Econ 1014H Mizzou Questions and Answers Updated.

inferior good - Answer a good that consumers demand less of when their incomes increase normal good - Answer a good that consumers demand more of when their incomes increase necessary good - Answer demand for a good goes up by a lesser proportion than income luxury good - Answer good for which demand increases faster than income when income rises Law of Supply - Answer the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises Law of Demand - Answer consumers buy more of a good when its price decreases and less when its price increases price elasticity of demand - Answer a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price price elasticity of supply - Answer the percentage change in quantity supplied divided by the percentage change in price Elasticity - Answer a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants What is a good theory? - Answer explicit, simple, general, logically consistent, and unrealistic Basic Assumptions in the theory of competitive markets - Answer Scarcity, Rational self-interest, well-established property and contract rights, diminishing marginal utility, many buyers and sellers, and constant returns to scale two different sources of gains from trade - Answer specializing in the good in which they have comparative advantage and trading for a good in which they do not have comparative advantage