Econ B-251 Midterm #1 with Complete
Solutions
% change in P - ANSWER-(Pnew - Pold)
/
(Pnew + Pold/2)
% change in Qd - ANSWER-(Q2-Q1)
/
(Q2+Q1/2)
Absolute Advantage - ANSWER-Being able to produce more of a good using the same
number of resources as others (firms or countries)
Allocative Efficiency (AE) - ANSWER-- Combination of goods that maximizes utility
- Where MB = MC
Comparative Advantage - ANSWER-Being able to produce a good cheaper than others
(firms or countries)
Competitive Market - ANSWER-One with many buyers and sellers, each has a
negligible effect on price
Complementary Goods - ANSWER-Goods that are used in conjunction with each other
(used together)
- Price increases in one good causes a demand decrease for the other
- Example: Gasoline and Cars, Batteries and any product that uses them
Complements in Production - ANSWER-When the price of good Y increases, which is a
substitute in production, the supply of good X decreases
- Price of Good increases - Supply of Good increases
- Price of good decreases - Supply of Good decreases
- Example: Whiskey and Hand Sanitizer
Demand Schedule - ANSWER-A table that shows the relationship between the price of
a good and the quantity demanded
Diminishing Marginal Benefit - ANSWER-The more of a good that is produced
decreases its marginal benefit
E - ANSWER-(Q2-Q1)/(Q2+Q1/2)
/
(P2-P1)/(P2+P1/2)
, Efficient Economy - ANSWER-Using all of its resources in production
Ei (Income) < 0 - ANSWER-Inferior
Ei (Income) > 0 - ANSWER-Normal
Eincome - ANSWER-%change in Qd
/
% change in Income
Elastic - ANSWER-%change in Qd
/
% change in P
>1
Equilibrium - ANSWER-Where supply and demand curve interact
Equilibrium (Market) Price - ANSWER-Price at which quantity supplied is equal to the
quantity demanded
This quantity is the equilibrium quantity
Es (Elastic) - ANSWER-> 1
Es (Inelastic) - ANSWER-< 1
Es (Unit Elastic (Equal)) - ANSWER-= 0
Exy (Cross Price Elasticity) - ANSWER-Exy =
%change in Q^x d
/
% change in Py
(numerator will always be quantity)
Exy Elastic - ANSWER--Infinity < Exy < -1
Exy Inelastic - ANSWER--1 < Exy < 0
Government Actions - ANSWER-When government sets prices, it essentially chooses
the quantity supplied
- If below equilibrium price they cause a shortage
- If above equilibrium price they cause a surplus
Example: Gasoline in the 70s
Solutions
% change in P - ANSWER-(Pnew - Pold)
/
(Pnew + Pold/2)
% change in Qd - ANSWER-(Q2-Q1)
/
(Q2+Q1/2)
Absolute Advantage - ANSWER-Being able to produce more of a good using the same
number of resources as others (firms or countries)
Allocative Efficiency (AE) - ANSWER-- Combination of goods that maximizes utility
- Where MB = MC
Comparative Advantage - ANSWER-Being able to produce a good cheaper than others
(firms or countries)
Competitive Market - ANSWER-One with many buyers and sellers, each has a
negligible effect on price
Complementary Goods - ANSWER-Goods that are used in conjunction with each other
(used together)
- Price increases in one good causes a demand decrease for the other
- Example: Gasoline and Cars, Batteries and any product that uses them
Complements in Production - ANSWER-When the price of good Y increases, which is a
substitute in production, the supply of good X decreases
- Price of Good increases - Supply of Good increases
- Price of good decreases - Supply of Good decreases
- Example: Whiskey and Hand Sanitizer
Demand Schedule - ANSWER-A table that shows the relationship between the price of
a good and the quantity demanded
Diminishing Marginal Benefit - ANSWER-The more of a good that is produced
decreases its marginal benefit
E - ANSWER-(Q2-Q1)/(Q2+Q1/2)
/
(P2-P1)/(P2+P1/2)
, Efficient Economy - ANSWER-Using all of its resources in production
Ei (Income) < 0 - ANSWER-Inferior
Ei (Income) > 0 - ANSWER-Normal
Eincome - ANSWER-%change in Qd
/
% change in Income
Elastic - ANSWER-%change in Qd
/
% change in P
>1
Equilibrium - ANSWER-Where supply and demand curve interact
Equilibrium (Market) Price - ANSWER-Price at which quantity supplied is equal to the
quantity demanded
This quantity is the equilibrium quantity
Es (Elastic) - ANSWER-> 1
Es (Inelastic) - ANSWER-< 1
Es (Unit Elastic (Equal)) - ANSWER-= 0
Exy (Cross Price Elasticity) - ANSWER-Exy =
%change in Q^x d
/
% change in Py
(numerator will always be quantity)
Exy Elastic - ANSWER--Infinity < Exy < -1
Exy Inelastic - ANSWER--1 < Exy < 0
Government Actions - ANSWER-When government sets prices, it essentially chooses
the quantity supplied
- If below equilibrium price they cause a shortage
- If above equilibrium price they cause a surplus
Example: Gasoline in the 70s
