Chapter 1

Question 1

What is a resource?

Answer 1

A stock or supply of money, materials, etc

Question 2

What is Market?

Answer 2

An area or arena in which commercial dealings are conducted.

Question 3

What is a Good?

Answer 3

A material (physical) that satisfies human wants and provides utility

Question 4

What is a Service?

Answer 4

A non-physical entity that satisfies human wants and provides utility.

Question 5

Define Microeconomics.

Answer 5

Economic behaviour analysis of INDIVIDUAL units in a free market economy

Question 6

What does microeconomics deal with? (4)

Answer 6

(of a single company) Supply and demand of goods and services. Price and production costs of goods and services. The objectives and competitiveness of business firms. Theory of production.

Question 7

What are the objectives of a business form? (3)

Answer 7

Profit Growth Survival

Question 8

Define macroeconomics.

Answer 8

Analysis of aggregate behaviour at national and international levels.

Question 9

What does macroeconomics deal with? (1, but 4 if you must..)

Answer 9

(Anything that affects all the companies) Growth of consumption and income. Trends in prices, wages, and investment. Government policies and incentives. Interactions between businesses, government and society, in between business sectors

Question 10

Define Financing. What does it deal with? (4)

Answer 10

The study of how businesses raise and spend capital. Sources of funds, how much they cost in interest. Markets that trade capital. Dividend policies Capital budgeting.

Question 11

What is the Profit equation?

Answer 11

Benefits - Costs

Question 12

Economic Analysis (2)

Answer 12

Assessments of costs and benefits. Evaluation of investment criteria.

Question 13

Financial Analysis (2)

Answer 13

Choosing your source of capital. Capital budgeting.

Question 14

Intangibles

Answer 14

Other factors that can affect the project. (i.e. public opinion, changing govt policy, disasters, etc) *non-quantifiable

Question 15

Supply Curve

Answer 15

How many units a producer will attempt to sell given a price.

Question 16

Demand Curve

Answer 16

How many units a consumer will attempt to buy given a price.

Question 17

Substitute (in the context of supply/demand)

Answer 17

e.g. coke and pepsi, or margarine and butter Increase of the price of one increases demand of the other.

Question 18

Complements (in the context of supply/demand)

Answer 18

e.g. hot dogs and hot dog buns Increase of the price of one decreases the demand of the other

Question 19

Equilibrium price (or market clearing price)

Answer 19

Price where supply = demand

Question 20

Free (in context of supply/demand)

Answer 20

No price controls, production quotas, or rationing.

Question 21

Competitive (in context of supply/demand)

Answer 21

The actions of individual consumers and suppliers does not affect the market.

Question 22

Market mechanism.

Answer 22

Tendency in a free market for the price to settle on equilibrium.

Question 23

Surplus

Answer 23

When there’s more supply than demand.

Question 24

Shortage

Answer 24

When there’s more demand than supply.

Question 25

Elasticity

Answer 25

How much one variable changes when the other changes.

Question 26

Equation for price elasticity of supply, and elasticity of demand?

Answer 26

(dQ/dP) / (Q/P) Same for demand, except it's negative.

Question 27

For what values is demand elastic? Inelastic? Unitary elastic?

Answer 27

Elastic for E \>1 Inelastic for E \<1 Unitary for E=1

Question 28

TCE? Equation?

Answer 28

Total Consumer Expenditure. TCE = P\*Q

Question 29

Consumer Surplus

Answer 29

Amount saved by all those consumers who would still buy the product at a price higher than at market.

Question 30

Production Function

Answer 30

A function which represents the maximum possible output obtainable from a given set of inputs. Q=f(S) Quantity manufactured as a function of several possible supplies.

Question 31

AP Equation/Explanation?

Answer 31

Average Product. AP = Q/S Output per input.

Question 32

MP Equation/Explanation?

Answer 32

Marginal Product. MP = dQ/dS Derivative of production function.

Question 33

IP Equation/Explanation?

Answer 33

Incremental Product Seems to be (Qf-Qi)/(Sf-Si)

Question 34

What is the Law of Diminishing Marginal Returns?

Answer 34

As you increase an input more and more, the benefit in output becomes less and less. (Too many cooks crowd the kitchen!)

Question 35

Production Cost Function?

Answer 35

f(C) that represents the total cost associated with production. Involves fixed and variable costs, like always.

Question 36

AC Equation/Explanation?

Answer 36

Average Cost TC/R Cost per input. (Same as Avg Product)

Question 37

MC Equation/Explanation?

Answer 37

Marginal Cost dTC/dR Derivative of Cost function (Same as Marginal Product)