EC 251 EXAM 1
Secondary effects
The indirect impact of an event or policy that may not be easily and immediately observable. In the area of policy, these effects are often both unintended and overlooked.
Economic growth creates _____.
Wealth
fallacy of composition
What is true for one might not be true for all.
Which factor decreases demand?
an increase in the price of complements
Total consumer surplus is measured by the area _____ and _____ the price.
below the demand curve; above
Association is not ____.
causation
Correlation does not equal ____.
causation
A _____ curve shows quantity demanded at a range of prices, while quantity demanded is the quantity that buyers are willing and able to buy at a particular price.
demand
The _____ is a function that shows the quantity demanded at various prices.
demand curve
Suppose Gil can write a poem in 1 hour, Holly can write a poem in 2 hours, and Ivan can write a poem in 3 hours. Each person spends 12 hours per day writing poems and requires a wage of $10 per hour to do so. How much producer surplus per day will there be if the market price for a poem is $24?
$192
Ceteris paribus
A Latin term meaning "all other things constant" or "nothing else changes."
How does a shortage affect prices?
A shortage will push prices up.
How does a surplus affect prices?
A surplus will push prices down.
Good intentions do not ____.
guarantee desirable outcomes
A shift in the demand curve to the right is best described as a(n):
increase in demand.
A movement along a fixed demand curve caused by a rightward shift in the supply curve is best described as a(n):
increase in quantity demanded.
A movement along a fixed supply curve caused by a rightward shift in the demand curve is best described as a(n):
increase in quantity supplied.
A change in _____ does not shift the demand curve.
input prices
Lower production costs result in:
lower equilibrium price
Producer surplus is the difference between the _____ price and the minimum price at which a producer would be willing to sell a particular quantity.
market
If the supply of oil decreased:
market price would rise
A free market _____ the gains from trade.
maximizes
The _____ is the producer's gain from exchange.
producer surplus
A shortage occurs when the _____ is greater than the quantity supplied.
quantity demanded
The demand curve is a function that shows the _____ at a range of prices.
quantity demanded
A change in _____ does not shift the demand curve.
technical innovation
When the free market maximizes the total gains from trade, the supply of goods is bought by:
the buyers with the highest willingness to pay.
Big Ideas
the central concepts to economic thinking
When the free market maximizes the total gains from trade, there are no:
unexploited gains from trade or wasted resources.
If peanuts become cheaper to produce because of new technology, what will happen to their equilibrium price and equilibrium quantity?
Equilibrium price will decrease, and equilibrium quantity will increase.
What is one of the most common economic errors?
Failure to consider secondary effects
When the market price falls, we can expect consumer surplus to:
Rise