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Econ 302 - Microeconomic Theory > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

Positive Analysis

A

Statements about how the world is

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2
Q

Normative Analysis

A

A value judgement that is subjective, how the world should be

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3
Q

Regression Analysis

A

method of using data to determine the effect of one or more variables on another

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4
Q

Choke Price

A

The price at which quantity demanded is equal to zero. The constant in an inverse linear demand curve

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5
Q

Reservation Price

A

The highest price a person is willing to pay and still purchase the good.

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6
Q

Ceteris Paribus: What are 5 conditions that will shift Demand?

A

1) Consumer’s Income,
2) Price of related goods,
3) tastes/quality,
4) consumer expectations,
5) number of buyers

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7
Q

Ceteris Paribus: What are 4 conditions that will shift Supply?

A

1) Input prices
2) Production technology
3) Producer expectations
4) Number of sellers

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8
Q

Own-Price Elasticity

A

quantity demanded of good x to a change in the price of good x

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9
Q

When is a good perfectly inelastic?

A

When the change in price has zero affect on quantity demanded

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10
Q

When is a good inelastic?

A

When the percentage change is between 0.0 < |E| <1.0

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11
Q

When is a good unit elastic?

A

When percentage change equals 1

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12
Q

When is a good elastic?

A

When percentage change is larger than 1, 1.0 < |E| < infinity

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13
Q

When is a good perfectly elastic?

A

When the percentage change is infinite

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14
Q

What type of elasticity is it when a good has a vertical demand?

A

Perfectly inelastic

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15
Q

What type of elasticity is it when a good has a horizontal demand?

A

Perfectly elastic

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16
Q

Is expenditure and revenue the same? (Yes or no)

A

Yes

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17
Q

Expenditure = ?

A

Price * Quantity

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18
Q

In an elastic region of a demand curve, a price _______ will cause expenditure to _________?

A

increase; decrease
or
decrease; increase

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19
Q

In the inelastic region of a demand curve, a price ______ will cause expenditure to _______?

A

increase; increase
or
decrease; decrease

20
Q

What is cross-price elasticity of demand?

A

quantity demanded of good X to a change in price of good Y

21
Q

What is income elasticity of demand?

A

quantity demanded of good X to a change in income

22
Q

What is Market Bundle?

A

List with specific quantities of one or more goods

23
Q

What is completeness?

A

Consumers can compare and rank all possible bundles

24
Q

What is Indifference?

A

When a consumer is equally happy with either of two bundles

25
Q

What is transitvity?

A

If A is preferred to B and B is preferred to C, then A will be preferred to C.

26
Q

What is “More is Better than Less”?

A

Bundle A or Bundle B the same but Bundle A has one more good so Bundle A is automatically better

27
Q

What is Perfect Substitutes?

A

Two goods for which the marginal rate of substitution of one for the other is constant

28
Q

What is Perfect Complements?

A

Getting more of one good will not increase utility unless it comes with an increase in other good as well. Two goods for which the marginal rate of substitution is either zero or infinite

29
Q

U = 2X + Y; what would happen if MRSxy > MktRSxy?

A

Will give up more for good X, buying good X increases their utility

30
Q

U = 2X + Y; what would happen if MRSxy < MktRSxy?

A

Will give up less for Good X, buying Good X decreases their utility

31
Q

What term is this?
The rate at which one good can be traded for another; the absolute value of the slope of the budget line.

A

Market Rate of Substitution

32
Q

What term is this? The rate at which a consumer is willing to substitute one good for another and still maintain the same level of satisfaction.

A

Marginal Rate of Substitution

33
Q

An economic model will…

A

… make assumptions that ignore some aspect of the real world 

34
Q

What is diminishing marginal rate of substitution? 

A

As the consumer obtains, more of good X, the amount of good Y she is willing to give up for another unit of good X decreases

35
Q

Marginal

A

The change in some variable

36
Q

Elements of a theory (3 elements)

A

Simple, general, useful

37
Q

When quantity supplied is a function of price?

A

Supply function

38
Q

When price is a function of quantity supplied?

A

Inverse supply function

39
Q

What is a leftward shift of a curve?

A

Contraction

40
Q

What is a rightward shift of a curve?

A

Expansion

41
Q

Occurs when quantity supplied is greater than quantity demanded

A

Surplus

42
Q

Occurs when quantity demanded is greater than quantity supplied

A

Shortage

43
Q

The constant in an inverse linear demand curve

A

Choke Price

44
Q

A principle that explains some phenomenon

A

Theory

45
Q

A statistical analysis that uses data to create a line-of -best-fit

A

Regression

46
Q

The cross-price elasticity of a complement is ______. The income elasticity of an inferior good is _______.

A

Negative; negative

47
Q

When the consumer will choose to spend their entire budget on only Good X or Good Y whichever brings highest utility

A

Corner solution

Econ 302 - Microeconomic Theory (3 decks)

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