ECON 110 EXAM 1 KEARL QUESTIONS
AND CORRECT ANSWERS
comparative advantage ✅✅CORRECT ANSW-a person or economy can produce a good at a lower
cost than a trading partner can produce it.
common property problem ✅✅CORRECT ANSW-overuse of a resource due to lack of ownership
constant returns to scale ✅✅CORRECT ANSW-when a firm increases all inputs, the increase in
output is proportional.
cross-price elasticity of demand ✅✅CORRECT ANSW-percentage change in quantity demanded
when the price of another good changes by 1%
deflation ✅✅CORRECT ANSW-a general decrease in the average of all prices
demand schedule ✅✅CORRECT ANSW-a list of the maximum amount demanders are willing to
purchase from a market at each market price (over a set period of time)
accounting costs ✅✅CORRECT ANSW-direct monetary costs. does not include opportunity cost.
arc elasticity formula ✅✅CORRECT ANSW-∈d=[(q2-q1)/(q2+q1)/2]/[(p2-p1)/(p2+p1)/2]
ATC ✅✅CORRECT ANSW-total cost per unit of output produced. AFC+AVC
cartel ✅✅CORRECT ANSW-a group of firms that collude
ceteris paribus ✅✅CORRECT ANSW-all other things held constant
demand curve ✅✅CORRECT ANSW-a graph of a demand schedule
depreciation ✅✅CORRECT ANSW-decrease in the value of capital as it wears out
, diminishing marginal returns ✅✅CORRECT ANSW-as the amount of a chosen item increases, the
value of each marginal unit decreases
economies of scale ✅✅CORRECT ANSW-when ATC decrease as the volume of output of a single
firm increases
economic profits ✅✅CORRECT ANSW-=TR-TC which includes accounting costs and opportunity
costs
entry (expansion) ✅✅CORRECT ANSW-when new firms enter a market or existing firms expand
operations
equilibrium price ✅✅CORRECT ANSW-quantity that suppliers are willing to provide to the market
at a specific price is exactly equal to the quantity that demanders are willing to purchase at that
price. No tendency for change
equi-marginal principle ✅✅CORRECT ANSW-The best or optimal mix is obtained when the
marginal benefit per additional dollar cost is the same for each thing chosen.
exchange rate ✅✅CORRECT ANSW-the price of one currency in terms of a second currency
exit (contraction) ✅✅CORRECT ANSW-when firms leave a market or existing firms contract scale
1st law of demand ✅✅CORRECT ANSW-inverse relationship between relative price and quantity
demanded (ceteris paribus)
income elasticity of demand ✅✅CORRECT ANSW-percentage change in quantity demanded when
income changes by 1%
∈income=%∆demand/%∆income
increasing relative costs ✅✅CORRECT ANSW-as an economy shifts production from one
commodity to another, the costs of producing that commodity increase.
AND CORRECT ANSWERS
comparative advantage ✅✅CORRECT ANSW-a person or economy can produce a good at a lower
cost than a trading partner can produce it.
common property problem ✅✅CORRECT ANSW-overuse of a resource due to lack of ownership
constant returns to scale ✅✅CORRECT ANSW-when a firm increases all inputs, the increase in
output is proportional.
cross-price elasticity of demand ✅✅CORRECT ANSW-percentage change in quantity demanded
when the price of another good changes by 1%
deflation ✅✅CORRECT ANSW-a general decrease in the average of all prices
demand schedule ✅✅CORRECT ANSW-a list of the maximum amount demanders are willing to
purchase from a market at each market price (over a set period of time)
accounting costs ✅✅CORRECT ANSW-direct monetary costs. does not include opportunity cost.
arc elasticity formula ✅✅CORRECT ANSW-∈d=[(q2-q1)/(q2+q1)/2]/[(p2-p1)/(p2+p1)/2]
ATC ✅✅CORRECT ANSW-total cost per unit of output produced. AFC+AVC
cartel ✅✅CORRECT ANSW-a group of firms that collude
ceteris paribus ✅✅CORRECT ANSW-all other things held constant
demand curve ✅✅CORRECT ANSW-a graph of a demand schedule
depreciation ✅✅CORRECT ANSW-decrease in the value of capital as it wears out
, diminishing marginal returns ✅✅CORRECT ANSW-as the amount of a chosen item increases, the
value of each marginal unit decreases
economies of scale ✅✅CORRECT ANSW-when ATC decrease as the volume of output of a single
firm increases
economic profits ✅✅CORRECT ANSW-=TR-TC which includes accounting costs and opportunity
costs
entry (expansion) ✅✅CORRECT ANSW-when new firms enter a market or existing firms expand
operations
equilibrium price ✅✅CORRECT ANSW-quantity that suppliers are willing to provide to the market
at a specific price is exactly equal to the quantity that demanders are willing to purchase at that
price. No tendency for change
equi-marginal principle ✅✅CORRECT ANSW-The best or optimal mix is obtained when the
marginal benefit per additional dollar cost is the same for each thing chosen.
exchange rate ✅✅CORRECT ANSW-the price of one currency in terms of a second currency
exit (contraction) ✅✅CORRECT ANSW-when firms leave a market or existing firms contract scale
1st law of demand ✅✅CORRECT ANSW-inverse relationship between relative price and quantity
demanded (ceteris paribus)
income elasticity of demand ✅✅CORRECT ANSW-percentage change in quantity demanded when
income changes by 1%
∈income=%∆demand/%∆income
increasing relative costs ✅✅CORRECT ANSW-as an economy shifts production from one
commodity to another, the costs of producing that commodity increase.
