ECON B-251 EXAM 1 WITH COMPLETE SOLUTIONS
absolute advantage - ANSWER-producing a greater quantity of a good, or service than
competitors, using the same amount of resources.
allocative efficiency - ANSWER-every good or service is produced up to the point where
the last unit provides a marginal benefit to consumers equal to the marginal cost of
producing
bounded rationality - ANSWER-assumes peoples rationality is constrained because
they do not have full information
capital goods - ANSWER-goods used to produce other goods
comparative advantage - ANSWER-the ability to produce a good at a lower opportunity
cost than another producer
consumer goods - ANSWER-goods produced for personal satisfaction
cross-price elasticity of demand - ANSWER-The percentage change in the demand for
one good (holding its price constant) divided by the percentage change in the price of a
related good (complement or substitute)
decrease demand with supply constant - ANSWER-causes equilibrium price and
quantity to fall.
decrease in supply - ANSWER-Causes equilibrium price to increase and quantity to
decrease.
decreasing marginal benefit - ANSWER-the maximum amount of money a consumer is
willing to pay for an additional good or service is decreasing.
demand - ANSWER-quantities of specific goods or services that individuals or groups
will purchase at various possible prices, other things being constant
Determinants of Price Elasticity of Demand - ANSWER-these all increase the elasticity
of price
1. number of available substitutes
2. share of budget
3. time
Determinants of Supply elasticity - ANSWER-1. resource substitution
2. time
economic growth - ANSWER-what does a shifting out of the PPC represent?
, economics - ANSWER-the study of satisfying unlimited wants by utilizing limited
resources
elastic - ANSWER-∞ ≥ E(p) ≥ 1 -
% change in quantity demanded > % change in price
equillibrium - ANSWER-quantity supplied = quantity demanded
factors of demand - ANSWER--income
-tastes and preferences
-expectations for the future
-price of related goods
-number of buyers
Factors of Supply - ANSWER-- costs of inputs
- prices of related goods
- technology and productivity
- price expectations
- taxes and subsidies
- number of firms
Four factors of production - ANSWER-land, labor, capital, entrepreneurship
income effect - ANSWER-When the price of a good or service rises relative to income,
people cannot afford all the things they previously bought, so the quantity demanded of
the good or service decreases.
income elasticity - ANSWER-The percentage change in demand for any good, holding
its price constant, divided by the percentage change in income
increase in demand - ANSWER-causes increase in equilibrium price and quantity
increase in supply - ANSWER-Causes equilibrium price to decrease and quantity to
increase.
inefficiency - ANSWER-any point inside the PPC
inelastic - ANSWER-0 ≤ E(p) ≤ 1
% change in quantity demanded < % change in price
inferior good - ANSWER-a good for which, other things equal, an increase in income
leads to a decrease in demand
inferior good - ANSWER-Ei < 0
absolute advantage - ANSWER-producing a greater quantity of a good, or service than
competitors, using the same amount of resources.
allocative efficiency - ANSWER-every good or service is produced up to the point where
the last unit provides a marginal benefit to consumers equal to the marginal cost of
producing
bounded rationality - ANSWER-assumes peoples rationality is constrained because
they do not have full information
capital goods - ANSWER-goods used to produce other goods
comparative advantage - ANSWER-the ability to produce a good at a lower opportunity
cost than another producer
consumer goods - ANSWER-goods produced for personal satisfaction
cross-price elasticity of demand - ANSWER-The percentage change in the demand for
one good (holding its price constant) divided by the percentage change in the price of a
related good (complement or substitute)
decrease demand with supply constant - ANSWER-causes equilibrium price and
quantity to fall.
decrease in supply - ANSWER-Causes equilibrium price to increase and quantity to
decrease.
decreasing marginal benefit - ANSWER-the maximum amount of money a consumer is
willing to pay for an additional good or service is decreasing.
demand - ANSWER-quantities of specific goods or services that individuals or groups
will purchase at various possible prices, other things being constant
Determinants of Price Elasticity of Demand - ANSWER-these all increase the elasticity
of price
1. number of available substitutes
2. share of budget
3. time
Determinants of Supply elasticity - ANSWER-1. resource substitution
2. time
economic growth - ANSWER-what does a shifting out of the PPC represent?
, economics - ANSWER-the study of satisfying unlimited wants by utilizing limited
resources
elastic - ANSWER-∞ ≥ E(p) ≥ 1 -
% change in quantity demanded > % change in price
equillibrium - ANSWER-quantity supplied = quantity demanded
factors of demand - ANSWER--income
-tastes and preferences
-expectations for the future
-price of related goods
-number of buyers
Factors of Supply - ANSWER-- costs of inputs
- prices of related goods
- technology and productivity
- price expectations
- taxes and subsidies
- number of firms
Four factors of production - ANSWER-land, labor, capital, entrepreneurship
income effect - ANSWER-When the price of a good or service rises relative to income,
people cannot afford all the things they previously bought, so the quantity demanded of
the good or service decreases.
income elasticity - ANSWER-The percentage change in demand for any good, holding
its price constant, divided by the percentage change in income
increase in demand - ANSWER-causes increase in equilibrium price and quantity
increase in supply - ANSWER-Causes equilibrium price to decrease and quantity to
increase.
inefficiency - ANSWER-any point inside the PPC
inelastic - ANSWER-0 ≤ E(p) ≤ 1
% change in quantity demanded < % change in price
inferior good - ANSWER-a good for which, other things equal, an increase in income
leads to a decrease in demand
inferior good - ANSWER-Ei < 0
