WWU Econ 206 Midterm
How do economists define a demand curve? (CM5)
(Buyers) The price of an item over demand for that item, as price goes up demand goes down (negative slope). DC=MB=WTP
How do economists define a supply curve? (CM5)
(Sellers) The supply curve is the price of the product over the quantity of that product, the more units a firm produces the more money they have to input (positive slope). SC=MC=WTA
How do economists define MB and MC? (CM6)
*Marginal benefit*; Is the change in total benefit brought about by a change in unit quantity. *Marginal cost*; Is the change in total cost brought about by a change in unit quantity.
What are normal goods and what are inferior goods? (CM5)
*Normal goods*; The most desirable and usually more expensive product. *Inferior goods*; A cheaper and less desirable
How to distinguish whether sleeman is asking about a shift or movement along a curve. (CM5)
*Shift*; A change/shift in demand/supply curve of x. *Movement along*; A change in the quantity demanded/supplied of x.
What are the six determinants of supply and the six determinants of demand? (CM5)
*Supply*; Price of x, Price of input, Technology, "Weather", "Government", # of sellers. *Demand*; Price of x, Prices of substitutions, Prices of complements, Tastes, Income, # of buyers.
What are the two major problems with using the ER method to make currency conversions between LDCs and AICs? (CM 2)
1. Already industrialized countries GDPs have more influence on the ER than LDC GDPs. 2. Most international financial transactions happen between AICs, which influences the ER in their favor.
What are the five demand shifters and which ways do they shift the demand curve? (CM5)
1. Increase in price of substitute causes the DC to shift right. Decrease in price of sub causes DC to shift left. 2. Increase in price of compliment causes DC to shift left and increase in price of comp causes DC to shift right. 3. Increase in income causes the demand curve for normal goods to shift to the right and vice versa. Increase in income causes the demand curve for inferior goods to shift left and vice versa. 4. Tastes/Preferences will shift either way depending on case 5. # of buyers will increase demand and shift to the right and vice versa
What are the five supply shifters and which ways do they shift the supply curve? (CM5)
1. Prices of firms inputs (workers,tools). If price of those fall there will be a shift to the right and vice versa 2. Technology advances will decrease overall cost of production and shift right 3. Weather impacts on agriculture business, bad weather will decrease supply and shift left while good weather will shift right 4. Government action, taxes/regulations will make supply curve shift left, subsidies will shift to the right 5. # of sellers, increase in that will shift right
What are the three questions that all economies must answer? (CM3)
1. What will be produced? What quantity and quality of goods and services are we going to produce with scarce resources? 2. How will we produce it? Labor intensive or capital intensive methods? 3. Who gets the goods? Shares of outputs going to households.
What percent of most LDCs GDP does the underground economy (black market) make up? (CM3)
30%-40%
What is altruism? (CM3)
A completely selfless act, only thinking about the good of someone else and not yourself.
What is the difference between a diagram and a picture? (CM4)
A diagram is a visual calculating device that represents a table of numbers. Pictures do not have labeled axis.
What is the difference between a stock variable and a flow variable? (CM1)
A flow variable has to be measured over stretches of time (quarterly, yearly, income, etc.). Stock variables can be determined at a point in time (money in your bank account, unemployment, etc.)
How are A2 and A3 related to scarcity? (CM4)
A2 is a limited amount of inputs (land, labor, capital, entrepreneurship). A3 is a limited level of technology.
How is GDP related to AEA? (CM1)
AEA gives the quantity of final goods, this quantity is then multiplied by current prices to find the GDP.
Why is it difficult to compare the GDPs of LDCs and AICs even using the PPP currency conversion? (CM 2)
AICs and LDCs typically don't have similar bundles of goods and services to compare, which makes it difficult to use Purchasing Power Parties.
What percent of the U.S. GDP does the underground economy (black market) make up? (CM 2)
About 10%
What sorts of things do academic economists do? (CM3)
Academic economists do analytical (economic theory), empirical (data analysis), and prescriptive economics (both economic and empirical economics are use to create policy or to remedy economic problems). They also teach
If a country's GDP larger when using the ER method then is it a LDC or an AIC? (CM 2)
Already industrialized countries tend to have there GDP exaggerated by the ER method due to the higher demand for there currency in world trade.
What is a Giffen Good? (CM5)
Any item where the income effect is greater than the substitution effect, making the demand curve positive.
What is the distinction between a movement along a supply or demand curve and a shift in a supply or demand curve. (CM5)
Any movement *along* a supply and demand curve comes from a change in the price of x. Any other change besides the price of x results in a *shift* of the supply or demand curve.
How is a market supply curve or market demand curve derived from the individual curves? (CM5)
At each price we add together the demand of each person for an item at that price to achieve the market demand curve (horizontal sum).
Why do economists assume that supply curves are positively sloped? (CM5)
Because as a firm produces more items, they have to spend more money to produce more items.
Why is the PPC not a straight line? (CM4)
Because as we sacrifice more y to produce x the opportunity cost becomes increasingly more. This is because people who could efficiently produce y now have to produce x, which they are less efficient at producing (so we are giving up more y to produce less x).
Why do economists assume that demand curves have negative slopes? (CM5)
Because generally as the price of an item goes up, people are less willing to pay for it.
Why does Sleemania only produce two goods or services? (CM4)
Because it has limited inputs and technology. Plus in ECON 206 we are only focusing on 2 variables.
Why does the PPC slope down to the right (has a negative slope)? (CM4)
Because the production of x is inversely related to the production of y. If we want to produce one more of y then we have to sacrifice an x.
Why is the supply curve is also the MC and WTA curve? (CM5)
Because the supply curve shows us the amount of money it costs to produce an item per unit (MC). It also shows us the amount of money a firm is willing to accept for a unit after x units have been produced (WTA).
In what sense is the "Big Mac" Index a PPP form of currency conversion? (CM 2)
By comparing the prices of big macs in different currencies, we can use the ratios between those prices to convert between currencies. (Big mac=$2 US, big mac=€3 euros. Therefore $1=€1.5)
How is opportunity cost illustrated by the PPC? (CM4)
By the graphs curve getting gradually steeper from ymax to xmax
What drives economic change? (CM4)
Change in tastes and most importantly change in technology.
How is the PPP currency conversion made? (CM 2)
Choose a bundle of goods and services available in two different economies and see how much that bundle costs in it's domestic economy. Then use the ratio between those 2 costs as a currency conversion.
What is "double counting"? (CM1)
Counting multiple final costs for a product as it makes its way to the final sale.
Why is the demand curve is also a MB and WTP curve? (CM5)
Demand curve shows us the benefit per unit (MB) of an item that a consumer purchased. It also shows us how much money a consumer is willing to pay for an item (WTP), if there were an abundance of x then consumers are willing to pay less than if there were a scarce amount of x.
What is the relationship between real GDP and AEA? (CM1)
Direct relationship, if the real GDP is increasing then the AEA is increasing.
Which are the three largest economies using ERs? Which are the three largest economies using PPPs? (CM 2)
ER GDP; 1.U.S. $18.7t 2.China $11.63t 3.Germany $3.02t PPP GDP;1.China $21.15t 2.U.S. $18.7t 3.India $8.55t
How did I define economics? (CM3)
Economics is what academic economists do.
What is the difference between explicit and implicit costs? (CM3)
Explicit costs are the amounts of money you spend acquiring something. Implicit costs is the amount of time you spent acquiring that something (opportunity costs).
What are fixed costs and variable costs? (CM6)
FC; A firms up front costs to start production, things like the building and machinery. These costs usually are spent up front and are unrecoverable. VC; (operating cost) The costs of labor, raw materials, and energy; all of which vary as output varies.
What are stocks, bonds, and gold capital? (CM3)
Financial capital
Are GDP and Wealth stock or flow variables? (CM1)
GDP is flow and wealth is stock
What is the difference between GDP and GNP? (CM1)
GDP is the value of final goods and services produced within a countries borders. GNP Is the value of final goods and services produced by a countries citizens, including citizens working abroad.
What is real GDP? (CM1)
GDP measured at a constant price (example 2016 GDP measured at 2005 prices), any change in the real GDP indicates a change in the AEA because real GDP accounts for inflation and only shows a change in quantity.
What is nominal GDP? (CM1)
GDP measured at current prices and includes inflation
If the exchange rate between the Euro and the Canadian dollar is one Euro (€) to two Canadian dollars ($) and the German GDP is €4t what is the German GDP in Canadian dollars? If the Canadian GDP is $1t what is the Canadian GDP in Euros? (CM 2)
German GDP in Canadian dollars equals $8t Canadian GDP in euros is €500b
What does scarcity mean to an economist? (CM3)
Having to allocate limited resources to alternative uses. Having to give up part of something in order to get more of another thing.
How can we deduce whether the demand or supply curve caused a particular change in price and quantity transacted? (CM5)
If Px and Qx have both decreased than it must be true that the demand for x has decreased. If Px decreased and Qx increased than we know that the supply of x has increased.
How do supply and demand determine price? (CM5)
If there is an excess in demand the price will increase until the market reaches equilibrium. If there is an excess is supply the price will decrease until the market reaches equilibrium.
How does using "value added" avoid "double counting"? (CM1)
Instead of adding up the final goods and services we can add together the values added at each stage of production of the final good, including the services of the retailer who sells them to the ultimate consumer.
What is the flaw with RCT? (CM4)
It assumes that people make 100% rational decisions with no emotional involvement.
What are the 4 categories classified as inputs? (CM4)
Land, labor, capital, entrepenuership
How does an economy's endowment of labor and capital effect how it produces goods? (CM3)
Lots of labor and low capital leads to labor intensive production. Little labor and lots of capital leads to capital intensive production.
Why does MB = MC at the market equilibrium? (CM5)
MB=MC is the point where the amount of $ consumers are willing to pay is equal to the amount of $ firms are willing to accept.
What is the difference between microeconomics and macroeconomics? (CM1)
Microeconomics focusses on the individual components of society (households, firms, prices of cars, etc). Macroeconomics focuses on the economy as a whole (inflation rate, economic growth, etc.). Microeconomics are trees and macroeconomics is the forrest.
Define MC and MB. (CM3)
Net benefit is maximized when MB=MC. Marginal benefit is the slope of total benefit curve. Marginal cost is the slope of the total cost curve.
What is Sleeman's definition of opportunity cost? (CM3)
Net benefit= Total benefit- total cost
Is the US economy operating at full employment and full capacity in January 2016? (CM4)
No because the demand for goods and services is not high enough to support full employment and full utilization of capital.
If nominal GDP increases from 2014 to 2015 does that mean that AEA has increased? (CM1)
No, GDP can increase with less yearly output (AEA) due to inflation.
Is common sense a good guide to answering questions on the tests? (CM1)
No, because economists use some familiar words words in unfamiliar ways and most of what the media portrays about economics is not 100% accurate.
Should sunk costs be taken into account when making an economic decision? (CM3)
No, because it is pointless to spend more money trying to remedy sunk costs. Let bygones be bygones
If something has no alternative uses because the expenditure has already been made and the amount spent is not recoverable is it a cost? (CM3)
No, it is not a cost but an ex-cost because unrecoverable money is a thing of the past with no alternative uses.
What is the distinction between nominal and real prices? (CM5)
Nominal; dollars per unit Real; Dollars per unit accounting for inflation, can really tell if the value of a unit went up or down.
What is a budget constraint? (CM3)
Only having a set amount of money to spend, which causes people to make choices between preferences.
How is opportunity cost related to scarcity? (CM3)
Opportunity cost gives a value to the choice you had to make due to scarcity. Because you have limited resources you had to pick x and give up y, so the opportunity cost is y.
What is assumed about the slope of the supply/MC/WTA curve? (CM6)
Positive
Are incentives important in determining the decisions made by economic agents? (CM3)
Positive incentives (benefits) are more effective than negative incentive (penalties) in determining the efficiency of economic agents.
What is the only thing that is common to both lists? (CM5)
Price of x
Does the size of the economy matter? (CM 2)
Probably not, a small country can have a really small GDP and still be considered a wealthy developed nation.
Economic Activity (CM 2)
Production, exchange, consumption
What things cause the PPC to shift to the right and what would cause it to shift to the left? (CM4)
Right; change in technology, increase in labor productivity, increase in capital stock. Left; Lost capital stock, decreased labor force, loss of technology.
What is the standard definition of economics? (CM3)
Standard definition; Economics is the study of the distribution of scarce resources compared to peoples unlimited wants. (How much x must be sacrificed in order to get ann additional unit of y)
What is the difference between a substitution and an income effect? (CM5)
Substitution; The notion that people tend to purchase more of a good when the price goes down and less when the price goes up. Income; The notion that when things get cheaper it is similar to an increase in income because you are spending less money.
Which determinate has been most influential during the last 100 years? (CM1)
Technology
What are the 2 major determinants of long term growth of the economy? (CM 2)
Technology and consumer tastes
How is GDP defined? (CM1)
The *value* (price x quantity) at *market price* of all the *final **goods* and *services* produced within the U.S. *border* within a *year*.
What assumption does the PPC make about the marginal costs of both goods? (CM4)
The MC of x is highest at xmas and the MC of y is highest at ymax.
What is a Production Possibilities Curve (Frontier)? (CM4)
The PPC/PPF shows us the maximum amount of one good or service that can be produced given the output of the other good or service.
What does AEA stand for? What does AEA measure? (CM1)
The amount of output or production of the economy in a year (quantity). It is a way of measuring the performance of the economy.
How is Net Worth defined? (CM1)
The difference between your assets and liabilities.
Is the economy an isolated system or is it part of larger systems? (CM1)
The economy is part of larger systems, for example; 1. The economy is run on a time frame dictated by the laws of physics (24 hour days). 2. The economy uses the biosphere as a source of raw materials and as dump for waste.
What is the standard definition of opportunity cost? (CM3)
The opportunity cost of x is the value of the next most valuable thing you had to give up in order to get x.
What is the exchange rate (ER) method of currency conversion? (CM 2)
The price of one currency in exchange for another currency. (how many yen equal one dollar)
How is consumer surplus defined? How is consumer surplus shown on a supply and demand diagram? (CM6)
The triangular area below the demand curve and above the price equilibrium (TotalBenefit-TotalExpenditure). The market price for a unit is set on the margin so all units are priced the same as the last and least valuable unit. This means that with 100 units of supply the consumer is getting more benefit from items 1-99 than they are paying for , thus the consumer has a surplus of benefit.
What is your demand for $2m sports cars or $250,000 diamond rings? (CM6)
There is no demand for either because you don't absolutely need them.
Why is Zambia likely to be producing inside of its PPC?(CM4)
They are producing inefficiently
What would cause Germany to produce within its PPC?(CM4)
They have unemployment and under-utilization of capital
If the price of a man's haircut is $30 and the man earns $60 per hour what is the "time cost" of the haircut? (CM 2)
Time cost is 1/2 hour
How is the firm's operating profit defined? (CM6)
Total revenue-Variable costs
What types of economic activity is excluded from GDP? (CM1)
Used cars, houses, illegal activities, housework, under the table cash transactions, etc.
What is meant by the term "short run"? (CM6)
We are assuming that at least one of the inputs in the production process is fixed, that the supply curve is increasing, and the firm is unable to increase its capital stock.
If A2 and A3 hold why can we only produce more of one good or service if we are willing to sacrifice some of the other good or service? (CM4)
We are constrained to two products due to limited resources and technology.
What does scarcity mean to you and me? (CM3)
We have limited access to goods and services due to our limited income.
If we want to compare the GDPs of Germany and Canada what problem must we solve? (CM 2)
We have to convert their GDPs to a common currency.
How is the economists' theory of choice (Rational Choice Theory - RCT) related to scarcity? (CM3)
We know our budget (scarcity of money) and our preferences, RCT assumes that people can figure out the best use of their money to get most of their preferences. Good tool for prescriptive economics.
When choosing the two goods or services what must be true of our classification? (CM4)
We must assume that Assumptions 1-6 are true.
When is a good or service scarce? (CM3)
When at a price of zero, the demand of that service is higher than the supply.
At what point should you stop expanding an economic activity? (CM3)
When marginal cost is equal to marginal benefit.
What, in our toy model, is meant by efficient production? (CM4)
When we minimize inputs to produce a given amount of output. Or when we maximize output for a given amount of input.
