exam II

Question 1

define the paradox of value

Answer 1

questions what is most valuable to an individual

Question 2

the paradox of value is _________ __________

Answer 2

context-dependent

Question 3

give an example of paradox value

Answer 3

diamonds vs water

Question 4

define exchange value

Answer 4

one good will be more valuable money-wise (ie :diamond)

Question 5

define use value

Answer 5

one good will be more valuable use-wise (ie: water)

Question 6

define utility

Answer 6

reconciles the exchange and use value differences
how well something satisfies a person’s wants and needs

Question 7

utility is ___________ and _________-__________

Answer 7

subjective; context-dependent

Question 8

how is utility measured

Answer 8

willingness to pay

Question 9

define willingness to pay

Answer 9

determined by the marginal utility; not by any inheritance property of the good and not by the amount of labor needed to produce a good

Question 10

define marginal utility and give an example

Answer 10

value resulting from 1 additional unit
ex: if stranded in a desert, one gains more happiness from water than diamonds

Question 11

define the law of diminishing marginal utility

Answer 11

each additional quantity of consumption provides less utility than before
eventually one good will outweigh another

Question 12

if utility is best measured by _________ __ ___, and each addition unit provides _____ utility than the unit before, then there should be a ________ relationship between price and quantity demand

Answer 12

willingness to pay; less; negative

Question 13

define the law of demand

Answer 13

there is a negative relationship between price and quantity

Question 14

what are the three reasons a curve slopes downwards

Answer 14

1. diminishing utility of consumption
2. income effects
3. substitution effect

Question 15

an increase in price leads to what?

Answer 15

a reduction in the quantity demand

Question 16

define quantity demand

Answer 16

the exact quantity demanded at a specific price

Question 17

Q(P)=

Answer 17

a-b(P)

Question 18

a decrease in price does not lead to…

Answer 18

a higher demand

Question 19

define demand

Answer 19

the function of price and quality

Question 20

what does a change in price cause

Answer 20

a movement along the demand curve

Question 21

what does a change in demand cause

Answer 21

a shift in the demand curve

Question 22

what five things determine demand? describe them

Answer 22

1. taste and preferences
   as something becomes more popular, demand increases
2. population of potential buyers
   as groups/ages/etc move/change, demand changes
3. income
   normal- demand is positively related to income
   inferior- demand is negatively related to income
4. price of complements/substitutions
5. expectations
   increase/decrease in an exception of future prices lead to an increase/decrease in demand today

Question 23

define complements

Answer 23

price of y negatively relates to demand of x

Question 24

define substitute

Answer 24

price of y is positively correlated to demand of x

Question 25

define elasticity

Answer 25

degree to which a change in price will affect the change in quantity

Question 26

what does elasticity represent

Answer 26

how much something will change

Question 27

what is elasticity effected by

Answer 27

by the strength of preference and availability of substitutes

Question 28

suppliers of inelastic products have _____ leverage than consumers

Answer 28

more

Question 29

suppliers of elastic products have ____ leverage than consumers

Answer 29

less

Question 30

define consumer surplus

Answer 30

the sum of the differences between a consumer's maximum willingness to pay the market price a way of measuring consumer welfare

Question 31

define supply

Answer 31

reflects the minimum amount that owners are willing to be compensated for different qualities of a good

Question 32

define the law of supply

Answer 32

there is a positive relationship between price and quantity supply

Question 33

what is the supply curve

Answer 33

profits incentivize forms to produce more upward slope

Question 34

what are the four determinants of supply?

Answer 34

1. cost of inputs 2. productivity 3. number of producers 4. expectations

Question 35

define producer surplus

Answer 35

sum of the difference between a producers minimum willingness to pay the the market price

Question 36

where is the producer surplus found

Answer 36

between the supply curve and market price

Question 37

define mondels in economics

Answer 37

the most basic and powerful model is supply and demand

Question 38

define model

Answer 38

a representation used to understand the way in which a particular system works

Question 39

define ceterius paribus

Answer 39

the assumption that all else is equal/constant

Question 40

comparisons are in ___________ equilibrium

Answer 40

partial

Question 41

define equilibrium

Answer 41

simultaneous interaction of supply and demand determine price for a good or service

Question 42

what is the equilibrium key

Answer 42

buyers compete with buyers, and sellers compete with sellers

Question 43

define price theory

Answer 43

as price changes so does demand

Question 44

what purposes do higher prices serve

Answer 44

consumers will conserve their (usage of a) good incentivizes suppliers to bring more to market

Question 45

what purposes do lower prices serve

Answer 45

sends a strong signal that a product is not wanted frees up scared resources for other goods

Question 46

as demand increases, supply ________ and price __________

Answer 46

decreases; increases

Question 47

as demand goes up, price _________ and quantity ___________

Answer 47

increases, increases

Question 48

as demand decreases, price _________ and quantity __________

Answer 48

decreases, decreases

Question 49

as supply goes up, price __________ and quantity ___________

Answer 49

decreases; increases

Question 50

as supply goes down, price ________ and quantity __________

Answer 50

increases; decreases

Question 51

as demand and supply go up, what happens to price and quantity

Answer 51

unknown price; increased quantity

Question 52

as demand increases and supply decreases, what happens to price and quantity

Answer 52

price goes up, unknown quantity

Question 53

as demand goes down and supply goes up, what happens to price and quantity

Answer 53

price goes down, unknown quantity

Question 54

as demand and supply go down, what happens to price and quantity

Answer 54

unknown price; quantity decreases

Question 55

how are principles of economics created

Answer 55

by spontaneous collaboration of people

Question 56

no centralized commission is needed to:

Answer 56

figure out how to adjust a products price decide which supermarkets in which cities will get how many products to sell which company would be best to process the remaining supply which consumers will ultimately be allowed to consume it

Question 57

define free market

Answer 57

economic system in which prices are determined by unrestricted competition between individuals and firms

Question 58

what causes unequilibrium

Answer 58

minimum wage price gouging laws rent control zoning

Question 59

define price control

Answer 59

arise from governmental intervention regarding the legality of certain activities

Question 60

define price floor

Answer 60

legal minimum set on prices for a particular good or service, such as minimum wage

Question 61

define price ceiling

Answer 61

legal maximum set on prices for a particular good or service, such as rent

Question 62

define direct cost

Answer 62

associated with price controls about shortages and products

Question 63

define indirect cost

Answer 63

associated with product quality, wait time, and substitution

Question 64

define dead weight loss

Answer 64

binding price controls lead to fewer goods being sold in a market

Question 65

what creates DWL

Answer 65

a reduction in number of mutually beneficial exchanges

Question 66

price ceilings ________ amount of supplies

Answer 66

decrease

Question 67

what are the four indirect effects of price control

Answer 67

1. long-run supply/demand adjust 2. enforcement cost increases 3. quality declines 4. black markets develop

Question 68

describe the long-run supply/demand adjust

Answer 68

it is a price floor, but if it is above equilibrium quantity is a surplus.

Question 69

describe enforcement cost increase

Answer 69

a small misdemeanor can cost millions of dollars, if not lives. must be enforced by laws or people

Question 70

describe quality declines

Answer 70

a price ceiling that is higher than the equilibrium supply decreases

Question 71

describe black markets

Answer 71

price controls replace lawful, competitive and mutually beneficial exchange with black markets endanger both consumers and producers

Question 72

define taxes

Answer 72

a wedge between price consumers pay and the price suppliers receive

Question 73

what are taxes commonly represented by?

Answer 73

a decrease in supply or demand

Question 74

what is the goal of taxes

Answer 74

studying tradeoff associated with different goods to minimize market distortion

Question 75

what do taxes attempt to limit?

Answer 75

DWL

Question 76

what is Pb

Answer 76

price paid by buyer

Question 77

what is Ps

Answer 77

price received by seller

Question 78

what does taxing in an elastic supply or demand generate?

Answer 78

the least revenue with creating the most DWL

Question 79

what does taxing imply

Answer 79

goods with few substitutes should be more heavily taxed

Question 80

what type of tradeoff is taxes

Answer 80

efficiency vs. equity

Question 81

define tax incident

Answer 81

a degree to which individuals are burdened by the tax

Question 82

as elasticity increases, tax burdens ____________

Answer 82

decrease

Question 83

as inelasticity increases, tax burdens ___________

Answer 83

increase

Question 84

what happens to tax cuts if elasticity is greater than demand

Answer 84

tax cuts will disproportionately help consumers