All of Micro Test

Question 1

What is the Law of Demand?

Answer 1

There is a negative relationship between the price of a good and the quantity demanded.

Question 2

What are the non-price determinants of demand?

Answer 2

Income, Tastes and Preferences, Future price expectations, Price of substitutes and compliments, and number of consumers.

Question 3

Normal vs. Inferior

Answer 3

A good where the demand increase with income level vs. a good where the demand decreases with income level

Question 4

Movement on vs. of the demand curve

Answer 4

When the price of a good changes vs. changes to non-price determinants

Question 5

What is the law of supply?

Answer 5

There is a positive relationship between quantity of good supplied and its price.

Question 6

How to calculate the market supply?

Answer 6

Add the supply of every producer in the market.

Question 7

What are the non-price determinants of supply?

Answer 7

1. Changes in costs of factors of production
2. Price of related goods
3. Indirect taxes and subsidies (+ tax = less supply [supply costs go up thus less supply availble])
4. Future Price Expectations (withhold supply)
5. Changes in Technology
6. Number of Firms

Question 8

What are the factors of production?

Answer 8

Land Labor Capital and Entrepreneurship

Question 9

Movements On and Of The Supply Curve

Answer 9

Changes in price = on, Changes in NPD of Supplies = of

Question 10

What is a shortage?

Answer 10

Excess Demand

Question 11

What is a surplus?

Answer 11

Excess Supply

Question 12

What is the equation for PED?

Answer 12

%∆Q/%∆P

Question 13

What are the ranges for PED

Answer 13

PED>1 (Price Elastic), 0<PED<1 (Price Inelastic),

Question 14

What are the determinants of PED?

Answer 14

1. Number of substitutes (More sub = more elastic)
2. Luxury (Elastic) vs. Necessity (Inelastic)
3. Length of Time (more time = more elastic)
4. Proportion of Income (Larger Income = more elastic)

Question 15

What is YED?

Answer 15

Change in demand based on change in income

Question 16

What is the equation for YED?

Answer 16

%∆Q/%∆Y

Question 17

What are income elastic vs. income inelastic goods?

Answer 17

Income elastic goods are luxuries, e.g cars. When the income goes up the demand goes up. Income inelastic goods are necessities such as food. When the income goes up the demand hardly changes.

Question 18

What is the value range for YED?

Answer 18

YED < 1 the good is a necessity (inelastic)
YED > 1 this is a luxury (elastic)

Question 19

What does a YED less than 0 indicate

Answer 19

Inferior Good

Question 20

What is the formula for PES?

Answer 20

%∆Q(s)/%∆P

Question 21

What is the range for PES?

Answer 21

PES < 1 = Inelastic
PES = 1 = unit elastic
PES > 1 = elastic

Question 22

What are the determinants of PES?

Answer 22

1. Time (more time to adjust resources, more elastic)
2. Mobility of Factors of Production (how fast a firm can change factors of production more speed is more elastic
3. Capacity [e.g off hours] (more unused capacity = more elastic)
4. Ability to store stock (more stock = more elastic)
5. Cost to produce more output (low cost = more elastic)

Question 23

Why might the government intervene in the market?

Answer 23

1. Earn Government Revenue
2. Support firms
3. Support low income households
4. Influence Level of Production
5. Influence the Level of consumption
6. Correct market failure
7. Promote Equity

Question 24

How does the government intervene in the market?

Answer 24

1. Price Ceilings and Floors
2. Indirect taxes and subsidies
3. Direct provision of services
4. Command and control: regulation and legislation

Question 25

What are Merit Goods?

Answer 25

Goods that are desirable to consume but are underproduced

Question 26

What are characteristics of Common Pool resources

Answer 26

Rivalrous but non-excludable.

Question 27

What is the marginal benefit?

Answer 27

The benefit of consuming one more unit of a good

Question 28

How does the government control externalities?

Answer 28

1. Indirect Taxes 2. Carbon Taxes 3. Legislation and regulation 4. Education (creating awareness) 5. Tradable permits 6. International agreements 7. Collective self-governance (group of ppl working) 8. Subsidies 9. Government Provision

Question 29

What are the characteristics of public goods?

Answer 29

1. Non-rivalrous, excludable 2. Free-rider problem (enjoy without paying)

Question 30

What is government intervention in response to public goods?

Answer 30

Direct provision: gov. directly controlling Contracting out to private sector: dumping work to a private company.

Question 31

What are limitations to government intervention to fix externalities

Answer 31

Cons 1. Its hard to measure externalities 2. may or may not be effective 3. consequences for stakeholders 4. sometimes hard to cooperate internationally Pros 1. importance international cooperation 2. Global nature of sustainability and environmental issues

Question 32

Draw a diagram that shows market equilibrium with the excess and surpluses. Then add the producer and community surpluses.

Answer 32

Draw

Question 33

Draw all forms of PED on the demand curve.

Answer 33

Draw

Question 34

Draw the Engel curve for a good showing inelastic, elastic and inferior goods.

Answer 34

Draw

Question 35

Draw an elastic and inelastic supply and demand

Answer 35

Draw

Question 36

Show the effects (before and after) of a price ceiling, price floor, indirect tax, and subsidy on a diagram

Answer 36

Draw

Question 37

Draw all the externality diagrams.

Answer 37

Trick: 1. Production externalities: supply splits into 2, Consumption Externalities: demand splits into 2 2. Negative = Qm > Qopt (too much of a bad thing) 2. Positive = Qm < Qopt (too little of a good thing) 3. Triangle that points to Qpot and is between the two curves is the WELFARE LOSS 4. MSC and MSB intersection is opt