Econ midterm 1

Question 1

econ is the study of

Answer 1

scarcity

Question 2

opportunity cost

Answer 2

cost of what we give up to take an action

Question 3

societal interest

Answer 3

what is most “valuable” to society

Question 4

marginal cost

Answer 4

cost of an additional action

Question 5

marginal benefit

Answer 5

benefit of an additional action

Question 6

good models should be:

Answer 6

Tractable- simple enough to understand
Predictive- tells something important

Question 7

assumptions for the sake of tractability

Answer 7

all other things are equal
we change only one variable

Question 8

types of macroeconomics

Answer 8

monetary
finance
Growth and development

Question 9

what does the PPC assume

Answer 9

we fully use our resources

Question 10

what is the relationship between two different input on the PPC

Answer 10

the more different they are the more the PPC bows out

Question 11

Trade model assumptions

Answer 11

same level of resources
technology differs
constant opportunity cost (straight line PPC)

Question 12

Absolute advantage

Answer 12

making more from the same level of inputs

Question 13

comparative advantage

Answer 13

ability to make a good for a lower opportunity cost

Question 14

specialization

Answer 14

when countries only produce 1 good based on their comparative advantage

Question 15

pareto improving outcomes

Answer 15

when at least is better off without making anyone worse off

Question 16

PPC assumptions for growth

Answer 16

resources are fixed
technology is fixed

Question 17

what does it mean when comparative advantage is over 1

Answer 17

large amount and comparative advantage

Question 18

does price change demand

Answer 18

NO! changes quantity demanded

Question 19

shifts for demand

Answer 19

taste or preference
income
population
price of related goods
expectations of future prices

Question 20

what happens to normal goods when income increases

Answer 20

demand increases and vice versa

Question 21

what happens when to inferior good when income increases

Answer 21

demand decreases and vice versa

Question 22

What happens to good B when good A increases in price when they are substitutes

Answer 22

demand increases and vice versa

Question 23

What happens to good B when good A increases in price when they are compliments

Answer 23

demand decreases and vice versa

Question 24

equilibrium

Answer 24

where where demand and supply intersect

Question 25

slope of demand

Answer 25

down

Question 26

slope of supply

Answer 26

up

Question 27

shortage

Answer 27

quantity demanded is greater than supply

Question 28

surplus

Answer 28

quantity supplied is greater than demanded

Question 29

deadweight losses

Answer 29

benefit no one surplus and shortage

Question 30

what does market clearing help with

Answer 30

avoiding deadweight losses

Question 31

elasticity

Answer 31

how much quantity demanded changes when price changes

Question 32

a lot of substitutes means the good is

Answer 32

more elastic

Question 33

determinants of elasticity

Answer 33

availability of close substitutes more substitutes=more elastic necessities vs luxuries necessities are less elastic

Question 34

as more time passes what happens to elasticity

Answer 34

increases because you have more time to find substitutes

Question 35

if a good takes up smaller percentage of your income it is

Answer 35

more elastic

Question 36

perfectly elastic

Answer 36

horizontal line gas at two gas stations

Question 37

perfectly inelastic

Answer 37

vertical line once you cant afford a good demand goes to 0

Question 38

percent change

Answer 38

(new value-old value)/old value

Question 39

how to calculate elasticity with percent change

Answer 39

percent change in quantity/percent change in price

Question 40

midpoint formula

Answer 40

(Q2-Q1/average)/(P2-P1/average)

Question 41

if percent change in quantity is greater than that of price then

Answer 41

it is elastic relatively reactive

Question 42

if percent change in quantity is less than that of price then

Answer 42

it is inelastic relatively non reactive

Question 43

if percent change in quantity is equal to that of price then

Answer 43

it is unitary proportionately reactive

Question 44

income elasticity of demand

Answer 44

percent change in quantity demanded/percent change in income no absolute value, sign matters

Question 45

if income elasticity of demand is positive then

Answer 45

it is a normal good and 0-1 is inelastic and 1+ is elastic

Question 46

if income elasticity for demand in negative then

Answer 46

it is an inferior good

Question 47

cross-price elasticity

Answer 47

percent change in Q demanded of good A/percent change in price of good b sign matters positive=substitutes negative=compliments

Question 48

rule of 70

Answer 48

70/percent growth per year = how long it will take an investment to double

Question 49

compound growth formula

Answer 49

start value(1+rate)^time=end value

Question 50

normative

Answer 50

should

Question 51

positive statement

Answer 51

facts