Econ 102 Exam 1 Review
profit opportunities
"good deals" or risk-free ventures
way, thinking, understand society, informed citizen
There are three main reasons to study economics: to learn a ____ of ______, to ______ _____, and to be an ______ _______
Incentives, life is about tradeoffs, opportunity cost, marginal thinking, and trade
What are the 5 Foundations of Economics?
EC= % change in QA/% change in PB (EC= % change in QD of one good/% change in price of a related good)
formula for cross price elasticity of demand (EC)
perfectly inelastic
going to the hospital is an example of ______ ______ demand
2007 Financial Crisis
happened because banks assumed that real estate prices always rise, when they fell from 2006-2008
specialize, trade
having a comparative advantage in producing a good means that you should _____ and then ____
Ceteris Paribus
holding all other things constant
perfectly elastic (for demand)
horizontal line, ED= negative infinity
perfectly elastic (for supply)
horizontal line, doesn't exist IRL
increases, inelastic, decreases, elastic
if price increases and quantity slightly decreases, revenue ____, therefore _____ if price slightly increases and quantity decreases, revenue ____, therefore _____
relatively inelastic (for supply)
0<ES<1, almost vertical line with an upward slope
phenomenon
1st step of scientific method (for economists): Observe a _____
resource (input) prices and technology
2 important components of the cost of production are
observations, hypothesis, proposed explanantion
2nd step of scientific method (for economists): based on _____, researchers develop a ____, which is a ____ ____
opportunity cost, marginalism, and the working of efficient markets
3 fundamental concepts of economics
model, hypothesis
3rd step of scientific method (for economists): construct a _____ to test _____
experiments, model, verify, revise, refute
4th step of scientific method (for economists): design _____ to test how well ____ works. using data, scientists can _____, _____, or ____ hypothesis
relatively elastic
A hot dog vendor (very flexible w/ changes in price and can adjust quickly) is an example of ____ ___ supply
industrial revolution
A series of improvements in industrial technology that transformed the process of manufacturing goods.
scarce
Opportunity costs arise because resources are _____
decreases
As income increases, QD for inferior goods ____
increases
As price increases, Quantity supplied ____
deadweight loss
Taxes in competitive markets cause _____ ____, so there needs to be other incentives
opportunity cost
The best alternative that we forgo, or give up, when we make a choice or decision
macroeconomics
The study of the economy as a whole
% change in P= P2-P1/P1
formula for calculating % change in P
inelastic (because not many subs for your FAV drink and experience of going to starbucks is important)
Is the demand for your favorite Starbucks drink elastic or inelastic?
positive, negative
EC (cross price elasticity of demand) can be ____ or ____
positive, negative
EI (income elasticity of demand ) can be ____ or _____, unlike ED (elasticity of demand)
perfectly inelastic (for supply)
ES=0, vertical line
relatively elastic (for supply)
ES>1, almost horizontal line w/ upward slope
unitary elasticity
Elasticity of demand (ED)= -1 (neither elastic or inelastic)
Elasticity of Demand (ED)= % change in Q/% change in P
Formula for calculating elasticity of demand
substitute goods, complimentary goods
If cross price elasticity of demand (EC)>0, then ____ _____ If cross price elasticity of demand (EC)<0, then _____ ____
decreases
If price increases, quantity demanded ____
inferior
Inferior, necessary, or luxury good?: cigs
inferior
Inferior, necessary, or luxury good?: cup ramen
inferior
Inferior, necessary, or luxury good?: fast food
necessary
Inferior, necessary, or luxury good?: gasoline
inferior
Inferior, necessary, or luxury good?: greyhound (bus)
luxury
Inferior, necessary, or luxury good?: lawn care service
inferior
Inferior, necessary, or luxury good?: lottery tickets
luxury
Inferior, necessary, or luxury good?: new vehicles
luxury
Inferior, necessary, or luxury good?: pedicures
luxury
Inferior, necessary, or luxury good?: steak
necessary
Inferior, necessary, or luxury good?: toothpaste
elastic (bc many subs and bigger part of income)
Is demand for BMW328I elastic or inelastic?
elastic (bc many subs)
Is demand for Old Navy clothing elastic or inelastic?
inelastic (bc of delivery convenience, you are paying to save time in the short-run)
Is demand for pizza delivery elastic or inelastic?
% change in Q= Q2-Q1/Q1
formula for calculating % change in Q
Adam Smith's "invisible hand"
_____ _____ _____ _____ is the market force that pushes markets to equilibrium
consumers
_____ pay all of tax for inelastic demand, so should tax this good....no DWL bc the quantity is unchanged
trade, specialization, comparative advantage
_____, ____, and ____ ___ are the cornerstones of economics
incidence, inelastic, incidence
______ depends on relative elasticity of supply and demand. The more ____ side pays more _____ of tax
producers
______ pay all of tax for elastic demand, so should not tax this good
elastic
a bigger share of budget makes a good have a more ____ demand
exogenous
a factor is ____ if it is outside the model (a variable not in the model)
endogenous
a factor of a variable is ______ if it is controlled for in a model (a variable within the model)
inferior
a good is ____ if EI<0
normal
a good is _____ if EI>0
necessity
a good is a ____ if 1>EI>0
luxury
a good is a ______ if EI>1
price ceiling
a legally imposed maximum price
efficient market
a market in which profit opportunities are eliminated almost instantaneously
comparative advantage
a person has _____ ____ over another person in producing a good if they can produce that good at a lower opportunity cost
price, demand, increase, decrease, demand
a shift in the entire demand curve occurs when something other than _____ changed, this is a change in _____ (____/____ in ___)
price, quantity, supply, increase, decrease, right, left
a shift in the entire supply curve occurs when something other than _____ or ____ changes. this is a change in ____ (___/____, shift ____/__)
positive statement
a statement that is testable and verifiable
EI= %change in QD/% change in income
formula for calculating income elasticity of demand (EI)
r= p x q
formula for calculating revenue
relatively elastic (for demand)
almost horizontal line w/ a downward slope, negative infinity<ED<-1
relatively inelastic (for demand)
almost vertical line w/ a downward slope, -1<ED<0
linear
although demand may have a curve, we will typically assume ___ demand
efficient
an outcome is _____ when an allocation of resources maximizes total surplus
relatively elastic
apples are an example of ______ ____ demand
scarcity
as a whole, economics is the study of ____
faulty assumptions
beware of ____ ____
normative statement
cannot be tested or verified
relatively inelastic
cell phone towers are an example of ___ ____ supply
shift in the entire demand curve
changes in income lvels, tastes, price of related goods, and expectations result in a _____ _ ___ ___ ___ ___
economic theory
data gathering/real world events are important for testing ____ ____
deadweight loss (DWL)
decline in economic activity from inefficiency
equity
economists sometimes care about ____: fair distribution of goods
one variable at a time
economists tend to look at models changing only _____ ____ __ __ ___
straight line
elasticity varies along a ____ ____
relatively inelastic
electricity is an example of ____ ____ demand
marginal thinking
evaluating whether the benefit of one more unit of something is greater than its cost
producing, consuming
firms are the primary ____ units in the economy and households are the ___ units in the economy
shift in the entire supply curve
input costs, changes in technology, taxes/subsides, and expectations result in a _____ ___ ___ ___ ___ ___
inelastic (because necessary- either bc you need it in the moment or are planning ahead)
is demand for an umbrella elastic or inelastic?
inelastic (bc no subs and is necessary)
is demand for animal healthcare elastic or inelastic?
inelastic (bc no subs and not expensive)
is demand for car battery elastic or inelastic?
inefficient(bc information asymmetry leads to inefficient outcomes)
is gift giving efficient or inefficient
production possibilities curve (PPC)
is nonlinear because of the law of increasing relative cost
scarce
limited
lower opportunity cost
means that a person producing a different good is costly
income elasticity of demand
measures how a change in income affects spending
cross price elasticity of demand (EC)
measures responsiveness of QD of one good to a change in price of related good
household, national
microeconomics is concerned with ____ income, while macroeconomics is concerned with _____ income
key
models can oversimplify things, but can illustrate ____ concepts
perfectly elastic
money is an example of ____ ___ demand
elastic
more substitutes make a good have a more ____ demand
elastic
more time allowed means that demand is more likely to be _____
quantity demanded, demand
movement along the demand curve is a change in: A shift in the entire demand curve is a change in:
price change alone, quantity demanded
movement along the demand curve is the result of a ____ ____ ___. This is a change in ___ ___
quantity supplied, supply
movement along the supply curve is a change in: a shift in the entire supply curve is a change in:
price change alone, quantity change alone, quantity supplied
movement along the supply curve is a result of _____ ___ ____ OR _____ ____ ____, this is a change in ___ __
perfectly inelastic
ocean front land (finite amount of it, can't substitute) is an example of ____ _____ supply
quantity demanded, price
price elasticity of demand looks at how sensitive the % change in _____ _____ is to a % change in _____
time, adjustment process, flexible
price elasticity supply is determined mainly by ____ and ____ ____. it is also determined by how ____ producers are in bringing goods to market
Production Possibilities Frontier (PPF)
shows the maximum amount of any 2 products that can be produced by a society with a fixed amount of resources
total surplus
sum of consumer surplus and producer surplus
reduce
taxing to ______ consumption can be effective
cost of production
the choice of how much to produce depends on a variety of factors.... ____ __ ___ is an important factor
households
the consuming units in the economy
negative
the demand curve has a ____ slope
Ceteris Paribus
the demand curve shifts when _____ ____ is violated (something besides price/quantity changes)
producer surplus
the difference between the price a seller is paid for a good and the willingness to sell a good
consumer surplus
the difference between the willingness to pay for a good and the amount paid for a good
price elasticity of demand
the flexibility of a consumer's desires for a product
firms, households
the fundamental decision making units in a market economy are ___ and ____
rises
the opportunity cost of producing a good ____ as society produces more of it
firms
the primary producing units in the economy
marginalism
the process of analyzing the additional or incremental costs or benefits arising from a choice or decision
Microeconomics
the study of how households and firms make decisions and how they interact in markets
Ceteris Paribus
the supply curve shifts whenever _____ ____ is violated (changes outside the model)
law of supply
there exists a direct relationship between the price of good and amount of it that will be offered for sale
law of demand
there exists an inverse relationship between the price of a good and the amount of it buyers are willing to purchase
positive analysis
to be as objective as possible, economists focus on ____ _____
substitutes
two normal goods can be ____ for each other
perfectly inelastic (for demand)
vertical line, ED=0
products to tax
water, electricity, housing, hospital service are ____ ___ ____
elastic, inelastic
what not to tax : _____ demand what to tax: _____ demand
increases
when income decreases, the price of inferior goods ____
decreases
when income decreases, the price of normal goods ____
produce more
when society invests into capital it is possible to ____ ___ in the future
incidence
who actually pays the tax
levy
who is responsible for paying a tax
