Principles Of Economics

Question 1

Endogenous variables

Answer 1

Explained in the model

Question 2

Exogenous variables

Answer 2

Logically given, are not in the model

Question 3

Positive question

Answer 3

How are things?

Question 4

Normative question

Answer 4

How things should be?

Question 5

Opportunity cost

Answer 5

Cost of the upcoming best alternative

Question 6

Comparative statics

Answer 6

How will change of some exogenous variable affect the model?

Question 7

Marginal analysis

Answer 7

How will a marginal change of some variable affect the cost?

Question 8

Ommited variables bias

Answer 8

One should not consider a correlation to be a causality when not taking into account all relevant variables

Question 9

Reverse concellity bias

Answer 9

When not clear, one can’t be sure about the direction of the causality (it can be the other way)

Question 10

Demand curve

Answer 10

Represents the relation between demand and price

Question 11

Normal good

Answer 11

Product, which demand grows with the income of the buyer (e.g. chocolate:-)

Question 12

Inferior good

Answer 12

Product, which demand falls with the income of the buyer (e.g. public transport)

Question 13

Complements

Answer 13

Products, which demands move the same way; one depends on another

Question 14

Accounting costs

Answer 14

The money needed to run the business

Question 15

Opportunity costs

Answer 15

What’s the best alternative use of resources

Question 16

Causality

Answer 16

Influence of one event/process/state/object is responsible for an ocurrence of another one

Question 17

Casual effects

Answer 17

Change of an exogenous variable affects only one endogenous variable (and the other ones remain as before)

Question 18

Correlation

Answer 18

Relationship between variables (doesn’t mean causality)

Question 19

Equation

How can the buyer spend his money?

Answer 19

m = v_q + P × q

Question 20

Excess supply

Answer 20

When the price is higher than WTP

Question 21

Excess demand

Answer 21

When the demand is higher than the WTA

Question 22

Surge pricing

Answer 22

Flexible adjusting of the price accordingly to the demand

Question 23

Individual customer surplus

Answer 23

The difference between willing-to-pay and the amount the customer actually pays for the good

Question 24

Individual producer surplus

Answer 24

The difference between willing-to-accept and the amount the supplier actually receives for the good

Question 25

Price Ceiling

Answer 25

Highest possible price that can be paid for a good

Question 26

Gains from trade (no equation)

Answer 26

Difference between the WTP and WTA for each Q_i

Question 27

Marginal damage

Answer 27

Additional cost which is not included in the price of the good

Question 28

Excess burden

Answer 28

Trades that will be normally traded but are not because of a tax

Question 29

Price discrimination

Answer 29

Charging a different price to different customers

Question 30

Non credible threat

Answer 30

A decision that the next player is threatening with, and which will be bad for the first to decide, but will be at the same time bad for the one threatening as well so he won’t really choose it → it can be ignored

Question 31

Entry deterrence

Answer 31

Discouraging potential competitors from entering a market

Question 32

Unravelling market

Answer 32

WTP is low → the offered quality gets lower → WTP gets lower → the offered quality gets lower → ...

Question 33

Annuity

Answer 33

"prepaid" insurance product

Question 34

Adverse selection

Answer 34

One player has some info about the product that the other one doesn't have

Question 35

Hidden action

Answer 35

One player does something (relevant to the game), and the other one doesn’t know it

Question 36

Labour income

Answer 36

The money the company has to pay to its employees

Question 37

Capital income

Answer 37

The money the company has to pay to its owners (stakeholders, shareholders...)

Question 38

Production approach to GDP | GDP =

Answer 38

GDP is the value of the company’s market production | = P × Q

Question 39

Expenditure approach to GDP | GDP =

Answer 39

GDP is the company's expenditures, while the unsold products of the firm are added to those expenditures | = ∑ expenditures

Question 40

Income approach to GDP | GDP =

Answer 40

GDP is the revenue of the firm | = consumption + investment + expenditure + (export - import)

Question 41

Definition of GDP ## Footnote Another definition of GDP

Answer 41

The **market value of all final goods** and services that are produced in an economy each year ## Footnote The **market value of the difference between revenue and intermediate loose** of each company.

Question 42

Nominal GDP | impact of production change to nominal GDP = ## Footnote Calculation by products *a* and *b*: GDP0 (GDP in one year) = GDP1 (GDP in some other year) =

Answer 42

compares one year’s productions by the same year’s prices | = real GDP ## Footnote = Qa0 × Pa0 + Qb0 × Pb0 = Qa1 × Pa1 + Qb1 × Pb1

Question 43

# This is the one in the news: Real GDP | real GDP growth = ## Footnote Calculation by products *a* and *b*: GDP0 (GDP in one year) = GDP1 (GDP in some other year) =

Answer 43

compares one year’s productions with some other year's prices | = (real GDP_*x* - real GDP(*x-n*)) / (real GDP(*x-n*) ## Footnote = Qa0 × Pa0 + Qb0 × Pb0 = Qa1 × Pa0 + Qb1 × Pb0

Question 44

GDP deflator = *what is it good for?* | Consumer price index (CPI) = ## Footnote Inflation rate (IR) =

Answer 44

= (nominal GDP) / (real GDP) ×100 Measures the impact of inflation to the GDP | = cost of sth_*x* / cost of sth_(*x-n*) ## Footnote = (price index_*x* - price index_(*x-n*)) / price index_(*x-n*)

Question 45

Labour demand

Answer 45

the optimal number of workers hired by the company

Question 46

Marginal product of labour

Answer 46

how valuable is for the firm to hire one more worker (WTP for labour force)

Question 47

Frictional unemployment

Answer 47

when the employee exits the company, he is for some time unemployed anyway

Question 48

Multiplier effect

Answer 48

something (multiplier) amplifies the impact of a shock (= “vicious circle”)

Question 49

Government demand

Answer 49

the government can spend money to support the firms

Question 50

Automatic components

Answer 50

reactions of the government to the recession that happen automatically (e.g. taxes depending on the income get lower)

Question 51

Crowding-out effects

Answer 51

- Both firms and state offer bonds - Firms may go bankrupt, states usually don’t – people prefer government bonds - Then the firms have less money to finance themselves - Less affects the firms that don’t rely on external funds

Question 52

Money market

Answer 52

a market, where the banks can borrow the money from another bank to disburse their customers

Question 53

Open market

Answer 53

a market between private banks and the central bank, where the banks can buy money they need in exchange for their stocks

Question 54

Refinancing rate ## Footnote How is it used for the monetary policy?

Answer 54

the tax the bank has to pay for asking the central bank for money ## Footnote * By lower rate the central bank enforces the economic activity * By higher rate the central bank brakes the economic activity

Question 55

Expansionary policy | why is it used?

Answer 55

higher government expenditures | fiscal policy to support economics during recession

Question 56

Contractionary policy | why is it used?

Answer 56

lower government expenditures | fiscal policy to bake economics during boom

Question 57

Production change contribution to the change in GDP (formula)

Answer 57

ΔGDP × Δproduction / original production

Question 58

Price change contribution to the change in GDP (formula)

Answer 58

ΔGDP × Δprice / original price