Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

ECON 201 Exam 1 Study Guide 33 Questions with Verified Answers,100% CORRECT, Exams of Economics

ECON 201 Exam 1 Study Guide 33 Questions with Verified Answers Opportunity cost - CORRECT ANSWER The real cost of an item: what you must give up in order to get it Marginal decisions - CORRECT ANSWER A decision made at the "margin" of an activity to do a bit more or a bit less of that activity. Equilibrium - CORRECT ANSWER An economic situation in which no individual would be better off doing something different Efficiency and equity - CORRECT ANSWER The difference between efficiency and equity is people or governments being able to make themselves better off without making someone else worse off (efficiently) and when everyone is getting equal amount or their fair share (equity). "Other things equal" - CORRECT ANSWER In the development of a model, the assumption that all relevant factors except the one under study remain unchanged

Typology: Exams

2024/2025

Available from 01/19/2025

paul-kamau-2
paul-kamau-2 🇺🇸

2.7

(3)

3.5K documents

Partial preview of the text

Download ECON 201 Exam 1 Study Guide 33 Questions with Verified Answers,100% CORRECT and more Exams Economics in PDF only on Docsity!

ECON 201 Exam 1 Study Guide 33 Questions with Verified

Answers

Opportunity cost - CORRECT ANSWER The real cost of an item: what you must give up in order to get it Marginal decisions - CORRECT ANSWER A decision made at the "margin" of an activity to do a bit more or a bit less of that activity. Equilibrium - CORRECT ANSWER An economic situation in which no individual would be better off doing something different Efficiency and equity - CORRECT ANSWER The difference between efficiency and equity is people or governments being able to make themselves better off without making someone else worse off (efficiently) and when everyone is getting equal amount or their fair share (equity). "Other things equal" - CORRECT ANSWER In the development of a model, the assumption that all relevant factors except the one under study remain unchanged Comparative advantage - CORRECT ANSWER The advantage conferred on an individual or country in producing a food or service if the opportunity cost of producing the good or service is lower for that individual or country than for other producers Normative versus positive economics - CORRECT ANSWER Normal- The branch of economic analysis that makes prescriptions about the way the economy should work. Positive- The branch of economics that describes the way the economy actually works.

Law of demand - CORRECT ANSWER The principle that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service. Change in demand versus a change in quantity demanded - CORRECT ANSWER A change in demand results from a change in the underlying determinants of demand. This is shown by a shift in the demand curve. A change in quantity demanded results from a change in price of the good. Graphically this is shown by movement along the demand curve. Substitute good - CORRECT ANSWER Pairs of goods for which a rise in the price of one good with lead to a increase in the demand for the other good. Complement good - CORRECT ANSWER Pairs of goods for which a rise in the price of one good leads to a decrease in the demand for the other good Normal good - CORRECT ANSWER A good for which a rise in income increases the demand for that good. Inferior good - CORRECT ANSWER A good for which a rise in income decreases the demand for the good. Surplus - CORRECT ANSWER The excess of a good or service that occurs when the quantity supplied exceeds the quantity demanded; surpluses occur earn the price is above the equilibrium price. Shortage - CORRECT ANSWER The insufficiency of a good or service that occurs when the quantity demanded exceeds the quantity supplied; shortages occur when the price is below the equilibrium price. Consumer surplus - CORRECT ANSWER A term often used to refer both to individual consumer surplus and to total consumer surplus. Producer surplus - CORRECT ANSWER A term used to refer to both individual producer surplus and to total producer surplus.

Price-elasticity of demand - CORRECT ANSWER The ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve dropping the negative sign. Cross-price elasticity of demand - CORRECT ANSWER A measure of the effect of the change in the price of one good on the quantity demanded of the other good; it is equal to the percent change in the quantity demanded of one good divided by the percent change in the price of another good. Income elasticity of demand - CORRECT ANSWER The percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income. Price elasticity of supply - CORRECT ANSWER A measure of the responsiveness of the quantity of a good supplied to the price of that good; the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve. Define or explain A) Comparative advantage B) Supply curve C) Cross-price elasticity of demand - CORRECT ANSWER A) Having a lower opportunity cost B) The graphical representation of the relationship between price and quantity- supplied C) A measure of the responsiveness of the quantity demanded of one good, to changes in the price of another good. What is the incentive that leads countries to specialize and trade? - CORRECT ANSWER The reason that countries specialize and trade with each other is that this allows them to boost consumption beyond what the individual countries could consume if they did not specialize and trade. The term of this is "gains from trade". Given the two production possibilities frontiers (PPFs) below: A) Who has the comparative advantage in food production? B) What is the opportunity cost of food production for Nathan?

C) Given Nathan's absolute advantage in clothes production, could he benefit from specializing and trading with Simon? Please explain. - CORRECT ANSWER A) Simon's PPF is less steeply sloped with respect to the food axis, so he has a comparative advantage in food production. B) 200/250=0.8 so for each additional unit of food Nathan produces he would need to give up 0.8 units of clothes produced. C) Yes. Whenever there is a difference in opportunity costs, there is also room to experience gains from trade for both trading partners. List 4 of the 5 demand shifters. - CORRECT ANSWER Change in number of consumers, change in consumer incomes, change in price of related goods, and change in the future price expectations. Indicate how demand, quantity demanded, supply, quantity supplied, equilibrium price and equilibrium quantity would shift in each market. - CORRECT ANSWER What is the expected effect on economic efficiency of reallocating consumption among consumers? - CORRECT ANSWER Reallocating consumption among consumers would be expected to lower economic efficiency. Specifically, we would say that some people are being made better off, but some others are being made worse off. You are analyzing the market for pet dogs in La Grande. State how demand or supply would shift (increase or decrease), and state which of the 5 demand or supply shifters you used to generate this shift. A) Dog ownership is demonstrated to increase the lifespan of the person caring for the dog. B) A new pet store that carried dogs opens in town. - CORRECT ANSWER A) Demand increase due to a change in the tastes and preference of buyers in this market. B) Supply increase due to an increase in the number of suppliers. Given the graph below for an individual. A) Please describe the area on the graph that represents consumer surplus. B) If there were ten people in this market, what would market demand be at a price of $5?

C) Would an increase in the number of sellers in this market tend to increase or decrease consumer surplus? - CORRECT ANSWER A) The area above the price line at $5, and below the demand curve represents consumer purples. B) Adding the quantities horizontally, at a price of $5 demand for the entire market would be 100 units per day. C) If the supply curve was to shift to the right, the area above the price line and below the demand curve probably gets larger. Given that the price of a good went from $90 to $92 while the quantity demanded fell from 20 tons to 19 tons, what is the price elasticity of demand? - CORRECT ANSWER What is the sign on the coefficient of cross-price elasticity of demand when the goods in question are substitutes? - CORRECT ANSWER In the case of substitutes, the sign of the number calculated for cross price elasticity of demand is positive. Which is likely to have a lower price elasticity of demand, doughnuts or cigarettes? Please explain. - CORRECT ANSWER There are fewer substitutes for cigarettes, ad to a person who smokes, cigarettes are certainly considered a necessity. This all implies that the price elasticity of demand is probably lower for cigarettes than doughnuts. When the price effect of a price increase outweighs the quantity effect is total revenue likely to increase or decrease? - CORRECT ANSWER This question says that the price effect is bigger that the quantity effect, so we know that the price elasticity of demand that we calculate will be less than 1. In other words, demand is price inelastic. When price is inelastic we know that a price increase will increase total revenue so the answer is that the price increase is more likely to increase total revenue.