V251 ECON EXAM 1

What makes a curve more elastic

Availability of close substitutes Necessities versus Luxuries Definition of the Market Time Horizon Share of the budget devoted to the good

When faced with a surplus, sellers try to drive down market prices. . .why?

Reducing market prices will increase quantity demanded, and decrease quantity supplied. Thus going back to equilibrium

When both the demand and supply curve shift, the curve that shifts by the smaller magnitude determines what

the effect on the undermined equilibrium object

What does the slope of the PPF tell us

the opportunity cost

What does a change in price cause on the demand curve

the quantity of a good demanded to move along the curve

How do TR and price move when demand is elastic

they move in opposite direction

How do TR and price move when demand is inelastic

they move together

What is the opportunity cost of giving up a $20,000 salary to pay $40,000 to attend college instead?

$60,000, it includes both the monetary amount paid AND the value of your time given up by making that choice over another

How is income elasticity of demand calculated?

% change in quantity demanded / % change in income

How is cross-price elasticity of demand calculated?

% change in quantity demanded for good A / % change in price of good B

When both the demand and supply curve shift, the curve that shifts by the larger magnitude determines what

the effect on price

What is a positive statement

A descriptive attempt to describe the world as it is. It can be refuted or approved by examining evidence

What causes a shift of the demand curve

A factor that influences a buyer's demand for a good

Flow from firm to household or household to firm? A spending money on a doctor visit B Receiving a drink at the bar C Receiving $100 after working a shift D Someone's labor

A household to firm B firm to household C firm to household D household to firm

What is a normative statement

A prescriptive attempt to describe the world as it should be. Evaluation involves values as well as facts

difference between absolute advantage and comparative advantage

Absolute advantage is shown in comparison to fewer labor hours being used when producing a good. Comparative advantage is when a country produces a good because they give up less of that good when making it then another. AKA opportunity cost is lower

What does the elasticity of a luxury good look like

An income elasticity greater than 1. luxuries have large income elasticity since if incomes fall below certain levels, the consume forgets about the item all together

Whats the midpoint method

Change in quantity demanded/average quantity / change in price/average price

If a shortage exists in the cantaloup market, what is true about the current price in comparison to the equilibrium price

Current price is lower

What increases a supply curves elasticity?

Difficulty of Increasing Production at Constant Unit Cost Share of Market for Inputs Local vs. Global Supply Time Horizon Short vs. Long Run

When demand is perfectly inelastic, what is the elasticity of demand equal to and what does the graph look like

Ed=0 and the demand curve is vertical

What is unit demand, what is the elasticity of demand equal to and what does the graph look like

Ed=1, For any percent change in price, you have the exact change in quantity demanded

When demand is perfectly elastic, what is the elasticity of demand equal to and what does the graph look like

Ed=infinity and the demand curve is horizontal

Efficiency vs equality at government policy level

Equality is when economic benefits are distributed uniformly across society, whereas efficiency is when society gets the most from scarce resources

True or false: all positive statements are true

False. due to different values, which lead to different normative outcomes. (ex: what should the tax rate be?)

What does 15%/10%=1.5 elasticity translate to

For a given 10% change in price, there is a 1.5% change in quantity demanded with respect to a 1% change in price

What is income elasticity for normal and inferior goods

For normal goods: income elasticity > 0 For inferior goods: income elasticity < 0

What is income elasticity for substitute and complement goods

For substitutes : cross-price elasticity > 0 For complements : cross-price elasticity < 0

What is the importance of a government in economy

Governments can promote efficiency and equality through: Taxes or subsidies, incentives, Regulation, Welfare policy

What happens to the TR when demand is inelastic and the price goes up

If demand is inelastic, then demand is not very responsive to change, quantity demanded goes down, of course, but by less than the price went up thus if the price goes up, TR is going to increase

If the price of wheat increases, what happens to the opportunity cost and supply of corn

If the price of wheat increases, more wheat will be supplied. Because wheat productions are increasing, to produce corn means that you are giving up more wheat now, which means the supply of corn will decrease

What shifts the supply curve

Input Prices Technology Number of Sellers Expectations Taxes and Subsidies Changes to Opportunity Costs

When the price of a good rises, the quantity demanded of the good falls

Law of demand

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Macroeconomics

the study of how households and firms make decisions and how they interact in markets.

Microeconomics

What shifts the demand curve

Number of buyers in the market Income Prices of related goods (substitutes and complements) Tastes Expectations

What are the benefits of trade

People can buy a greater variety of goods and services at lower cost. Allows countries to specialize in what they do best. Enjoy a greater variety of goods and services

total revenue =

Price x Quantity

Scarcity

Society has finite resources and cannot produce all the goods and services people wish to have. Ex. Oil, Land, Labor/Employees, Clean Water, Housing, Money, Time

There are two goods: airplanes and soybeans. How do you calculate the opportunity cost of producing airplanes from a PPF if soybeans is on the X axis?

The OC of soybeans is the slope of the line. And the OC of airplane production is the reciprocal.

What happens on the supply curve when the price of a good changes?

The quantity supplied of a good increases or decreases which is a movement along the supply curve

What is not an opportunity cost

Things that you aren't giving up and something that you would still have to use or pay more despite the choice being made. For example, food, shelter, etc.

Facing a shortage, sellers raise the price, why?

To reach equilibrium again, this will cause demand to decrease and the quantity supplied can increase

True or False. If the marginal benefit (MB) exceeds the marginal cost (MC) of doing something, a rational person should do that something

True

Marginal analysis

the comparison of marginal costs and benefits when making a decision Ex. Whether to attend your next class. Cost: missing lecture Benefit: Go to the gym

To produce the first 1,000 tons of soybeans, we have to give up (100-80) = 20 airplanes. What number do you put on bottom when calculating the opportunity cost of producing one ton of soybeans? An why?

Well to figure out how many airplanes you have to give up PER production of one ton of soybeans, you put the amount fo soybeans on bottom. Therefore, 20/1000 = the OC of producing one ton of soybeans

What is opportunity cost of an item

What you give up to get that item. Includes the costs of your choice both what you're doing and what you could've done. Ex. kayaking: cost of rental and hours you could have been studying

What happens when country's specialize in goods that they have comparative advantage in

When a country produces a good in which they have comparative advantage in because they give up less when producing that good than another country, both countries are going to maximize production through trade, and grow their economies.

What do shifts in the PPF indicate

When the PPF shifts outwards, it implies growth in an economy. When it shifts inwards, it indicates that the economy is shrinking due to a failure in its allocation of resources and optimal production capability. A shrinking economy could be a result of a decrease in supplies or a deficiency in technology

The price of trade must lie between each country's opportunity costs for it to be a worthwhile trade. What does this mean

When two countries trade. For example 22 airplanes for 880 tons of soybeans. You must reduce this to 1 airplane for 40 tons of soybeans in order to compare it to the country's opportunity costs of producing those goods in their own countries. If the country who specializes in airplanes can get more soybeans out of the trade, it is worthwhile. And if the country that specializes in soybeans is giving up less than they're producing, then it is worthwhile.

A shift of the demand curve to the left is a decrease in demand. Buyers are:

Willing to buy less of a good for a given price

A shift of the supply curve to the left is a decrease in supply. Sellers are:

Willing to sell less (quantity supplied falls) at each price, and Willing to sell for a higher price at each quantity supplied.

A shift of the supply curve to the right is an increase in supply. Sellers are:

Willing to sell more (quantity supplied rises) at each price, and Willing to sell for a lower price at each quantity supplied.

What is meant by the statement "without engaging in trade, the countries are not able to consume at the 'after trade consumption bundles'"

Without trade, anything beyond a country's PPF is not feasible

You invest $5 million into a product. .,Your product will produce $4.5 million. It costs $3 million to finish making the product, should you continue to make it?

Yes. Ignore initial investments, the company would receive zero profit if product is not finished at all. When thinking on the margin, You ignore the sunk costs of what's already going to happen, and weigh up the costs and benefits of adding in something extra

How do you find the opportunity cost of a good

You look at the goods produced in a country when you put maximum labor to it. When is along the x and y axis. When you determine these. You put one in term of the other. If you want to calculate how many airplanes you must give up in order to produce one soybean, then you put it in terms of soybeans. Airplanes/Soybeans. Vice versa is reciprocal.

the difference between a change in quantity supplied/demanded and a change in supply/demand

a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve.

What causes a shift along the demand curve

a change in the price of that good, something that makes it cheaper or more expensive to produce that good

when a producer has the ability to produce a good or service with fewer inputs than another producer

absolute advantage

What does it mean when a PPF is curved

as more units of a good or service are produced, we often need to give up increasing amounts of the other good produced

When each country specializes according to _____________________, it can gain from trade

comparative advantage

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

comparative advantage

an increase in the price of one leads to a decrease in demand for the other

complement good

When there is a surplus of a good and seller have to lower prices to sell off excess amounts of the good

downward pressure

the study of how society manages its scarce resources

economics

How is equality and efficiency effected if the government raises income taxes on the wealthiest citizens, while increasing welfare payments to poorest citizens

equality increases, but efficiency decreases because it reduces people's incentives to work hard and produce goods

price at which the quantity supplied is equal to the quantity demanded

equilibrium

It is possible for one person to have comparative advantage in production of both goods

false

If a slope is stepper than another slope that is almost horizontal, which line is more elastic

horizontal line

When an increase in income decreases the demand for a good

inferior good

What do the factors that shift the demand curve mean

it means they affect the quantity of a good consumers want to buy at a given price

When the price of a good rises, the quantity supplied of the good rises

law of supply

Allocates resources through decentralized decisions of many firms and households as they interact in markets

market economy

When an increase in income increases the demand for a good

normal good

Positive or normative statement: "Governments should force doctors to encourage women to be cancer screened"

normative

Positive or normative statement: "Today's unemployment benefits are too high, but we can't just cut them off"

normative

Is the slope of a supply curve positive or negative?

positive

Positive or normative statement: "For women aged 60-69, cancer screening reduces cancer mortality"

positive

Positive or normative statement: "job postings requiring covid-19 vaccinations have jumped in past month"

positive

an increase in the price of one leads to an increase in demand for the other

substitute good

what happens if price and quantity aren't at the equilibrium price and quantity in a market?

surplus or shortage

True or false. Slope is consistent on a demand curve, while elasticity is not

true

when there is a shortage of a good and sellers realize they can raise their prices and still sell out

upward pressure

What does it mean when a PPF is linear

we assume there is a constant opportunity cost

A shift of the demand curve to the right is an increase in demand. Buyers are:

willing to buy more of a good for a given price

if a country has an absolute advantage in both goods being produced, will trade still benefit them

yes, Two countries can gain from trade when each specializes in the good it produces at the lowest cost