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