ECON 110 REVIEW TIPS ANSWERS AND QUESTIONS
SET A+
✔✔What causes long term sustained inflation? - ✔✔increase in money supply
✔✔What is the effect of aggregate demand shocks in an environment of sustained
inflation? - ✔✔...
✔✔What are the pratical problems fo counter cyclical policy? - ✔✔...
✔✔When will counter cyclical policies make things worse, rather than better? - ✔✔when
they are implemented late in the cycle
✔✔What is the government deficit? What causes it? What are alternative policies? -
✔✔A status of financial health in which expenditures exceed revenue.
✔✔What are the possible effects of countercyclical policies on economic growth? -
✔✔...
✔✔Opportunity Cost - ✔✔the value to you of the best foregone alternative.
✔✔Marginal Benefit - ✔✔The additional benefit to a consumer from consuming one
more unit of a good or service.
✔✔Marginal Cost - ✔✔Extra cost of producing one additional unit of production.
✔✔If demand is elastic: - ✔✔An increase in price will cause consumers to substitute
and will lower total expenditure for that firm
✔✔If demand is inelastic: - ✔✔An increase in price will increase total expenditures
because there are not very many substitutes
, ✔✔what is the role of profits? - ✔✔Provide incentives to move or reallocate resources
for more valuable users
✔✔What does efficiency means? - ✔✔Commodities are allocated to the highest valued
users and resources are used in the most productive ways (MWTP=MC)
✔✔How does a competitive market work? - ✔✔By allocating goods and services to the
highest-valued users and it allocates resources to their most productive use
✔✔What happens in a domestic market when there is international trade? - ✔✔Nations
specialize according to their comparative advantage. They are able to consume beyond
their PPF.
✔✔Imports: - ✔✔When commodities outside the domestic market are lower priced than
their domestic competitors
✔✔Exports: - ✔✔When commodities outside the domestic market are higher priced
than their domestic competitors
✔✔Deprecation - ✔✔A fall in the value of the dollar compared to another currency
✔✔Appreciation - ✔✔A rise in the value of the dollar compared to another currency
✔✔Trade surplus - ✔✔When a country exports more than they import
✔✔Trade deficit - ✔✔When a country imports more than they export
✔✔Price Ceiling - ✔✔Price is set below market price and firms are forbidden by law to
sell product at a price higher than the set price. This results in a shortage.
✔✔Price Floors - ✔✔Price is set above market price and firms are forbidden by law to
sell product at a price lower than the set price. this results in a surplus.
✔✔Solutions to the rationing problem - ✔✔1). first come, first serve
2). lottery
3). Coupon
4). Bureaucratic process
5). historical use
✔✔Solutions to the disposal problem - ✔✔10. Allow surplus to be wasted
2). Government purchases the surplus, but cant re-sell it
3). Government purchases all of the surplus and then resells it at a certain price
4). Limit Production
SET A+
✔✔What causes long term sustained inflation? - ✔✔increase in money supply
✔✔What is the effect of aggregate demand shocks in an environment of sustained
inflation? - ✔✔...
✔✔What are the pratical problems fo counter cyclical policy? - ✔✔...
✔✔When will counter cyclical policies make things worse, rather than better? - ✔✔when
they are implemented late in the cycle
✔✔What is the government deficit? What causes it? What are alternative policies? -
✔✔A status of financial health in which expenditures exceed revenue.
✔✔What are the possible effects of countercyclical policies on economic growth? -
✔✔...
✔✔Opportunity Cost - ✔✔the value to you of the best foregone alternative.
✔✔Marginal Benefit - ✔✔The additional benefit to a consumer from consuming one
more unit of a good or service.
✔✔Marginal Cost - ✔✔Extra cost of producing one additional unit of production.
✔✔If demand is elastic: - ✔✔An increase in price will cause consumers to substitute
and will lower total expenditure for that firm
✔✔If demand is inelastic: - ✔✔An increase in price will increase total expenditures
because there are not very many substitutes
, ✔✔what is the role of profits? - ✔✔Provide incentives to move or reallocate resources
for more valuable users
✔✔What does efficiency means? - ✔✔Commodities are allocated to the highest valued
users and resources are used in the most productive ways (MWTP=MC)
✔✔How does a competitive market work? - ✔✔By allocating goods and services to the
highest-valued users and it allocates resources to their most productive use
✔✔What happens in a domestic market when there is international trade? - ✔✔Nations
specialize according to their comparative advantage. They are able to consume beyond
their PPF.
✔✔Imports: - ✔✔When commodities outside the domestic market are lower priced than
their domestic competitors
✔✔Exports: - ✔✔When commodities outside the domestic market are higher priced
than their domestic competitors
✔✔Deprecation - ✔✔A fall in the value of the dollar compared to another currency
✔✔Appreciation - ✔✔A rise in the value of the dollar compared to another currency
✔✔Trade surplus - ✔✔When a country exports more than they import
✔✔Trade deficit - ✔✔When a country imports more than they export
✔✔Price Ceiling - ✔✔Price is set below market price and firms are forbidden by law to
sell product at a price higher than the set price. This results in a shortage.
✔✔Price Floors - ✔✔Price is set above market price and firms are forbidden by law to
sell product at a price lower than the set price. this results in a surplus.
✔✔Solutions to the rationing problem - ✔✔1). first come, first serve
2). lottery
3). Coupon
4). Bureaucratic process
5). historical use
✔✔Solutions to the disposal problem - ✔✔10. Allow surplus to be wasted
2). Government purchases the surplus, but cant re-sell it
3). Government purchases all of the surplus and then resells it at a certain price
4). Limit Production
