Econ 101 Final Exam Brent Kreider| with full latest solution

Econ 101 Final Exam Brent Kreider| with full latest solution What is the difference between a positive and normative statement? - A positive statement is based on facts and a normative statement is an opinion. If I have to drop out of college, it will cost me all of the tuition I have paid and the income I could have earned during those years while I was in college. True or false. - False because income should be considered a sunk cost and therefore not relevant to the question. Tonight I can either (1) go out to dinner and a movie, or (2) cook dinner for some friends, or (3) eat a hamburger at the baseball game. I prefer to do (1), then (2), and finally (3) if I can only do one. If these are my best choices and the dollar cost of each is the same, what would be the opportunity cost of my going out to dinner and a movie? - Cooking dinner for some friends because that is the next best option. If I'm inside or below the PPF, what is my production considered? - Ineffiecient Where do I want to be on a PPF? - On the curve What is absolute advantage? - When a person can produce a good using fewer resources than another person What is comparative advantage? - When a person can produce something at a lower opportunity cost. What causes a shift in demand curve? - Income, price of the good, consumer expectations, size of the population, and price of other products. What happens if a good is a normal good? - Increase in income means demand increase What happens if a good is a inferior good? - Increase in income means demand decrease. What would cause a supply curve to shift? - Change in price of inputs, profitability of alternative products, and change in technology What does surplus mean? - When supply is more than demand. What does shortage mean? - When demand is more than supply. What is a substitute good? - products that can be used in place of other products to satisfy consumer wants What is a complementary good? - one that is used together with another good/printers and ink catridges What does income elasticity of demand measure? - Responsiveness of the quantity demanded for a good or service to a change in income. What does price elasticity of demand measure? - the responsiveness of the quantity demanded to changes in price. What is the equation from Kreider's notes for price elasticity? - ((Q2-Q1)/(Q1+Q2)/X))/((P2-P1)/(P1+P2)/2)) What is the top hat equation for price elasticity? - ((Q2-Q1)/(Q1))/((P2-P1)/(P1)) What does a price ceiling do to Q? - Causes a shortage What does a price floor do to a ? - Causes a surplus What is an example of a price ceiling? - rent control What is an example of a price floor? - Minimum wage What happens when a excise tax is imposed on producers? - Supply curve shifts upwards because producer must pay tax to the government and will only accept a lower price at a lower quantity. What happens when an excise tax is imposed on the consumer? - Demand goes down because consumers will have to pay a higher price on each good. What is the law of diminishing marginal utility? - The value that a consumer place on additional units of a particular good will diminish as total consumption of that good increases. Marginal utility - The change in utility derived from consuming an additional unit of a good/change from one amount of total utility to marginal utility What does a budget line show? - all possible combinations of two goods that can be purchased, given money income and the prices of the goods. How does a decrease in income affect the budget constraint/line? - the entire line shifts downwards/consumption will decrease How does an increase in the price of the good affect the budget constraint line? - The slope for the good with the increased price will be steeper/to get 1 Movie I will have to give up 5 CDs due to the increase price When should consumers increase their purchases of goods to maximize their biggest bang for their buck? - Marginal utility divided by price is high relative to other goods. What is marginal product? - the increase in output that arises from an additional unit of input of labor What is diminishing marginal product? - Marginal output continues to rise with each additional worker, but each additional worker's impact becomes smaller than the one before. What is marginal costs - Says how much total costs rise when out (not an input) increases by one unit/change in TC divided by Q What is an average cost? - Total cost/output What is a sunk cost? - any costs that have already been paid in the past. How do "sunk costs" influence relationships? - Should not be considered when making current decisions/costs will be the same no matter what you so they are irrelevant. if you don't like the movie and are considering going home, the fact that you had to pay for the tickets should be what? - Irrelevant to your decision because you paid $10 either way. What is total revenue? - Price x Quantity/ total receipts from sales of a given quantity of goods or services. What is marginal revenue? - The extra revenue associate with the production and sale of one additional unit of output/change in total revenue divided by the change in the quantity of output Why does profit maximization require MR=MC? - Because if MR<MC then I'm losing money and if MR>MC then I'm leaving money on the table. How do I find the optimal output q to maximize a firm's profit? - Find the largest distance between TR and TC/Find where value MR=MC What are the three requirements of a perfectly competitive market? - 1) Many buyers and sellers