Principles Of Economics

Question 1

Endogenous variables

Answer 1

Explained in the model

Question 2

Exogenous variables

Answer 2

Logically given, are not in the model

Question 3

Positive question

Answer 3

How are things?

Question 4

Normative question

Answer 4

How things should be?

Question 5

Opportunity cost

Answer 5

Cost of the upcoming best alternative

Question 6

Comparative statics

Answer 6

How will change of some exogenous variable affect the model?

Question 7

Marginal analysis

Answer 7

How will a marginal change of some variable affect the cost?

Question 8

Ommited variables bias

Answer 8

One should not consider a correlation to be a causality when not taking into account all relevant variables

Question 9

Reverse concellity bias

Answer 9

When not clear, one can’t be sure about the direction of the causality (it can be the other way)

Question 10

Demand curve

Answer 10

Represents the relation between demand and price

Question 11

Normal good

Answer 11

Product, which demand grows with the income of the buyer (e.g. chocolate:-)

Question 12

Inferior good

Answer 12

Product, which demand falls with the income of the buyer (e.g. public transport)

Question 13

Complements

Answer 13

Products, which demands move the same way; one depends on another

Question 14

Accounting costs

Answer 14

The money needed to run the business

Question 15

Opportunity costs

Answer 15

What’s the best alternative use of resources

Question 16

Causality

Answer 16

Influence of one event/process/state/object is responsible for an ocurrence of another one

Question 17

Casual effects

Answer 17

Change of an exogenous variable affects only one endogenous variable (and the other ones remain as before)

Question 18

Correlation

Answer 18

Relationship between variables (doesn’t mean causality)

Question 19

Equation

How can the buyer spend his money?

Answer 19

m = v_q + P × q

Question 20

Excess supply

Answer 20

When the price is higher than WTP

Question 21

Excess demand

Answer 21

When the demand is higher than the WTA

Question 22

Surge pricing

Answer 22

Flexible adjusting of the price accordingly to the demand

Question 23

Individual customer surplus

Answer 23

The difference between willing-to-pay and the amount the customer actually pays for the good

Question 24

Individual producer surplus

Answer 24

The difference between willing-to-accept and the amount the supplier actually receives for the good

Question 25

Price Ceiling

Answer 25

Highest possible price that can be paid for a good

Question 26

Gains from trade

Answer 26

Difference between the WTP and WTA for each Q_i

Question 27

Marginal damage

Answer 27

Additional cost which is not included in the price of the good

Question 28

Excess burden

Answer 28

Trades that will be normally traded but are not because of a tax

Question 29

Price discrimination

Answer 29

Charging a different price to different customers

Question 30

Non credible threat

Answer 30

A decision that the next player is threatening with, and which will be bad for the first to decide, but will be at the same time bad for the one threatening as well so he won’t really choose it → it can be ignored

Question 31

Entry deterrence

Answer 31

Discouraging potential competitors from entering a market

Question 32

Unravelling market

Answer 32

WTP is low → the offered quality gets lower → WTP gets lower → the offered quality gets lower → …

Question 33

Annuity

Answer 33

“prepaid” insurance product