EC12 exam 1

If the consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

elastic

The range of topics or issues that fit within the definition of economics is:

extremely wide, requiring only the ideas of choice and scarcity.

Application of the Principle of Comparative Advantage leads to

greater specialization of labor and other factors of production.

As consumers' incomes increase, the demand for ground beef decreases. Ground beef is called a(n):

inferior good

If a market is in equilibrium and demand increases while supply decreases, the change in the equilibrium quantity is

interdeterminate

Low Hanging Fruit (Increasing Opportunity Cost) Principle

it is easiest to do things the quick, cheap way.

implicit costs

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

If income elasticity for a particular good has a negative sign... as income increases,

consumers will tend to purchase less of the good.

If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case that:

leslie has the absolute advantage

Suppose two demand curves have a point in common. With respect to price at that point, demand shown by the steeper curve will be _______ the less steep curve.

less elastic than

Sellers Reservation Price:

lowest price a seller would sell an additional good for(marginal cost).

substitution options

more options, more elastic less options, less elastic

compliments

negative cross price elasticity

budget share

the larger the share of total expenditures accounted for by the product, the more important will be the income effect of a price change

buyer's reservation price

the largest dollar amount the buyer would be willing to pay for a good

opportunity cost

the most desirable alternative given up as the result of a decision

A demand curve that is drawn as a vertical line illustrates price elasticity equal to:

0

If the price of cheese falls by one percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese has a value of:

3

Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather mangoes faster than Maryann and can also catch more fish per hour than can Maryann. Therefore:

Maryann should specialize in the activity for which she has a comparative advantage.

Cost-Benefit Principle

When a person decides to pursue an activity as long as the extra benefits are at least equal to the extra costs

Inelastic

a given change in price causes a relatively smaller change in the quantity demanded

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

Market Price

balances buyers value of a good and the cost of production of the good(supply/demand).

Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas:

causes the price you pay for gas to increase

If a market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is

positive

substitutes

positive cross price elasticity

time

price elasticity for a good/service is higher in the long run

demand curve

quantity of a good that could be bought at any given price; downward sloping

production possibilities curve

shows max combination of producible goods, given the available resources and technology.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce more of a given product using a given amount of resources

perfectly inelastic demand

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero slope is infinite (vertical on graph)

perfectly elastic demand

the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity slope is 0 (horizontal on graph)

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

the costs will be understated

elastic demand

the percentage change in quantity demanded is greater than the percentage change in price responsive to price as price increases, total expidenture decreases

inelastic demand

the percentage change in quantity demanded is less than the percentage change in price unresponsive to price as price decreases, total expidenture decreases

price elasticity of demand

the percentage change in quantity demanded relative to a percentage change in price absolute values only

cross-price elasticity of demand

the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good

In a two-person, two-good economy, the benefits of labor specialization will be larger when:

there are large differences in the respective opportunity costs of the two individuals for both goods.

E = 1

total expidenture is at maximum (unit elastic)

elastic

when a given change in price causes a relatively larger change in quantity demanded

. Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that:

when housing prices rose, they started to exceed some of your neighbors' reservation prices.

If your linear, two-good production possibilities graph has a slope steeper than -1

you would have to give up less than one unit of the good measured on the horizontal axis to gain an additional unit of the good measured on the vertical axis