Midterm 1

Question 1

Positive Analysis

Answer 1

Statements about how the world is

Question 2

Normative Analysis

Answer 2

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

Question 3

Regression Analysis

Answer 3

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

Question 4

Choke Price

Answer 4

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

Question 5

Reservation Price

Answer 5

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

Question 6

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

Answer 6

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

Question 7

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

Answer 7

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

Question 8

Own-Price Elasticity

Answer 8

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

Question 9

When is a good perfectly inelastic?

Answer 9

When the change in price has zero affect on quantity demanded

Question 10

When is a good inelastic?

Answer 10

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

Question 11

When is a good unit elastic?

Answer 11

When percentage change equals 1

Question 12

When is a good elastic?

Answer 12

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

Question 13

When is a good perfectly elastic?

Answer 13

When the percentage change is infinite

Question 14

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

Answer 14

Perfectly inelastic

Question 15

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

Answer 15

Perfectly elastic

Question 16

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

Answer 16

Yes

Question 17

Expenditure = ?

Answer 17

Price * Quantity

Question 18

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

Answer 18

increase; decrease
or
decrease; increase

Question 19

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

Answer 19

increase; increase
or
decrease; decrease

Question 20

What is cross-price elasticity of demand?

Answer 20

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

Question 21

What is income elasticity of demand?

Answer 21

quantity demanded of good X to a change in income

Question 22

What is Market Bundle?

Answer 22

List with specific quantities of one or more goods

Question 23

What is completeness?

Answer 23

Consumers can compare and rank all possible bundles

Question 24

What is Indifference?

Answer 24

When a consumer is equally happy with either of two bundles

Question 25

What is transitvity?

Answer 25

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

Question 26

What is "More is Better than Less"?

Answer 26

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

Question 27

What is Perfect Substitutes?

Answer 27

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

Question 28

What is Perfect Complements?

Answer 28

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

Question 29

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

Answer 29

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

Question 30

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

Answer 30

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

Question 31

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.

Answer 31

Market Rate of Substitution

Question 32

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.

Answer 32

Marginal Rate of Substitution

Question 33

An economic model will…

Answer 33

… make assumptions that ignore some aspect of the real world 

Question 34

What is diminishing marginal rate of substitution? 

Answer 34

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

Question 35

Marginal

Answer 35

The change in some variable

Question 36

Elements of a theory (3 elements)

Answer 36

Simple, general, useful

Question 37

When quantity supplied is a function of price?

Answer 37

Supply function

Question 38

When price is a function of quantity supplied?

Answer 38

Inverse supply function

Question 39

What is a leftward shift of a curve?

Answer 39

Contraction

Question 40

What is a rightward shift of a curve?

Answer 40

Expansion

Question 41

Occurs when quantity supplied is greater than quantity demanded

Answer 41

Surplus

Question 42

Occurs when quantity demanded is greater than quantity supplied

Answer 42

Shortage

Question 43

The constant in an inverse linear demand curve

Answer 43

Choke Price

Question 44

A principle that explains some phenomenon

Answer 44

Theory

Question 45

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

Answer 45

Regression

Question 46

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

Answer 46

Negative; negative

Question 47

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

Answer 47

Corner solution