ECO 2023 FSU Exam 2 Questions And
All Correct 2026-2027 Updated.
Consumer Choice - Answer How buyers decide to spend their money
What are some fundamentals of consumer choice - Answer 1. Limited income necessitates
choice
2. Consumers are rational
3. One good can be substituted for another
4. Consumers must make decision without perfect information
5. The law of diminishing marginal utility applies to consumption
Marginal Utility - Answer The benefit derived from consuming an additional unit of a good
Law of Diminishing Marginal Utility - Answer As the consumption of a product increases, the
marginal utility derived from additional consumption will eventually decline
Marginal Benefit - Answer The max price a consumer is willing to pay for an additional unit of
the product
Substitution Effect - Answer The good has become cheaper relative to other goods
Income Effect - Answer It is as if your real income has increased
The Market Demand Curve is the - Answer Horizontal sum of the individual demand curves
Price Elasticity of Demand - Answer How responsive consumers are to a change in the
product's price; I %change in quantity demanded/ %change in price I
% change = - Answer New-Old/Old x 100%
If price elasticity of demand is > 1 - Answer It is elastic
If price elasticity of demand is < 1 - Answer It is inelastic
If price elasticity of demand is = 1 - Answer It is unit elastic
, What are some determinants of Price Elasticity of Demand - Answer 1. Availability of
substitutes
2. Product's share of the consumer's total budget
Total Expenditures = - Answer Price x Quantity
If it is inelastic - Answer Then total expenditures increase
If it is elastic - Answer Then the total expenditures decrease
Income Elasticity - Answer Measure the responsiveness of the demand for a good to a change
in income; % change of quantity demanded/ %change of income
Income Elasticity > 0 - Answer Normal good
Income Elasticity > 0 and <1 - Answer Necessity good
Income Elasticity >1 - Answer Luxury good
Income Elasticity < 0 - Answer Inferior good
Firm - Answer Entity designed to organize raw materials, labor, and machines with the goal of
producing goods and/or services
Residual Claimants - Answer Individuals who receive excess revenues after costs are
accounted for
Two ways to organize productive activity - Answer Contracting and Team Production
Contracting - Answer Using outside producers for specific tasks
Team Production - Answer Process in which employees work together under the supervision
of the owner or a manger appointed by the owner; can result in lower costs, but has potential
problems
All Correct 2026-2027 Updated.
Consumer Choice - Answer How buyers decide to spend their money
What are some fundamentals of consumer choice - Answer 1. Limited income necessitates
choice
2. Consumers are rational
3. One good can be substituted for another
4. Consumers must make decision without perfect information
5. The law of diminishing marginal utility applies to consumption
Marginal Utility - Answer The benefit derived from consuming an additional unit of a good
Law of Diminishing Marginal Utility - Answer As the consumption of a product increases, the
marginal utility derived from additional consumption will eventually decline
Marginal Benefit - Answer The max price a consumer is willing to pay for an additional unit of
the product
Substitution Effect - Answer The good has become cheaper relative to other goods
Income Effect - Answer It is as if your real income has increased
The Market Demand Curve is the - Answer Horizontal sum of the individual demand curves
Price Elasticity of Demand - Answer How responsive consumers are to a change in the
product's price; I %change in quantity demanded/ %change in price I
% change = - Answer New-Old/Old x 100%
If price elasticity of demand is > 1 - Answer It is elastic
If price elasticity of demand is < 1 - Answer It is inelastic
If price elasticity of demand is = 1 - Answer It is unit elastic
, What are some determinants of Price Elasticity of Demand - Answer 1. Availability of
substitutes
2. Product's share of the consumer's total budget
Total Expenditures = - Answer Price x Quantity
If it is inelastic - Answer Then total expenditures increase
If it is elastic - Answer Then the total expenditures decrease
Income Elasticity - Answer Measure the responsiveness of the demand for a good to a change
in income; % change of quantity demanded/ %change of income
Income Elasticity > 0 - Answer Normal good
Income Elasticity > 0 and <1 - Answer Necessity good
Income Elasticity >1 - Answer Luxury good
Income Elasticity < 0 - Answer Inferior good
Firm - Answer Entity designed to organize raw materials, labor, and machines with the goal of
producing goods and/or services
Residual Claimants - Answer Individuals who receive excess revenues after costs are
accounted for
Two ways to organize productive activity - Answer Contracting and Team Production
Contracting - Answer Using outside producers for specific tasks
Team Production - Answer Process in which employees work together under the supervision
of the owner or a manger appointed by the owner; can result in lower costs, but has potential
problems
