ECN 104 Midterm Exam 2024 with
Complete Solutions
Rationing function of prices - Answer- The ability of competitive forces of supply and
demand to establish a price at which selling and buying are consistent.
Productive Efficiency - Answer- Producing the right amount of goods, and the lowest
cost, with the best technology.
Allocative Efficency - Answer- Producing the right amount of each product as per
market demand.
Price Ceiling - Answer- The maximum legal amount that that a seller may sell a product
for or provide a service. This margin is controlled by the government. i.e. Rent Control
Price Floor - Answer- The minimum legal amount that a seller may sell a product or
provide a service. This is controlled by the government. i.e. If a group is being
underpaid because of low selling costs, the government will raise the price floor.
Elasticity - Answer- A measure of the responsiveness of quantity demand, or quantity
supplied to one of its determinants. The more substitutions a product has, the more
elastic it is(the line is more horizontal)
Law of demand - Answer- An increase in price, reduces the increase in demand, and
vice versa.
Market - Answer- A place where exchanges take place.
Factor Market - Answer- The market that supplies factors for a company, such as labor,
capital, land, raw materials.
The income effect - Answer- The lower the price of a product, the higher the purchasing
power is from the buyer as they can buy more for the same amount of money.
Substitutability - Answer- The more substitutions a good has, the more elastic it is.
Proportion of Income - Answer- The greater the proportion of income spent on a good,
the greater the price elasticity of demand for it.
, Luxuries vs Necessities - Answer- The more that a good is considered a luxury than a
necessity, the greater is the price elasticity of demand.
Time - Answer- Product demand is more elastic the longer the period under
consideration.
The cross price elasticity of demand - Answer- Measure the effect of the change in one
good's price on the quantity demanded of the other good.
Consumer Sovereignty - Answer- The situation in an economy where the desires and
needs of a consumers control the output of consumers.
Other Things Equal - Answer- Most of the time, something will occur as a result of
something else. An example would be, the law of gravity states if you throw a brick out
of the window, it will fall to the ground, due to gravity, as long as nothing else changes.
Marginal Utility/Benefit - Answer- The additional satisfaction a consumer gains from
consuming one more unit of a good or service.
Production Possibility Curve - Answer- The amount attainable of 2 items, ceteris
paribus. An example would be how many rabbits can you catch in 3 hours, vs how
many berries you can pick in 3 hours.
Absolute Advantag - Answer- When a country is able to be more productive than others.
Comparative Advantage - Answer- When a country can operate at a lower opportunity
cost than another country.
Normal Good - Answer- Goods or services whose consumption rise when income
increased, and decrease with income decreases, price staying constant.
Inferior Good - Answer- Goods or services whose consumption falls when income
increases and rises when income decreases, price remaining constant.
Consumer Surplus - Answer- The difference between the maximum price a consumer is
willing to pay for a product and the actual price.
Producer Surplus - Answer- Anything earned above the minimum price you are willing
to sell for.
Law of Diminishing Marginal Utility - Answer- The idea that as you acquire an item more
and more, your desire for it weakens.
Total Utility - Answer- The amount of satisfaction or pleasure a person receives from a
good or service.
Complete Solutions
Rationing function of prices - Answer- The ability of competitive forces of supply and
demand to establish a price at which selling and buying are consistent.
Productive Efficiency - Answer- Producing the right amount of goods, and the lowest
cost, with the best technology.
Allocative Efficency - Answer- Producing the right amount of each product as per
market demand.
Price Ceiling - Answer- The maximum legal amount that that a seller may sell a product
for or provide a service. This margin is controlled by the government. i.e. Rent Control
Price Floor - Answer- The minimum legal amount that a seller may sell a product or
provide a service. This is controlled by the government. i.e. If a group is being
underpaid because of low selling costs, the government will raise the price floor.
Elasticity - Answer- A measure of the responsiveness of quantity demand, or quantity
supplied to one of its determinants. The more substitutions a product has, the more
elastic it is(the line is more horizontal)
Law of demand - Answer- An increase in price, reduces the increase in demand, and
vice versa.
Market - Answer- A place where exchanges take place.
Factor Market - Answer- The market that supplies factors for a company, such as labor,
capital, land, raw materials.
The income effect - Answer- The lower the price of a product, the higher the purchasing
power is from the buyer as they can buy more for the same amount of money.
Substitutability - Answer- The more substitutions a good has, the more elastic it is.
Proportion of Income - Answer- The greater the proportion of income spent on a good,
the greater the price elasticity of demand for it.
, Luxuries vs Necessities - Answer- The more that a good is considered a luxury than a
necessity, the greater is the price elasticity of demand.
Time - Answer- Product demand is more elastic the longer the period under
consideration.
The cross price elasticity of demand - Answer- Measure the effect of the change in one
good's price on the quantity demanded of the other good.
Consumer Sovereignty - Answer- The situation in an economy where the desires and
needs of a consumers control the output of consumers.
Other Things Equal - Answer- Most of the time, something will occur as a result of
something else. An example would be, the law of gravity states if you throw a brick out
of the window, it will fall to the ground, due to gravity, as long as nothing else changes.
Marginal Utility/Benefit - Answer- The additional satisfaction a consumer gains from
consuming one more unit of a good or service.
Production Possibility Curve - Answer- The amount attainable of 2 items, ceteris
paribus. An example would be how many rabbits can you catch in 3 hours, vs how
many berries you can pick in 3 hours.
Absolute Advantag - Answer- When a country is able to be more productive than others.
Comparative Advantage - Answer- When a country can operate at a lower opportunity
cost than another country.
Normal Good - Answer- Goods or services whose consumption rise when income
increased, and decrease with income decreases, price staying constant.
Inferior Good - Answer- Goods or services whose consumption falls when income
increases and rises when income decreases, price remaining constant.
Consumer Surplus - Answer- The difference between the maximum price a consumer is
willing to pay for a product and the actual price.
Producer Surplus - Answer- Anything earned above the minimum price you are willing
to sell for.
Law of Diminishing Marginal Utility - Answer- The idea that as you acquire an item more
and more, your desire for it weakens.
Total Utility - Answer- The amount of satisfaction or pleasure a person receives from a
good or service.
