MicroEcon Exam 1

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  1. Define Economics:
    study of how ppl, institutions, and society make choices under conditions of scarcity
  2. Our economic wants far exceed the productive capacity of our ______ resources.
  3. Opportunity cost:
    value of the good, service or time forgone to obtain something else
  4. Utility:
    self interest, what makes you happy
  5. The utility of a specific product:
    varies from person to person using the product
  6. Henry wants to buy a book. The economic perspective suggest that Henry will but the book if:
    marginal benefit is greater than the marginal cost.
  7. ceteris paribus
    all things equal
  8. Microeconomics:
    individual decision making units
  9. Macroeconomics:
    studies economy as a whole, in aggregate
  10. Economic problem:
    need to make choices because wants exceed means
  11. Graphs are used to:
    illustrate the relationship between two sets of data.
  12. A ____ ____ shows various combinations of two products a consumer can purchase with a specific money income, given the products price.
    budget line
  13. budget line aka:
    budget constraint
  14. Factors of production:
    • land
    • labor
    • capital
    • entrepreneurial ability
  15. Demand:
    amt of products that consumers will buy at various prices
  16. Law of Demand:
    all else equal, as price falls, the qty demanded rises (and vice versa).
  17. The demand curve shows the relationship between:
    price and qty demanded
  18. Market demand:
    sum of all individual demands
  19. Diminishing marginal utility:
    • 1st bottle of water = very happy
    • 5th bottle = not very happy, too much water
  20. Factors that affect market demand (demand shifters):
    • number of consumers in the market
    • consumer tastes,preferences
    • consumer income
    • price of related goods
    • expected prices
  21. Change in demand vs. change in qty demanded.
    movements along the curve = chg in qty demanded

    movement of the curve (right or left) = chg in demand
  22. Normal good vs. inferior good
    normal good = stuff we like

    inferior good = stuff we deal with (ex. ramen noodles)
  23. Which of the following would not shift the demand curve for beef?

    A. widely publicized study that indicates beef increases one's cholestorol
    B. effective advertising campaign by pork producers
    C. change in income of beef consumers
    D. reduction in price of cattle feed
    D. reduction in price of cattle feed
    (this multiple choice question has been scrambled)
  24. an economist for a bicycle company predicts that a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:

    A. there are many good substitutes for bikes
    B. there are many good compliments for bikes
    C. there are few goods that are substitutes for bikes
    D. bikes are normal goods
    D. bikes are normal goods
    (this multiple choice question has been scrambled)
  25. If the price of product L increases, the demand curve for close substitute product J will:

    A. remain unchanged
    B. shift to the right
    C. shift toward the horizontal axis
    D. shift to the left
    B. shift to the right

    (P inc L, D dec L, D inc J)
    (this multiple choice question has been scrambled)
  26. Demand is determined by:
  27. _____ is a schedule or curve showing the amts of a product that producers will make available for sale at each of a series of possible prices during a specific period.
  28. Market supply determinants:
    • resources prices
    • technology
    • taxes and subsidies
    • price of other goods
    • expected price
    • # of sellers in the market
  29. Supply:

    technological advance in the methods of producing tries will:
    ↓ cost, ↑ S
  30. supply:

    decline in the number of firms in the tire industry.
    ↓ producers, ↓ S
  31. supply:

    increase in the price of rubber used in the production of tires
    ↑ in P of production, ↓ S
  32. supply:

    expectation that the equilibrium price of auto tires will be lower in the future
    ↓ expected price,↑ S (to move tires before price drops)
  33. supply:

    decline in the price of large tires used for semitrucks and earth hauling rigs (no chg in price of auto tires)
    ↑ S
  34. supply:

    levying of a per unit tax on each auto tire sold
    ↑ taxes, ↓ S

    (↑ cost of production, ↓ S)
  35. In a _______  ________ neither buyers not sellers set the price.  Intersection of the demand curve and supply curve determine equilibrium price and equilibrium quantity.
    competitive market
  36. Image Upload
    increase in demand

    ↑ P, ↑ qty D
  37. Image Upload
    ↓ Demand

    ↓ P, ↓ qty D
  38. Image Upload
    ↓ S (curve moves left)

    ↑ P, ↓ qty D
  39. Image Upload
    ↑ S (curve moves right)

    ↓ P , ↑ qty D
  40. Image Upload
    ↑ S and ↑D

    ??P, ↑ qty D
  41. Image Upload
    ↓ S and ↓ D

    ?? P,  ↓ qty D
  42. Image Upload
    ↑ S and ↓ D

    ↓ S, ?? qty D
  43. Image Upload
    ↓ S and ↑D

    ↑ S, ?? qty D
  44. Image Upload
    price ceiling

    creates market shortages
  45. Image Upload
    price floor

    creates a market surplus
  46. Measure of the responsiveness of the qty of a product demanded by consumers when the product price changes is:
    price elasticity of demand
  47. Image Upload= Ed
    how to calculate the elasticity of demand
  48. Elastic demand:
    Ed greater than 1
  49. Inelastic demand:
    Ed less than 1
  50. Unit elastic:
    Ed = 1
  51. Perfect elasticity:
    Ed = 0
  52. Determinants of Price Elasticity of Demand:
    • substitutability
    • proportion of income
    • luxury vs. necessity
    • time (short term vs. long term)
  53. Total Revenue (TR) = Price x Qty
    TR = P x Q
  54. Why would elasticity of demand be important to you in determining the products on which to tax?
    target products that are inelastic

    (ex. sin taxes)
  55. TR:

    P↓ and D is inelastic
    ↓ TR

    Image Upload
  56. TR:

    ↓P and Demand is elastic

    Image Upload
  57. A 4% reduction in P of a product causes consumer expenditure to remain unaffected. The price of elasticity is:

    A. 0
    B. greater than 0
    C. greater than 0 but less than 1
    D. equal to 1
    A. 0
    (this multiple choice question has been scrambled)
  58. If a 5% fall in P causes the qty demanded to ↑ by 10 %, the demand is:

    A. unit elastic
    B. inelastic
    C. elastic
    D. perfectly elastic
    C. elastic

    Image Upload
    (this multiple choice question has been scrambled)
  59. A straight line downward sloping demand curve has a price elasticity of demand which:
    decreases as the price decreases
  60. Elasticity of Suppy (Es)
    measure of the responsiveness of the qty of a product supplied by sellers when the product price changes

    Es = Image Upload
  61. Income elasticity of demand:
    measure of qty of product demanded by consumers to changes in consumer income

    Ei = Image Upload
  62. cross elasticity:
    measure of the qty of product demanded to chg in price of another product

    Exy = Image Upload
  63. Facts about cross elasticity:

    if positive:

    if negative:
    + = substitute

    - = compliment
Card Set:
MicroEcon Exam 1
2014-09-22 02:10:34
Micro econ
micro economics
micro economics exam 1
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