If they start to dislike the product, then demand will shift to the left.
2. Increase in income and increase in normal goods - shift to the right
3. Decrease in income means increase in inferior goods - shift to the right
4. Increase in the price of a substitute good - shift to the right for the good in question (increase in price of good Y causes quantity demanded to decrease in good Y and a shift to the right for good x) (ex. Coke and Pepsi)
5. Decrease in price of a complimentary good - shift to the right for the good in question (decrease in price of good Y causes quantity demanded to increase in good Y and shift to the right for good x) (ex. PB and J)
6. If future prices were expected to increase - shift to the right
7. Increase in the number of consumers in the market - shift to the right

Question 6

Supply

Accepted Answer

relationship between the price of a good and service and the quantity that produces are willing and able to supply in a given time period, all else held constant.

Nonprice Factors Influencing Supply:
1. State of Technology
2. Input Prices - labor/land/capital/raw materials
3. Prices of Goods Related in Production - substitutes and complimentary
4. Future Expectations
5. Number of Producers

Question 7

Supply Curve

Accepted Answer

prices is on the vertical axis and quantity supplied in on the horizontal axis and it has an upward slope, indicating a positive or direct relationships between the price of of the product and the quantity producers are willing to supply. A higher price give producers an incentive to increase the quantity supplied of a particular product because higher production is more profitable. Does not show the actual price of the product, only a functional relationships between alternative prices and the quantities that producers want to supply at those prices. Price does not influence a shift in supply. Only the nonprice factors should influence it. Example, new technology or a decrease in price of inputs would cause an increase in supply or a right shift (causing price to remain constant and quantity demanded to increase)

Question 8

Supply Shifts

Accepted Answer

1. New technology - shift to the right
2.Decrease in price of inputs - shift to the right because cost of production lowers
3. Decrease in the price of substitutes - shift to the right
4. Increase in price of a Complimentary - shift to the right
5. Producer expectations of lower prices - shift to the right (supply increase in anticipation of lower prices in the future)
6. Increase in a Number of producers - shift to the right.

Question 9

Elasticity Practice Questions: These are the quantity demanded; find the point price and tell me if this is elastic, inelastic, or unit elastic.
Qd = 3,000 - 30Px

Accepted Answer

1. Solve Px 3,000/30 = 30Px/30
Px =$100
2. Solve the point price use the formula of (P/(P-a)
For example, if the price is 80 -> 80/(80-100) ->4 point price -> elastic

Question 10

Elasticity Practice Questions: These are the quantity demanded; find the arc price and tell me if this is elastic, inelastic, or unit elastic.

Qd = 200 - 10Px

Accepted Answer

1. Figure out the quantity demanded by inserting the price given
ex. if price is $5 then, Qd =200-10(5) = 150
2. Figure out the quantity demanded for the second price given.
ex, if the price is $20 then, Qd=200 - 10(20) = 0
3. Find the average quantity demanded and average price
ex. (150+0)/2 - > 75 avg qd (5+20)->12.5 avg price
4. Find the difference in New and Old quantity demanded and price
ex. (150-0=150 quantity demanded) (5-20 = 15 price)
5. Divide the difference in new and old quantity demand or price by the average quantity demanded or price
ex. (150/75)=2quantity demanded (15/12.5)=1.2
6. Divide the quantity demanded found in step five by the price found in step 5
ex. 2/1.2 = 1.6667 -> elastic

Question 11

Demand Elasticity

Accepted Answer

is a quantitative measurement (coefficient) showing the percentage change in the quantity demanded of a particular product relative to the percentage change in any one of the variables included in the demand function for the product.

**Elasticity measures this responsiveness in terms of percentage changes in both variables: the percentage change in quantity demanded relative to the percentage change in the other variable.

Question 12

Price Elasticity of demand

Accepted Answer

is a defined as a the percentage change in the quantity demanded of a given good, X relative to a percentage change in the price, all other factors assumed constant. A percent change in a variable is the ratio of the absolute change in that variable to a base value of the variable. (% change in Qx / % change in Price) or (change in Q/Qx divided by Change in Price/Px)

elastic - the % change in quantity demanded by consumers is grater than the % change in price (greater than 1) (more people responding) (%change in Qx > % change in Px)

inelastic - % change in quantity demanded by consumers is less than the % change in price (people barely or not responding)
(%change in Qx < % change in Px)

unitary - % change in quantity demanded is exactly equal to the % change in price (breakeven)
(%change in Qx = % change in Px)

Question 13

Elasticity and Total Revenue - Elastic

Accepted Answer

if a demand is elastic, higher prices result in lower total revenue, while lower prices result in higher total revenue. This outcome arises because the percentage change in quantity is greater than the % change in price. If the price increases, enough fewer units are sold at the higher price that total revenue actually decreases.If price decreases, then total revenue increases. Changes in price and the resulting total revenue move in the opposite direction.

ex. at a price of $10, t units of the products demanded, the total revenue is $20. IF the price decreases to $9, then the quantity demanded increases to 3 units, and the total revenue increases to $27.

Question 14

Elasticity and Total Revenue - Inelastic

Accepted Answer

If the price increases, total revenue also increases because the percentage decrease in quantity is less than the percentage increase in price. With a price increase, enough units are still sold at the higher price to cause total revenue to increase because each unit is sold at a higher price. If price decrease, total revenue will decrease. Changes in price and total revenue move in the same direction.

ex. at a price of $4, 8 units are demanded, and the firm receives $32 in revenue. If the price falls to $3 per unit, the quantity demanded is 9 units, and the firms takes in $27 in revenue.

Question 15

Elasticity and Total Revenue - unitary

Accepted Answer

changes in price have no impact on total revenue because the percentage change in price is equal to the percentage change in quantity. The effects on price and quantity are equal and offsetting.

Question 16

Determinants of Price Elasticity of Demand

Accepted Answer

1. the # of substitute goods - fewer numbers means inelastic
2. The percent of a consumer's income that is spent on the product - smaller the percent of consumers income spent on products means inelastic
3. The time period under consideration - short the time period under consideration means inelastic

Question 17

Income Elasticity

Accepted Answer

Normal goods - increase in income results in an increase in demand, then has a positive income elasticity or is elasticity greater than 0
Necessity - income elasticity between 0 and 1

Inferior goods - increase in income results in a decrease in demand, which would be a negative income elasticity or elasticity is less than 0
Luxuries - income elasticity greater than 1.

Consumer spending on necessities does not change substantially as income changes; whereas spending on luxury goods changes more than proportionately with changes in income

Question 18

Cross Price Elasticity

Accepted Answer

Substitute goods = positive cross price elasticity of demand coefficients. An increase in the price of good Y cause consumers to demand more of a good X because they are substituting good X for good Y. elasticity greater than 0. If elasticity is high, then have multiply substitutes (ex. candy and soda). If elasticity is low, then have less substitutes (electricity)

Complimentary goods - negative cross price elasticity of demand coefficient.. An increase in the price of good Y results in a decrease in the demand for good X if the two goods are used together or are compliments. elasticity less than 0.

Question 19

Elasticity on Linear Downward Sloping Demand Curve

Accepted Answer

Elastic - upper half of demand curve, positive (for increase in Q) for marginal revenue
Inelastic - lower hand of demand curve, negative (for increases in Q) for marginal revenue
unit elasticity - midpoint for demand curve, zero for marginal revenue and total ravens is at its maximum value.

Question 20

Short Run production function

Accepted Answer

involves the use of at least one fixed input. At any given point in time, managers operate in the short run because there is always at least on fixed input in the production process. Managers and admin decide to produce beer in a brewery of a given size or educate students a school with a certain number of square feet. The size of the factory or school is fixed in the short run either because the managers have entered into a contractual obligation such as rental agreement or because it would be extremely costly to change the amount of that input during the time period

Question 21

Fixed Input

Accepted Answer

is one whose quantity a manager cannot change during a given time period (long run).
ex. factor, a given amount of office space, and a plot of land. It is difficult for a manger to change these inputs in a relatively short time period

Question 22

variable inputs

Accepted Answer

is one whose quantity a manger can change during a given time period. Ex, automobile workers, steel and plastic, accountants, farm workers , seed, and fertilizers are all variable inputs.

Question 23

Long Run Production function

Accepted Answer

all inputs are variable. There are no fixed inputs because the quantity of all inputs can be changed. in the long run, managers can choose to produce cars in larger automobile plants, and administrators can construct new schools and abandon existing buildings. Farmers can increase of decrease their acreage in another planting season, depending on this year's crops conditions and forecasts for the futures. Thus, the calendar lengths of the short run and the long run depend on the particular production process, contractual agreements ,and the time needed for input adjustment.

Question 24

Short Run Measures of productivity

Accepted Answer

relationship between input s and outputs such as total product, average product, and marginal product. All short run curves eventually have a downward sloping portion due to law of diminishing returns that occurs because the capital input and state of technology are held constant, when defining a short run production function. As more units of labor input are added to the fixed capital input, the marginal product may increase at first but the curve will eventually decline to either zero or a negative value

MBA – Economics

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