ECON B-251 questions and answers
Causation ✔✔A cause and effect relationship in which one variable controls the
changes in another variable.
Correlation ✔✔describes the linear relationship between two variables. It is normalized
to take values between +1 and -1. This is only a description of the relationship between
two variables. It has no implications for causality.
Constraint ✔✔a limit on what is possible. Eg: financial, physical, emotionally, etc.
The law of unintented consequences ✔✔any action, any change in a policy or in a rule
is bound to have consequences which are difficult to foresee before or when the action
or change in policy or rule is put into place.
Parrallel Universe ✔✔a scenario in which data sets would be equal in all dimensions
except the one that we are studying. This is in order to determine causality.
Scarcity ✔✔available resources falling short of the wants, needs, or desires of people
Theory ✔✔a mind construct of how a part of the world may work. The point of a theory
is to help us understand that part of the world. A synonym for theory is "Model". A
theory is an abstraction
Economic is the study of _________ resources ✔✔scarce
Convergence Hypothesis ✔✔Countries will eventually converge
Capital ✔✔an input in production that is durable, that is not used up in production.
Diminishing returns ✔✔the assumption that an extra unit of an input generates more
output, but at a diminishing rate. The 200th unit of an input will generate less output
than the 30th unit. We will encounter a similar term for consumption.
Gross Domestic Product ✔✔the value of final goods and services produced in a
country within a particular time period.
Increasing Returns ✔✔when an additional unit of an input generates more output at
increasing rates. The 200th unit of an input will generate more output than the 30th unit
of that input.
, opportunity cost ✔✔the most desirable alternative given up as the result of a decision
elasticity of demand ✔✔the percentage change in the quantity demanded/the
percentage change in the price
Endogenous Variable ✔✔a variable that is determined within the model
exogenous variable ✔✔A variable determined outside the model
Inferior Good ✔✔A good where an increase in income shifts demand to the left.
Normal Good ✔✔A good where an increase in income shifts demand to the right.
Reservation Price ✔✔The maximum amount a customer is willing to pay for a product.
It is also the price where the customer is just indifferent between purchasing the good or
not.
Average fixed costs ✔✔Fixed costs divided by the total amount of output.
Average Variable Costs ✔✔Variable costs divided by the total amount of output.
Constant Returns to Scale ✔✔The average cost of producing is independent of the
total amount of output produced.
Decreasing returns to scale ✔✔Decreasing returns are present when average costs of
producing are increasing as more output is produced.
diseconomies of scale ✔✔The same as decreasing returns to scale. When there are
diseconomies of scale, it is more expensive, on average, to produce on a large scale
than on a small scale. The average costs increase as more output is produced. That
means that the average cost curve is upward sloping. There are decreasing returns to
scale.
Economies of scale ✔✔The same as increasing returns to scale. it is cheaper, on
average, to produce on a large scale than on a small scale. The average costs decline
as more output is produced. That means that the average cost curve is downward
sloping. There are increasing returns to scale.
Fixed Costs ✔✔That part of cost which is independent of the total amount of output
produced and sold.
increasing returns to scale ✔✔When the average cost of producing are decreasing as
more output is produced.
Causation ✔✔A cause and effect relationship in which one variable controls the
changes in another variable.
Correlation ✔✔describes the linear relationship between two variables. It is normalized
to take values between +1 and -1. This is only a description of the relationship between
two variables. It has no implications for causality.
Constraint ✔✔a limit on what is possible. Eg: financial, physical, emotionally, etc.
The law of unintented consequences ✔✔any action, any change in a policy or in a rule
is bound to have consequences which are difficult to foresee before or when the action
or change in policy or rule is put into place.
Parrallel Universe ✔✔a scenario in which data sets would be equal in all dimensions
except the one that we are studying. This is in order to determine causality.
Scarcity ✔✔available resources falling short of the wants, needs, or desires of people
Theory ✔✔a mind construct of how a part of the world may work. The point of a theory
is to help us understand that part of the world. A synonym for theory is "Model". A
theory is an abstraction
Economic is the study of _________ resources ✔✔scarce
Convergence Hypothesis ✔✔Countries will eventually converge
Capital ✔✔an input in production that is durable, that is not used up in production.
Diminishing returns ✔✔the assumption that an extra unit of an input generates more
output, but at a diminishing rate. The 200th unit of an input will generate less output
than the 30th unit. We will encounter a similar term for consumption.
Gross Domestic Product ✔✔the value of final goods and services produced in a
country within a particular time period.
Increasing Returns ✔✔when an additional unit of an input generates more output at
increasing rates. The 200th unit of an input will generate more output than the 30th unit
of that input.
, opportunity cost ✔✔the most desirable alternative given up as the result of a decision
elasticity of demand ✔✔the percentage change in the quantity demanded/the
percentage change in the price
Endogenous Variable ✔✔a variable that is determined within the model
exogenous variable ✔✔A variable determined outside the model
Inferior Good ✔✔A good where an increase in income shifts demand to the left.
Normal Good ✔✔A good where an increase in income shifts demand to the right.
Reservation Price ✔✔The maximum amount a customer is willing to pay for a product.
It is also the price where the customer is just indifferent between purchasing the good or
not.
Average fixed costs ✔✔Fixed costs divided by the total amount of output.
Average Variable Costs ✔✔Variable costs divided by the total amount of output.
Constant Returns to Scale ✔✔The average cost of producing is independent of the
total amount of output produced.
Decreasing returns to scale ✔✔Decreasing returns are present when average costs of
producing are increasing as more output is produced.
diseconomies of scale ✔✔The same as decreasing returns to scale. When there are
diseconomies of scale, it is more expensive, on average, to produce on a large scale
than on a small scale. The average costs increase as more output is produced. That
means that the average cost curve is upward sloping. There are decreasing returns to
scale.
Economies of scale ✔✔The same as increasing returns to scale. it is cheaper, on
average, to produce on a large scale than on a small scale. The average costs decline
as more output is produced. That means that the average cost curve is downward
sloping. There are increasing returns to scale.
Fixed Costs ✔✔That part of cost which is independent of the total amount of output
produced and sold.
increasing returns to scale ✔✔When the average cost of producing are decreasing as
more output is produced.
