Microeconomics Review 1 - Assignment Essays %

question

Opportunity Cost

answer

-Highest valued alternative forgone
-Measured in terms of unit that you are giving up.
-Measured by the slope of the PPF
-Inverse Relationship between 2 variables- slope increasingly negative
(Decrease in quantity produced)/(increase in quantity produced)

question

Determining Opportunity Cost

answer

-(what your giving up)/ (what your gaining) Inverse of this product for different good

question

Why is slope increasingly negatively sloped?

answer

Resources not perfectly adaptable or suitable to alternate uses

question

Economic Growth shown by

answer

shift outward because of increased technology and/ or resources

question

Strait line PPF means

answer

opportunity costs are constant

question

The PPF is bowed from the organ because it reflects

answer

the law of increasing opportunity costs

question

Production Possibilities Frontier Assumptions

answer

1. 2 choices
2. Fixes # of resources (how do allocate them?)
3. Fixed Technology
4. Full and Efficient use of resources

question

PPF points

answer

-on=effecient
-oustide= unattainable
-inside= attainable (ineffecient- unused/ misallocated resources)

question

Factors of Production

answer

-Land
-Labor
-Capital
-Entrepreneurship

question

Land

answer

natural resources.
-Earns Rent

question

labor

answer

the work time and work effort that people devote to producing goods and services
-Earns Wages

question

human capital

answer

knowledge and skills that people obtain from education, on the job training, and work experience

question

Capital

answer

the tools instruments, machines, buildings, and other contractions that businesses use to produce goods and services
-Earns Interest

question

Entrepreneurship

answer

The human resource that organizes labor, land, and capital
-Earns PROFIT

question

Margin

answer

comparing cost and benefit

question

Marginal benefit

answer

the benefit received from consuming one more unit of a goof. depends on preferences
-the most that people are willing to pay for an additional unit
-negative slope
-Measured by the quantity of good that you are willing to forego
-the more there is of something, the less you are willing to pay for an additional unit

question

principal of decreasing marginal benefit

answer

the more we have of any good or service, the smaller the marginal benefit and the less we are willing to pay for it

question

Marginal Cost

answer

the opportunity cost of producing one more unit of it
-Calculated from the slope of PPF: Steeper slope= greater marginal cost
-positive slope

question

When marginal benefit equals marginal cost,

answer

resources are being used efficiently-allocative efficiency

question

At any point on the PPF, we cannot produce more of one good without _____ some other good

answer

giving up

question

Moving downward along a PPF, the opportunity cost of another unit of the good measured along the horizontal axis

answer

increases

question

concave (bowed) PPF

answer

strait line: constant opportunity costs
bowed: increasing opportunity costs

question

If a country operates on its PPF, it achieves

answer

production efficiency

question

We have achieved production efficiency if

answer

we can produce more of one good without producing less of some other good.

question

allocative efficiency

answer

the point on the PPF that we prefer above all other points
-at the best point on a PPF, we cannot produce more of one food without giving up some other good that provides greater benefit
-marginal benefit of producing the good equals the marginal cost of producing that good.

question

ceteris paribus

answer

used to graph a relationship that involves more than two variables

question

production efficiency

answer

producing goods and services at the lowest possible cost-ON the PPF

question

comparitive advanage

answer

a person has comparative advantage if they can perform at a lower opportunity cost than anyone else.

question

absolute advantage

answer

ability of a party to produce more of a good or service than competitors, using the same amount of resources
-a person wo has absolute advantage does not always have comparative advantage

question

people gain by __ in the production of a good that they have _______ and trading with others

answer

specialization; comparative advantage

question

Demand Schedule

answer

price of a good and quantity demanded at each price on a table. as price increases, quantity demand decreases (inverse relationship)

question

Law of Demand

answer

when a person buys less of a good when it becomes more expensive (principal of marketplace)

question

money price

answer

how much you pay for a good
relative price

question

relative price

answer

: e.g. meals. buying a textbook will cost me twenty meals (opportunity cost). ratio of one price to another

question

competitive market

answer

a market that has many buyers and sellers, so no one buyer or seller can influence the price

question

household and firms interact in ___ economy

answer

market economy

question

Households are ______ in factor markets and ______ in goods markets.

answer

sellers; buyers

question

quantity demanded

answer

the amount that consumers are willing to buy during a given time period at a particular price. refers to a point ON the demand curve.

question

demand

answer

the entire relationship between the price of a good and the quantity demanded of a good.

question

demand curve

answer

relationship between quantity demanded of a good and its price when all other variables remain the same. also called willingness-and-ability-to-pay curve.

question

change in demand (shift)

answer

when and factor OTHER THAN PRICE of good changes

question

demand shifters

answer

-the price of related goods
-expected future prices
-income
-expected future income and credit
-population
-preferences

question

normal good; inferior good

answer

demand increases when income increases; demand decreases as income increases

question

change in quantity demanded (movers)

answer

if the price of a good changes but no other influence on buying plans changes, movement ALONG demand curve

question

if a firm supplies a good or service

answer

1. has resources to produce it
2. can profit from producing it
3. plans to produce and sell it

question

quantity supplied

answer

the amount producers plan to sell during a given time period
-a point in the supply curve

question

law of supply

answer

the quantity supplied increases as the price increases

question

willingness to accept

answer

the lowest price a seller is willing to get paid to sell and extra unit of the good. It is the same as the marginal cost of production.

question

supply shifters

answer

-change in input prices used to produce good
-change in technology
-change in # of sellers
-changes in sellers expectations
-change in price of related goods

question

prices if factors of production

answer

if the price of factor of production rises, the lowest price suppliers are willing to accept for that good rises, so supply decreases

question

if expected future price of good rises,

answer

supply decreases today and increases in future

question

change in quantity supplied

answer

affected by change in price only

question

equillibrium price

answer

quantity demanded= quantity supplied

question

equillibrium quantity

answer

quantity bought and sold at equilibrium price

question

Calculating Shortage and Surplus

answer

quantity supplied- quantity demanded

question

Shortage

answer

-if price is below equilibrium
-market adjusts by driving price up

question

Surplus

answer

price is above equilibrium
-a surplus drives the price down

question

when supply and demand move in the same direction

answer

equillibrium quantity changes in the same direction

question

if the demand decreases while the supply increases,

answer

the price definitely falls but the quantity might increase, decrease, or remain the same.

question

market demand

answer

horizontal sum of the quantities demanded at every price

question

market supply

answer

horizontal sum of the quantity supplied at every price

question

an increase in demand _________ Pe and _________ Qe

answer

increases; increases

question

decrease in demand _________ Pe and _________ Qe

answer

decreases; decrease

question

increase in supply _________ Pe and _________ Qe

answer

decreases; increases

question

decrease in supply _________ Pe and _________ Qe

answer

increases; decreases

question

increase in demand and supply _________ Pe and _________ Qe

answer

?; increases

question

decrease in demand and supply _________ Pe and _________ Qe

answer

?; decrease

question

increase in demand and decrease in supply _________ Pe and _________ Qe

answer

increases; ?

question

decrease in demand, increase in supply _________ Pe and _________ Qe

answer

decreases; ?

question

Equilibrium price depends on

answer

magnitude of shift

question

price of elasticity of demand

answer

units free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences in buying remain the same

question

calculating price elasticity of demand

answer

(percentage change in quantity demanded)/ (percentage change in price) absolute value

question

perfectly inelastic

answer

the quantity demanded remains constant when the price changes. elasticity= 0.
ex: pharmaceuticals

question

perfectly elastic

answer

if quantity changes by an infinitely large percentage in response to a tiny change in price. a good that has perfect substitutes. price elasticity = infinity

question

elastic

answer

quantity demanded is affected by price change. elasticity > 1. ex: will book more air travel if price decreases\-price and total revenue move in opposite directions

question

inelastic

answer

the % change in quantity demanded < % change in price
-Price elasticity< 1
-ex: necessities like salt
-price and total revenue move in opposite directions

question

unit elastic

answer

-% change in Quantity Demand= % change in price. Ep=1
-price change has no affect on total revenue

question

Total Revenue

answer

Price times Quantity

question

determinate of elasticity

answer

-# of substitutes (more substitutes= more elastic)
-portion of income spent on good (larger %= more elastic)
-necessity/ luxury (more necessary= more inelastic)
-time for consumer to adjust to price (more time= more elastic)

question

cross price elasticity

answer

how responsive sales are to price change of another good (DON'T take absolute value)
-if price and quantity change in same direction, goods are related

question

cross price elasticity calculation

answer

(percentage change in quantity demanded)/ (percentage change in price of substitute or complement)

question

If Exy < 0
If Exy > 0
If Exy = 0

answer

-goods are complements if Exy < 0
-goods are substitutes if if Exy > 0
-goods are unrelated if Exy = 0

question

income elasticity

answer

measure of how responsive demand of a good is to change in income, all other things remaining the same

question

calculating income elasticity

answer

(% change in quantity)/ (% change in income)

question

good is normal and income elastic if

answer

Income elasticity positive and greater than one

question

good is normal and income inelastic is

answer

positive and less than one

question

good is inferior good if

answer

income elasticity is negative

question

if % of income spend on good increases when income increases

answer

demand for good is income elastic

question

if the demand for a good is elastic an increase in price will cause

answer

demand to decrease and total revenue to decrease

question

Elasticity ________ along a linear demand curve

answer

decreases. Unit elastic at midpoint, elastic above thee midpoint, and inelastic below the midpoint

1 of 90

question

Opportunity Cost

answer

question

Determining Opportunity Cost

answer

-(what your giving up)/ (what your gaining) Inverse of this product for different good

question

Why is slope increasingly negatively sloped?

answer

Resources not perfectly adaptable or suitable to alternate uses

question

Economic Growth shown by

answer

shift outward because of increased technology and/ or resources

question

Strait line PPF means

answer

opportunity costs are constant

question

The PPF is bowed from the organ because it reflects

answer

the law of increasing opportunity costs

question

Production Possibilities Frontier Assumptions

answer

1. 2 choices
2. Fixes # of resources (how do allocate them?)
3. Fixed Technology
4. Full and Efficient use of resources

question

PPF points

answer

-on=effecient
-oustide= unattainable
-inside= attainable (ineffecient- unused/ misallocated resources)

question

Factors of Production

answer

-Land
-Labor
-Capital
-Entrepreneurship

question

Land

answer

natural resources.
-Earns Rent

question

labor

answer

the work time and work effort that people devote to producing goods and services
-Earns Wages

question

human capital

answer

knowledge and skills that people obtain from education, on the job training, and work experience

question

Capital

answer

the tools instruments, machines, buildings, and other contractions that businesses use to produce goods and services
-Earns Interest

question

Entrepreneurship

answer

The human resource that organizes labor, land, and capital
-Earns PROFIT

question

Margin

answer

comparing cost and benefit

question

Marginal benefit

answer

question

principal of decreasing marginal benefit

answer

the more we have of any good or service, the smaller the marginal benefit and the less we are willing to pay for it

question

Marginal Cost

answer

the opportunity cost of producing one more unit of it
-Calculated from the slope of PPF: Steeper slope= greater marginal cost
-positive slope

question

When marginal benefit equals marginal cost,

answer

resources are being used efficiently-allocative efficiency

question

At any point on the PPF, we cannot produce more of one good without _____ some other good

answer

giving up

question

Moving downward along a PPF, the opportunity cost of another unit of the good measured along the horizontal axis

answer

increases

question

concave (bowed) PPF

answer

strait line: constant opportunity costs
bowed: increasing opportunity costs

question

If a country operates on its PPF, it achieves

answer

production efficiency

question

We have achieved production efficiency if

answer

we can produce more of one good without producing less of some other good.

question

allocative efficiency

answer

question

ceteris paribus

answer

used to graph a relationship that involves more than two variables

question

production efficiency

answer

producing goods and services at the lowest possible cost-ON the PPF

question

comparitive advanage

answer

a person has comparative advantage if they can perform at a lower opportunity cost than anyone else.

question

absolute advantage

answer

ability of a party to produce more of a good or service than competitors, using the same amount of resources
-a person wo has absolute advantage does not always have comparative advantage

question

people gain by __ in the production of a good that they have _______ and trading with others

answer

specialization; comparative advantage

question

Demand Schedule

answer

price of a good and quantity demanded at each price on a table. as price increases, quantity demand decreases (inverse relationship)

question

Law of Demand

answer

when a person buys less of a good when it becomes more expensive (principal of marketplace)

question

money price

answer

how much you pay for a good
relative price

question

relative price

answer

: e.g. meals. buying a textbook will cost me twenty meals (opportunity cost). ratio of one price to another

question

competitive market

answer

a market that has many buyers and sellers, so no one buyer or seller can influence the price

question

household and firms interact in ___ economy

answer

market economy

question

Households are ______ in factor markets and ______ in goods markets.

answer

sellers; buyers

question

quantity demanded

answer

the amount that consumers are willing to buy during a given time period at a particular price. refers to a point ON the demand curve.

question

demand

answer

the entire relationship between the price of a good and the quantity demanded of a good.

question

demand curve

answer

relationship between quantity demanded of a good and its price when all other variables remain the same. also called willingness-and-ability-to-pay curve.

question

change in demand (shift)

answer

when and factor OTHER THAN PRICE of good changes

question

demand shifters

answer

-the price of related goods
-expected future prices
-income
-expected future income and credit
-population
-preferences

question

normal good; inferior good

answer

demand increases when income increases; demand decreases as income increases

question

change in quantity demanded (movers)

answer

if the price of a good changes but no other influence on buying plans changes, movement ALONG demand curve

question

if a firm supplies a good or service

answer

1. has resources to produce it
2. can profit from producing it
3. plans to produce and sell it

question

quantity supplied

answer

the amount producers plan to sell during a given time period
-a point in the supply curve

question

law of supply

answer

the quantity supplied increases as the price increases

question

willingness to accept

answer

the lowest price a seller is willing to get paid to sell and extra unit of the good. It is the same as the marginal cost of production.

question

supply shifters

answer

-change in input prices used to produce good
-change in technology
-change in # of sellers
-changes in sellers expectations
-change in price of related goods

question

prices if factors of production

answer

if the price of factor of production rises, the lowest price suppliers are willing to accept for that good rises, so supply decreases

question

if expected future price of good rises,

answer

supply decreases today and increases in future

question

change in quantity supplied

answer

affected by change in price only

question

equillibrium price

answer

quantity demanded= quantity supplied

question

equillibrium quantity

answer

quantity bought and sold at equilibrium price

question

Calculating Shortage and Surplus

answer

quantity supplied- quantity demanded

question

Shortage

answer

-if price is below equilibrium
-market adjusts by driving price up

question

Surplus

answer

price is above equilibrium
-a surplus drives the price down

question

when supply and demand move in the same direction

answer

equillibrium quantity changes in the same direction

question

if the demand decreases while the supply increases,

answer

the price definitely falls but the quantity might increase, decrease, or remain the same.

question

market demand

answer

horizontal sum of the quantities demanded at every price

question

market supply

answer

horizontal sum of the quantity supplied at every price

question

an increase in demand _________ Pe and _________ Qe

answer

increases; increases

question

decrease in demand _________ Pe and _________ Qe

answer

decreases; decrease

question

increase in supply _________ Pe and _________ Qe

answer

decreases; increases

question

decrease in supply _________ Pe and _________ Qe

answer

increases; decreases

question

increase in demand and supply _________ Pe and _________ Qe

answer

?; increases

question

decrease in demand and supply _________ Pe and _________ Qe

answer

?; decrease

question

increase in demand and decrease in supply _________ Pe and _________ Qe

answer

increases; ?

question

decrease in demand, increase in supply _________ Pe and _________ Qe

answer

decreases; ?

question

Equilibrium price depends on

answer

magnitude of shift

question

price of elasticity of demand

answer

units free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences in buying remain the same

question

calculating price elasticity of demand

answer

(percentage change in quantity demanded)/ (percentage change in price) absolute value

question

perfectly inelastic

answer

the quantity demanded remains constant when the price changes. elasticity= 0.
ex: pharmaceuticals

question

perfectly elastic

answer

if quantity changes by an infinitely large percentage in response to a tiny change in price. a good that has perfect substitutes. price elasticity = infinity

question

elastic

answer

quantity demanded is affected by price change. elasticity > 1. ex: will book more air travel if price decreases\-price and total revenue move in opposite directions

question

inelastic

answer

the % change in quantity demanded < % change in price
-Price elasticity< 1
-ex: necessities like salt
-price and total revenue move in opposite directions

question

unit elastic

answer

-% change in Quantity Demand= % change in price. Ep=1
-price change has no affect on total revenue

question

Total Revenue

answer

Price times Quantity

question

determinate of elasticity

answer

question

cross price elasticity

answer

how responsive sales are to price change of another good (DON'T take absolute value)
-if price and quantity change in same direction, goods are related

question

cross price elasticity calculation

answer

(percentage change in quantity demanded)/ (percentage change in price of substitute or complement)

question

If Exy < 0
If Exy > 0
If Exy = 0

answer

-goods are complements if Exy < 0
-goods are substitutes if if Exy > 0
-goods are unrelated if Exy = 0

question

income elasticity

answer

measure of how responsive demand of a good is to change in income, all other things remaining the same

question

calculating income elasticity

answer

(% change in quantity)/ (% change in income)

question

good is normal and income elastic if

answer

Income elasticity positive and greater than one

question

good is normal and income inelastic is

answer

positive and less than one

question

good is inferior good if

answer

income elasticity is negative

question

if % of income spend on good increases when income increases

answer

demand for good is income elastic

question

if the demand for a good is elastic an increase in price will cause

answer

demand to decrease and total revenue to decrease

question

Elasticity ________ along a linear demand curve

answer

decreases. Unit elastic at midpoint, elastic above thee midpoint, and inelastic below the midpoint

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