Exam 2.1

Question 1

Exam2R

the percentage change in quantity demanded divided by the percentage change in price Ed= %change in Q demanded/ %change in P

Answer 1

Price elasticity of Demand

Question 2

Exam2R

the percentage change in quantity supplied divided by the percentage change in price Es= %change in Q supplied/ %change in P

Answer 2

Price elasticity of Supply

Question 3

Exam2R

quantity responds more to price changes

Answer 3

As elasticity increases, ___

Question 4

Exam2R

the percentage change in quantity is greater than the percentage change in price E > 1

Answer 4

elastic

Question 5

Exam2R

the percentage change in quantity is less than the percentage change in price E -suppliers have an incentive to restrict supply when demand is inelastic because, by doing so, they will increase their revenue

Answer 5

inelastic

Question 6

Exam2R

quantity does not respond at all to changes in price E = 0

Answer 6

perfectly inelastic

Question 7

Exam2R

reflecting the fact that quantity responds enormously to changes in price E = infinity

Answer 7

perfectly elastic

Question 8

Exam2R

inelastic a. P increases, Q decreases (Q falls only a little) = TR increases b. P decreases, Q increases (Q increases only a little) = TR decreases

Answer 8

If Ed

Question 9

Exam2R

elastic a. P increases, Q decreases (Q has a large decline) = TR decreases b. P decreases, Q increases (Q has a large increase) = TR increases

Answer 9

If Ed > 1

Question 10

Exam2R

% change in P increases, % change in Q decreases TR stays the same

Answer 10

If Ed = 1

Question 11

Exam2R

1. the time period being considered 2. the degree to which a good is a luxury 3. the market definition 4. the importance of the good in one’s budget

Answer 11

The number of substitutes a good has is affected by several factors (4)

Question 12

Exam2R

is the practice of charging a different price for the same good or service

Answer 12

price discrimination

Question 13

Exam2R

goods whose consumption increases with an increase in income

Answer 13

normal goods

Question 14

Exam2R

goods that have an income elasticity greater than 1

Answer 14

luxuries

Question 15

Exam2R

good that has an income elasticity between 0-1

Answer 15

necessity

Question 16

Exam2R

goods whose consumption decreases when income increases

Answer 16

inferior goods

Question 17

Exam2R

goods that can be used in place of another one

Answer 17

substitutes

Question 18

Exam2R

goods that are used in conjunction with other goods (the cross-price elasticity of compliments is negative)

Answer 18

complement

Question 19

Exam2R

the value the consumer gets from buying a product less its price

Answer 19

consumer surplus

Question 20

Exam2R

the price the producer sells a product for less the cost of producing it

Answer 20

producer surplus

Question 21

Exam2R

the loss of consumer and producer surplus from a tax

Answer 21

deadweight loss

Question 22

Exam2R

a geometric representation of the welfare cost in terms of misallocated resources caused by a deviation from a supply/demand equilibrium

Answer 22

welfare loose triangle

Question 23

Exam2R

tax levied on a specific good

Answer 23

excise tax

Question 24

Exam2R

-the more inelastic one’s relative supply and demand, the larger the burden of the tax one will bear. -if demand is more inelastic than supply, consumers will pay a higher % of the tax -if supply is more inelastic than demand, suppliers will pay a higher % of the tax

Answer 24

General rule for the burden of tax

Question 25

# Exam2R a government-set price below the market equilibrium price

Answer 25

price ceiling

Question 26

# Exam2R government-set prices above the equilibrium price

Answer 26

price floors

Question 27

# Exam2R activities designed to transfer surplus from one group to another

Answer 27

rent-seeking activities

Question 28

# Exam2R economists who integrate an economic analysis of politics with their analysis of the economy

Answer 28

public choice economists

Question 29

# Exam2R the difference between the value of exports and the value of imports is zero

Answer 29

balance of trade

Question 30

# Exam2R comparative advantages that are based on factors that are relatively unchangeable

Answer 30

inherent comparative advantage

Question 31

# Exam2R comparative advantages based on factors that can change relatively easily

Answer 31

transferable comparative advantages

Question 32

# Exam2R imports \> exports

Answer 32

trade deficit

Question 33

# Exam2R exports \> imports

Answer 33

trade surpluses

Question 34

# Exam2R the rate at which one country's currency can be traded for another country's currency

Answer 34

exchange rates

Question 35

# Exam2R a tax that governments place on internationally traded goods

Answer 35

tariff (custom duties)

Question 36

# Exam2R a regular international conference to reduce trade barriers

Answer 36

general agreement on tariffs and trade

Question 37

# Exam2R an organization whose functions are generally the same as GATTs were - to promote free and fair trade among countries

Answer 37

world trade organization

Question 38

# Exam2R quantity limit placed on imports

Answer 38

quota

Question 39

# Exam2R total restrictions on the import or export of a good

Answer 39

embargo

Question 40

# Exam2R government imposed procedural rules that limit imports

Answer 40

regulatory trade restrictions

Question 41

# Exam2R programs designed to compensate losers for reductions in trade restrictions

Answer 41

trade adjustment assistance programs

Question 42

# Exam2R demanding a larger share of the gains from trade than you can reasonably expect

Answer 42

strategic bargaining

Question 43

# Exam2R threatening implement tariffs to bring about a reduction in tariffs or some other concession from the other country

Answer 43

strategic trade policies

Question 44

# Exam2R the situation in which costs per unit of output fall as output increases

Answer 44

economies of scale

Question 45

# Exam2R 1. unequal internal distribution of the gains of trade 2. haggling by companies over gains of trade 3. haggling by countries over restrictions 4. specialized production (economies of scale) 5. macroeconomics aspects of trade 6. national security 7. international politics 8. increased revenue brought in by tarriffs

Answer 45

reasons for restricting trade

Question 46

# Exam2R 1. free trade increases output 2. international trade provides competition for domestic companies 3. restrictions based on national security are often abused or evaded 4. trade restrictions are addictive

Answer 46

opposing reasons for restricting trade

Question 47

# Exam2R groups of countries that have reduced or eliminated trade barriers among themselves

Answer 47

free trade associations

Question 48

# Exam2R country that will be charged as low a tariff on its exports as any other country

Answer 48

most-favored nation

Question 49

# Exam2R the pleasure or satisfaction people get from doing or conmsuming something

Answer 49

utility

Question 50

# Exam2R total satisfaction one gets from consuming a product

Answer 50

total utility

Question 51

# Exam2R the satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point

Answer 51

marginal utility

Question 52

# Exam2R as you consume more of a good, after some point, the marginal utility received from each additional unit of a good decreases with each additional unit consumed, other things equal

Answer 52

principle of diminishing marginal utility

Question 53

# Exam2R spend your money on those goods that give you the most marginal utility

Answer 53

principle of rational choice

Question 54

# Exam2R when the ratios of the marginal utility to price of the two goods are equal

Answer 54

utility-maximizing rule

Question 55

# Exam2R the reduction in quantity demanded because we're poorer

Answer 55

income effect

Question 56

# Exam2R the reduction in quantity demanded because relative price has risen

Answer 56

substitution effect

Question 57

# Exam2R transformation of factors into goods and services

Answer 57

production

Question 58

# Exam2R firm

Answer 58

economic institution that transforms factors of production into goods and services

Question 59

# Exam2R total revenue - total cost

Answer 59

profit

Question 60

# Exam2R explicit + implicit costs

Answer 60

total costs

Question 61

# Exam2R the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm

Answer 61

total revenue

Question 62

# Exam2R a firm chooses among all possible production techniques (all inputs are variable)

Answer 62

long-run decision

Question 63

# Exam2R firm is constrained in regard to what production decisions it can make (some inputs are fixed)

Answer 63

short-run decision

Question 64

# Exam2R additional output that will be forthcoming from an additional worker

Answer 64

marginal product

Question 65

# Exam2R the relationship between the inputs and outputs

Answer 65

production function

Question 66

# Exam2R as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall

Answer 66

law of diminishing marginal productivity

Question 67

# Exam2R costs that are spent and cannot be changed in the period of time under consideration

Answer 67

fixed costs

Question 68

# Exam2R costs that change as output changes

Answer 68

variable costs

Question 69

# Exam2R TC = FC + VC

Answer 69

total cost

Question 70

# Exam2R the increase or decrease in total costs from increasing or decreasing the level of output by one unit

Answer 70

marginal costs

Question 71

# Exam2R as few inputs as possible are used to produce a given output

Answer 71

technical efficiency

Question 72

# Exam2R the method that produces a given level of output at the lowest possible cost

Answer 72

economically efficient

Question 73

# Exam2R when long-run average total costs decrease as output increases

Answer 73

economies of scale

Question 74

# Exam2R the cost of an individual input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use

Answer 74

indivisible setup cost

Question 75

# Exam2R the amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably

Answer 75

minimum efficient level of production

Question 76

# Exam2R the costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do

Answer 76

monitoring costs

Question 77

# Exam2R where long-run average costs do not change with an increase in output

Answer 77

constant returns to scale

Question 78

# Exam2R when the costs of producing products are interdependent so that it's less costly for a firm to produce one good when it's already producing another

Answer 78

economies of scope