Econ exam #1

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Econ exam #1
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2015-01-28 23:42:33
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exam 1
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  1. What is economics?
    Economics is a social science concerned with the use of scarce resources in the production and distribution of goods and services to satisfy our unlimited human wants.
  2. What is microeconomics?
    Microeconomics is the branch of economics that is concerned with individual entities such as markets, individuals, and firms.
  3. What is macroeconomics?
    Macroeconomics, on the other hand, is concerned with the overall performance of the economy.
  4. What is a market?
    A market is a mechanism which brings "buyers" and "sellers" together.
  5. What is a price?
    A price in a market system is the exchange-value of the goods and services in terms of money.
  6. Define the market-equilibrium.
    The market equilibrium is defined as the balance between all the buyers (the demand) and all the sellers (the supply) in an economic system.
  7. What is a negative externality?
    A negative externality occurs when agents who are not in a specific market are negatively affected by the actions of the agents in the market.
  8. What is a positive externality?
    A positive externality occurs when agents who are not in a specific market are positively affected by the actions of the agents in the market.
  9. Define opportunity cost.
    Opportunity cost is defined as the value of the best forgone alternative when we make a choice.
  10. What does the Production Possibilities Frontier show?
    The PPF shows all the possible combinations of goods and services that can be produced by a country with a given state of technology and limited amount of resources which are fully and efficiently employed.
  11. How do we define demand?
    We define "demand" as the relationship that exists between the price of a good and the quantity demanded of that good at a given time, all else equal.
  12. What is the law of (downward sloping) demand?
    The law of (downward sloping) demand shows that people will purchase more of a good at a lower price, all other things equal.
  13. What does the demand curve show?
    The demand curve shows how much of the good will be bought at different prices, all else equal.
  14. How do we define supply?
    We define 'supply' as the relationship that exists between the price of a good and the quantity of that is offered for sale at a given time, all else equal.
  15. What does the supply curve show?
    The supply curve shows how much of the good will be offered for sale at different prices, all else equal.
  16. What is the equilibrium price?
    The equilibrium price is the one at which demand and supply are in balance; that is, the quantity offered for sale is equal to the amount that people wish to buy. This price is also known as the 'market-clearing price'.
  17. Define a suplus scenario.
    When firms/sellers are willing to supply more of a good at a given price then consumers/buyers are willing to buy, we say that the market is in excess supply aka surplus.
  18. Define a shortage scenario.
    When firms/sellers are willing to supply less of a good at a given price then consumers/buyers are willing to buy, we say that the market is in excess demand aka shortage.
  19. Define a price ceiling.
    A price ceiling is the maximum legal price a seller may charge that is typically place below equilibrium.
  20. Define a price floor.
    A price floor is the minimum legal price a seller may charge that is typically place above equilibrium.
  21. What does the elasticity of demand measure?
    • The elasticity of demand measures the sensitivity of the quantity demanded to price changes. We define is as an absolute value of the percentage change in quantity demanded by the percentage change in prices.
    • ED= | (% change in quantity demanded) |
    •               (% change in price)
  22. What does the elasticity of supply measure?
    • The elasticity of supply measures the sensitivity of the quantity supplied to price changes. We define the elasticity of supply as the percentage change in quantity supplied divided by the percentage change in prices. 
    • ES= (% change in QS)                   
    •         (% change in P)
    • = Q2-Q1/(Q2+Q1/2)
    •     P2-P1/(P2+P1/2)
  23. In the PPF what does an efficient, inefficient, and unattainable point look like?
  24. In the PPF, how would new technological advances shift the PPF?
  25. In the PPF, how would a frontier and urban society differ?
    • X axis: Public goods
    • Y axis: Private Goods
  26. In the PPF, how would poor nations differ from wealthy nations?
    • X axis: Luxuries
    • Y axis: Necessities
  27. In the PPF, how would current consumption differ from future consumption?
  28. When demand is elastic what happens to TR when the price goes up and down?
    • P ^ = Q \/ , TR \/
    • P \/ = Q ^ , TR ^
  29. When demand is inelastic what happens to TR when the price goes up and down?
    • P ^ = Q \/ , TR ^
    • P \/ = Q ^ , TR \/

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