ECONOMICS 202 EXAM #1 VALERIE
CARLISLE OLE MISS QUESTIONS &
ELABORATED COMPLETE
SOLUTIONS
How do you find market demand? - Correct Answer ✔✔ Vertically add every consumer's
demand curve. Add up MB (y-axis), of both people, this curve has the same quantity of
X as the first two lines/people.
Marginal Cost of an Optimal Quantity - Correct Answer ✔✔ Where MB=MC , or where 2
curves intersect each other. When this happens, resources have been allocated
efficiently.
How do you find social marginal cost? - Correct Answer ✔✔ SMC=(SMB) .... this is
found by adding y-axis people together and splitting in half the ending y value
(horizontal line). The intersection point between the line and the horizontal is the SMC.
Why might the government levy taxes? - Correct Answer ✔✔ Because there is an
indifference in the market demand relative to the market cost
Excise Tax - Correct Answer ✔✔ a tax on the production of a good
Consumer Surplus - Correct Answer ✔✔ The price people are willing to pay versus
what they actually paid
Taxing on certain products can lead to ... - Correct Answer ✔✔ Inefficiency
Governments may levy taxes based on ... - Correct Answer ✔✔ Demand & Supply
Taxes are raised when ... - Correct Answer ✔✔ the supply curve shifts left
Marginal cost slopes upward due to ... - Correct Answer ✔✔ diminishing returns
Price ceiling - Correct Answer ✔✔ Cap on a price the government sets so the price
cannot exceed equilibrium
Price floor - Correct Answer ✔✔ minimum price buyers are expected to pay for a good
, If gas prices were lowered, gas demanded would go up ... - Correct Answer ✔✔ at a low
price, you have lower supply, because producers don't want to produce as much of a
product (such as gas), meaning lowering prices actually hurts consumers
Farmer's don't want to produce corn @ $10 a unit, but they will at $30 a unit ... - Correct
Answer ✔✔ so the government will enlist a price floor of $30
Floor leads to surplus ... - Correct Answer ✔✔ ceilings lead to shortage
What should we the government do with competitive markets? - Correct Answer ✔✔
Leave them alone!
Diminishing marginal utility - Correct Answer ✔✔ all else equal, as consumption
increases, marginal utility derives from additional units decreases
Economic efficiency - Correct Answer ✔✔ All goods + factors of production in an
economy are allocated to their most valuable uses
Economic growth - Correct Answer ✔✔ an increase in quantity and quality of economic
goods and services that a society produces and consumes
The Circular Flow Diagram - Correct Answer ✔✔ a visual model of the economy that
shows how dollars flow through markets among households and firms
4 factors of production - Correct Answer ✔✔ 1) Land --> Rent
2) Labor --> Wages
3) Capital --> Interest
4) Entrepreneurship --> Profit
The public sector - Correct Answer ✔✔ the part of the economy ran by the government
Transfer payment - Correct Answer ✔✔ government payments to individuals and
households designed to meet a specific objective
Median voter model - Correct Answer ✔✔ proposition relating to ranked preference
voting put forward by Duncan Black
Producer surplus - Correct Answer ✔✔ the difference between how much a person
would be willing to accept for given quantity of a good versus how much they can
receive for selling that good at market price
A reduction in the unemployment rate can ... - Correct Answer ✔✔ cause the nation's
production possibilities curve to shift outwards
CARLISLE OLE MISS QUESTIONS &
ELABORATED COMPLETE
SOLUTIONS
How do you find market demand? - Correct Answer ✔✔ Vertically add every consumer's
demand curve. Add up MB (y-axis), of both people, this curve has the same quantity of
X as the first two lines/people.
Marginal Cost of an Optimal Quantity - Correct Answer ✔✔ Where MB=MC , or where 2
curves intersect each other. When this happens, resources have been allocated
efficiently.
How do you find social marginal cost? - Correct Answer ✔✔ SMC=(SMB) .... this is
found by adding y-axis people together and splitting in half the ending y value
(horizontal line). The intersection point between the line and the horizontal is the SMC.
Why might the government levy taxes? - Correct Answer ✔✔ Because there is an
indifference in the market demand relative to the market cost
Excise Tax - Correct Answer ✔✔ a tax on the production of a good
Consumer Surplus - Correct Answer ✔✔ The price people are willing to pay versus
what they actually paid
Taxing on certain products can lead to ... - Correct Answer ✔✔ Inefficiency
Governments may levy taxes based on ... - Correct Answer ✔✔ Demand & Supply
Taxes are raised when ... - Correct Answer ✔✔ the supply curve shifts left
Marginal cost slopes upward due to ... - Correct Answer ✔✔ diminishing returns
Price ceiling - Correct Answer ✔✔ Cap on a price the government sets so the price
cannot exceed equilibrium
Price floor - Correct Answer ✔✔ minimum price buyers are expected to pay for a good
, If gas prices were lowered, gas demanded would go up ... - Correct Answer ✔✔ at a low
price, you have lower supply, because producers don't want to produce as much of a
product (such as gas), meaning lowering prices actually hurts consumers
Farmer's don't want to produce corn @ $10 a unit, but they will at $30 a unit ... - Correct
Answer ✔✔ so the government will enlist a price floor of $30
Floor leads to surplus ... - Correct Answer ✔✔ ceilings lead to shortage
What should we the government do with competitive markets? - Correct Answer ✔✔
Leave them alone!
Diminishing marginal utility - Correct Answer ✔✔ all else equal, as consumption
increases, marginal utility derives from additional units decreases
Economic efficiency - Correct Answer ✔✔ All goods + factors of production in an
economy are allocated to their most valuable uses
Economic growth - Correct Answer ✔✔ an increase in quantity and quality of economic
goods and services that a society produces and consumes
The Circular Flow Diagram - Correct Answer ✔✔ a visual model of the economy that
shows how dollars flow through markets among households and firms
4 factors of production - Correct Answer ✔✔ 1) Land --> Rent
2) Labor --> Wages
3) Capital --> Interest
4) Entrepreneurship --> Profit
The public sector - Correct Answer ✔✔ the part of the economy ran by the government
Transfer payment - Correct Answer ✔✔ government payments to individuals and
households designed to meet a specific objective
Median voter model - Correct Answer ✔✔ proposition relating to ranked preference
voting put forward by Duncan Black
Producer surplus - Correct Answer ✔✔ the difference between how much a person
would be willing to accept for given quantity of a good versus how much they can
receive for selling that good at market price
A reduction in the unemployment rate can ... - Correct Answer ✔✔ cause the nation's
production possibilities curve to shift outwards
