final exam review

Question 1

what is microeconomics?

Answer 1

study of resource allocation of individuals, firms, and markets

Question 1

what is scarcity and trade-offs?

Answer 1

limited resources lead to opportunity costs and choices

Question 2

what is value?

Answer 2

value is subjective and based on individual preferences and trade-offs

Question 3

what are the two big questions?

Answer 3

1. what, how and for whom?
2. self-interest vs social interest

Question 4

what does what, how and for whom mean?

Answer 4

determines how resources are allocated

Question 5

what does self-interest vs social interest mean?

Answer 5

balancing personal and societal benefits

Question 6

what is a positive statement?

Answer 6

objective, fact based

Question 7

what is a normative statement?

Answer 7

subjective, opinion-based

Question 8

what is the production possibilities frontier (PPF)?

Answer 8

shows tradeoffs, opportunity costs and efficiency in production

Question 9

what is opportunity cost?

Answer 9

the next best alternative forgone

Question 10

what is marginal benefit?

Answer 10

the extra benefit to consumers from consuming one more unit of a good (the highest price a consumer would pay for an additional unit)

Question 11

what is marginal cost?

Answer 11

the cost of producing one more unit of a good (the change in total production costs from producing one additional unit)

Question 12

what is allocative efficiency?

Answer 12

achieved when MB = MC

Question 13

what is economic growth?

Answer 13

PPF shifts outward due to better tech/resources

Question 14

what is the impact of specialization and trade?

Answer 14

increases productivity via comparative advantage

Question 15

what is absolute advantage?

Answer 15

the ability to produce more/better goods/services than a competitor with the same/less resources

Question 16

what is comparative advantage?

Answer 16

the ability to produce goods and services at a lower opportunity cost than a competitor

Question 17

describe a demand curve?

Answer 17

downward sloping; as price rises, quantity demanded falls

Question 18

what causes movement along the demand curve?

Answer 18

price changes

Question 19

what causes a shift of the demand curve?

Answer 19

non-price factors like income or preferences

Question 20

describe a supply curve

Answer 20

upward sloping; as price rises, quantity supplied decreases

Question 21

what is market equilibrium?

Answer 21

where quantity demanded = quantity supplied

Question 22

what causes change in equilibrium?

Answer 22

shift of the supply or demand curve

Question 23

what is price elasticity of demand (PED)?

Answer 23

measures demand sensitivity to price changes

Question 24

how to calculate PED?

Answer 24

= % change in quantity demanded / % change in price

Question 25

what does it mean if demand is elastic?

Answer 25

price increase decreases revenue

Question 26

what does it mean if demand is inelastic?

Answer 26

price increase raises revenue

Question 27

what is cross elasticity?

Answer 27

measures demand responsiveness to price changes of another good

Question 28

what is income elasticity?

Answer 28

measures demand response to income changes

Question 29

what is elasticity of supply?

Answer 29

measures supply responsiveness to price changes

Question 30

what is consumer surplus?

Answer 30

demand exceeds supply

Question 31

what is producer surplus?

Answer 31

supply exceeds demand (market is saturated)

Question 32

what is deadweight loss?

Answer 32

loss in total surplus due to inefficiencies (eg. taxes)

Question 33

what is allocative efficiency?

Answer 33

maximized when total surplus is highest

Question 34

what is utilitarianism?

Answer 34

maximizes total happiness by ensuring the quality of life of the least fortunate in society

Question 35

what is fairness?

Answer 35

ensuring equal outcomes

Question 36

what is a price ceiling?

Answer 36

a maximum price set by the government (eg. rent control), that can lead to supply shortages

Question 37

what is a price floor?

Answer 37

a minimum price set by the government (minimum wage) can lead to supply surpluses

Question 38

what is the impact of taxes?

Answer 38

cause deadweight loss and raise government revenue

Question 39

what is a production quota?

Answer 39

limit on supply (eg. milk quota)

Question 40

how to calculate deadweight loss?

Answer 40

area between supply and demand curves representing lost welfare

Question 41

what is the impact of tariffs?

Answer 41

reduce trade, raise prices, and create inefficiencies

Question 42

what are the protectionism arguments FOR tariffs?

Answer 42

protects infant industries, national security and jobs

Question 43

what are the protectionism arguments AGAINST tariffs?

Answer 43

leads to inefficiency and higher prices

Question 44

what are fixed costs?

Answer 44

they don't change with output

Question 45

what are variable costs?

Answer 45

change with output

Question 46

describe a cost curve graph?

Answer 46

u-shaped; marginal cost intersects average total cost at its minimum

Question 47

what are perfect competition assumptions?

Answer 47

many firms, identical products, free entry and exit

Question 48

what is profit maximization?

Answer 48

occurs where price = marginal cost

Question 49

what is the shutdown rule?

Answer 49

operate if P > AVC, shut down if P < AVC

Question 50

what does perfect competition look like in the long run?

Answer 50

zero economic profit due to free market entry/exit

Question 51

what are barriers to entry?

Answer 51

prevent competition (eg. patents, high startup costs)

Question 52

monopoly vs perfect competition

Answer 52

monopolies result in higher prices, lower output and inefficiency