ECON 202: Study Guide #1
_______________________ as price goes down, quantity demanded goes up (Hint: it might be a law…) _______________________ as price goes up, quantity supplied increases
_______________________ the next most desired object is given up
_________________ ____________ and willingness to buy a certain good or service at a given price _________________ ____________ and __________ to sell a good or service at a given price Market Demand ______________________________________________________________________ _________________lack of enough resources to satisfy desired goods and services
What is the difference between tradeoffs and opportunity costs?
Factors of Production: __________________________________________________________________ 1.
What are the main three questions of Economics?
Production Possibility Frontier (PPF)
The PPF shows the combination of ___________ and _____________ that can be produced. (Scarcity/Shortage) limits the PPF.
When a point is outside the PPF, it is (efficient/inefficient/unattainable). If you want to learn more check out what is the meaning of The Crop Lien System?
Point B is (attainable/unattainable) and (efficient/inefficient/unknown).
Point F is (attainable/unattainable) and (efficient/inefficient/unknown).
Point G is (attainable/unattainable) and (efficient/inefficient/unknown).
What is special about Point G? (Hint: can it be reached at some point)?
What is Economic Growth? How does it affect the PPF?
The market mechanism is also known as the ______________________ and was labeled by Adam Smith. (Normative/Positive) economics is what should be and (normative/positive) economics focuses on what is. We also discuss several other topics like What is th difference between occupation and role?
________________ is the big picture of economics and ________________ is the study of individual prices and goods.
_____________________assumption that nothing else changes.
_____________________ producing one object and trading it for other goods and services (i.e. econ teacher teaching econ).
Fill out the Circular Flow Diagram below (label the arrows too and what their functions are) A market is only a physical place. (True/False). If false, correct the statement that it is true.
The supply line is a (positive/negative) sloping line, while demand is a (positive/negative) sloping line.
What happens when there is a market failure? A government failure? Why do both happen, and what can be done about it?
Determinants of Demand
Explain the difference between a shift of the demand curve versus movement along the curve.
A (left/right) shift is an increase in demand, and a (left/right) shift is a decrease in demand. Determinants of Supply
For each of the following, say whether the situation (i) impacts supply or demand; (ii)represents a movement along or a shift of that curve. If a shift occurs, state the direction If you want to learn more check out How to calculate the labor force participation rate?
of the shift and the associated shifter(s) at work.
a. In the market for ski tickets, Mammoth Mountain hikes the price for ski tickets and sales plummet
b. In the market for housing, there is a housing bubble so housing prices rise andmore people put out a For Sale sign
c. In the market for skiing, lack of snow keeps the skiers away
d. In the market for school teachers, there is a reputation of worsening working conditions in urban schools
e. In the market for cigarettes, ads are released on TV that show the dangers of smoking f. In the market for Nikeproduced sneakers, Skecher shoes become more popular g. In the market for airline flights, the price of airline tickets rise and airlines add more flights
h. In the market for mortgages, mortgage rates are at an alltime low, and new home loan applications soar
i. In the market for airline flights, the price of jet fuel drops.
__________________ where only one price and quantity combination is compatible with both buyers and sellers.
QS __QD when talking about surplus, which means there will be a(n) (downward/upward) pressure on price.
QS __QD when talking about shortage, which means there will be a(n) (downward/upward) pressure on price.
Consumer choice_____________________________________________________________________ ______________________the theory on why we desire goods/services.
______________________ the theory as to why goods and services are produced. If you want to learn more check out What kind of machinery was produced during times of long-hour work days?
Determinants of Buying:
Utility Theory: ________________________________________________________________________ _____________ expected ____________ from goods and services
____________________________________________________________________ Marginal Utility________________________________________________________________
Marginal Utility = _________________
Law of Diminishing Marginal Utility______________________________________________________ Consumer Surplus _____________________________________________________________________
___________________________________________________________________ ______________________mix of goods that bring the most utility
MUx = ______
_________________ how much quantity demanded changes in response to a change in price ED= _____________
Elastic Demand_______________________________________________________________________ Inelastic Demand______________________________________________________________________ Unitary Elastic________________________________________________________________________ We also discuss several other topics like What is the difference between heat and enthalpy?
Determinants of Elasticity
1. Necesities v. Luxuries
_____________________________________________________________________ 3. Time
_________________________________________________________________________ 4. Price on Income
Cross Price Elasticity
Write out the equation. Determine which signs mean if the good is complementary or a substitute.
Write out the equation and explain.
Normal vs. Inferior Goods
_____________________________________________________________________________________ _____________________________________________________________________________________ If you want to learn more check out what are the three tenets of cell theory?
Free Response Questions:
1. (Ch 1) Consider the four factors of production in economics. Suppose that in order to operate your business, you lease retail space in a building downtown. Define all four factors of production and identify which factor of production could categorize this building. Be explicit about why the building would be considered this factor of production instead of one of the other factors of production.
2. (Ch 3) Suppose that you observe that equilibrium price falls and equilibrium quantity rises in the market for laptops. Which curve (supply or demand) has shifted and in which direction to create this outcome? Based on this scenario, come up with a unique example that would cause this shift and fully explain your logic.
3. (Ch 5) How is consumer surplus defined and what does it attempt to measure? Suppose that a firm is able to perfectly price discriminate in a market. If a firm does this, what happens to consumer surplus in the market? Is price discrimination fair? Why or why not?
4. (Ch 6) Suppose that you are a manager in charge of setting prices for your company and you observe that your consumers respond to price changes inelastically. Define, using explicit terminology from class, what it means to have an inelastic response to a price change. If this is the case, how should you (the manager) change prices to make the company better off? Explain fully.
1. Suppose the crossprice elasticity of demand for butter and margarine is equal to 0.96while the answer for water and lemon is –0.13. This means that butter and margarine are
________________ while water and lemon are _________________.
2. Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand?
3. Which of the following goods are likely to have elastic demand, and which are likely to have inelastic demand?
Home heating oil
4. An improvement in the weather led to an increase of 60% in the size of the corn crop. The demand curve for corn did not change. The price of corn fell by 20%. From this we can conclude that: (a) The elasticity of demand for corn is −3.
(b) The elasticity of demand for corn is − 1/3.
(c) The elasticity of supply for corn is −3
(d) The elasticity of supply for corn is 1/3.
(e) The elasticity of supply for corn is −1/3
5. Which of the following would not shift the demand curve for beef?
A. a widely publicized study which indicates beef increases one's cholesterol B. a reduction in the price of cattle feed
C. an effective advertising campaign by pork producers
D. a change in the incomes of beef consumers
6. Suppose that there is an announcement that chocolate causes cancer. What would happen to equilibrium price and quantity in the market for Godiva chocolate? Be able to draw the graph that illustrates your answer.
7. Suppose that the price of sugar increases. What would happen to equilibrium price and quantity in the market for Godiva chocolate? Be able to draw the graph that illustrates your answer.