ECO 202 - TEST#4 Study Guide Questions with Answers-100% Accuracy, Exams of Economics

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ECO 202 - TEST#4 Study Guide Questions with Answers-

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 Elasticity of Supply - Correct Answer This elasticity measures how responsive producers are to a change in price  Formula for Elasticity of Supply (Es) - Correct Answer % change in Quantity Supplied divided by % change in Price (Es = %Qss/%P)  Types of Elasticity of Supply - Correct Answer 1. Elastic Supply

2. Perfectly Elastic Supply (extreme) 3, Inelastic Supply
3. Perfectly Inelastic Supply (extreme)  Elastic Supply - Correct Answer In this type of elasticity of supply producers are very responsive to a change in price - % change in quantity supplied (Qss) > % change in price (P) [Qss>P] - Elasticity of Supply (Es) > 1 - Flat Supply Curve  Perfectly Elastic Supply - Correct Answer In this type of elasticity of supply producers are completely and infinitely responsive to a change in price - Elasticity of Supply (Es) = infinity - Es = +/- infinity divided by price = infinity - Supply Curve is horizontal: if price decreases quantity supplied is 0 and if price increases quantity supplied increases as well  Inelastic Supply - Correct Answer In this type of elasticity of supply producers are not very responsive to a change in supply - % change in quantity supplied (Qss) < % change in price (P) [Qss<P] - Elasticity of Supply (Es) < 1 - Steep Supply Curve  Perfectly Inelastic Supply - Correct Answer In this type of elasticity of supply producers are completely and infinitely unresponsive to a change in price - Elasticity of Supply (Es) = negative infinity - Supply Curve is vertical: if price changes quantity supplied is unchanged  Cross Price Elasticity (Ec) - Correct Answer This elasticity measures the responsiveness of sales to change in price of another good  Cross Price Elasticity Formula - Correct Answer % change in quantity demanded in good B (QddB) divided by the % change in the price of good A (Pa)

(Ec = QddB/ Pa)  Substitute Goods (Ec) - Correct Answer Cross price elasticity for this type of good is always positive  -Example: An increase in price of coffee causes (->) a increase in demand for tea  Complementary Goods (Ec) - Correct Answer Cross price elasticity for this type of good is always negative -example: An increase in price of coffee will cause (->) a decrease in demand for sugar  Utils - Correct Answer Psychological units that are used to indicate the amount of pleasure or satisfaction derived from using customer behavior  Cardinal Units - Correct Answer Units that allows us to measure the satisfaction/benefit derived consuming a particular good by looking at how much money we are willing to give up for a certain good -example: money  Total Utility (Tu) - Correct Answer The concept of utility is the total amount of satisfaction a customer gets from consuming a certain amount (quantity of goods) -generally increases as the quantity consumed of a good increases  Marginal Utility (Mu) - Correct Answer The concept of utility is the additional utility a consumer gets from consuming an additional unit of a good/service  Marginal Utility (Mu) Formula - Correct Answer this concept of utility equals the change in total utility divided by the change in quantity of good consumed (Mu = Tu/Q)  Law of Diminishing Marginal Utility (DMU) - Correct Answer As a customer consumes more of a good, the marginal utility will decline -Exception: when quantity increases, marginal utility increases as well = addictive goods - alcohol, drugs, etc.  Theory of Customer Behavior - Correct Answer In this theory the goal of a customer is to allocate the available budget in a way that maximizes utility -assumptions: rational behavior, clear-cut preferences, subject to a budget constraint, responds to price changes  Utility Maximizing Rule - Correct Answer The customers money income should be allocated so that the last dollar spent on each product yeilds the same amount of extra marginal utility

• Rule 1: Marginal Utility of good X divided by the price of good X is equal to the Marginal Utility of good Y divided by the price of good Y (MUx/Px = MUy/Py)
• Rule 2: All income must be spent  Explicit Costs - Correct Answer The cost of using resources that you do not own to operate your business -example: rent, wages, utilities, land/building/plant, & cost of raw materials  Implicit Costs - Correct Answer The costs of using your own resources to operate your resource = opportunity costs -examples: Wages/income forgone, rental wages forgone, & profits earned/retained  Accounting Cost - Correct Answer = Explicit cost only - total production cost paid by firm  Accounting Profit - Correct Answer = Total Revenue minus Explicit Costs (TR - EC)  Economic Cost - Correct Answer = Explicit Cost plus Implicit Cost (EC + IC)  Economic Profit - Correct Answer = Total Revenue minus Explicit Cost plus Implicit Cost OR Total Revenue minus Economic Cost ( TR -EC + IC or TR - EcoC)  Short Run - Correct Answer A time period where at least one input is fixed and some inputs are variable  Long Run - Correct Answer A time period where all inputs are variable and no input is fixed  Total product (TP) - Correct Answer This production concept is the total output of a particular good or service produced by a firm and it shows the relationship between input and output  Marginal Product (MP) - Correct Answer This production concept is the additional output produced by an additional worker
• the change in total product divided by the change in labor (MP=TP/L)  Average Product (AP) - Correct Answer This production concept is the total product per worker employed =Total product divided by the quantity of Labor (AP=TP/#L)  Law of Diminishing Marginal Returns (DMR) - Correct Answer As a firm adds more variable input (labor) to a fixed input (capital, labor), eventually the marginal product of the variable input eventually decreases