Econ 102 Exam 1 Review

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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


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