ECON 1250 MIDTERM 1 QUESTIONS AND ANSWERS
How to expand PPF and the cost of evonomic growth - Answers - economic growth
from either technological change, capital accumulation
The cost of economic growth - to increase technology, you must give up some goods
and services
Competitive markets - Answers - - Market that has many buyers and sellers and no
single buyer or seller can influence the price
Money price of a good - Answers - is the amount of money needed to buy it
Pelative price of a good - Answers - ratio of its money price to to the money price of its
next best alreanative good - eg oportunity cost
3 things in order to demand something - Answers - 1. Want it,
2 be able to afford it,
3. Have a definite plan to buy it
Why does price effect quantity demanded - Answers - 1. Subsittution effect - when the
relative price of a good or service rises people looks for substitutes for it
2. Income effect - people cant afford stuff if it becomes more expensive
6 factors that change demand - Answers - 1. Prices of related goods
2. Expected future prices
3. Income
4. Expected future income and credit
5. Population
6. Preferences
Subsitute good - Answers - - a good that can be used in place of another good - if price
goes up for one demant for other good will go up fo the other
Complement good - Answers - - a good that is used in conjunction with another good - if
price goes up people will buy less of the main good - people wont buy cars if gas goes
way up
Normal and inferior goods - Answers - normal: a good that consumers demand more of
when their income increases. - eg shrimp
Inferior: a good that consumers demand less of when their incomes increase. - eg mr
noodles
6 factors that change supply - Answers - 1. Prices of factors of production -
2. Prices of related goods produced -
, 3. Expected future prices - if price will be high in the future you're gonna wait to produce
4. The number of suppliers - more suppliers = curve shift to the right
5. Technology - increase in tech moves supply curve to the right
6. State of nature - weather events - disasters move curve leftward
Prices for related goods prodced - Answers - - Substitute in production -supply of a
good increases if the price of a substitute in production falls
- Complements in production -supply of a good increases if the supply of the other good
increases
Market equilibrium - Answers - A situation when opposing forces balance each other
Equilibrium price is the price at which the quantity demand equals quantity supplied
Equilibrium quantity is the quantity bought as sold at the equilibrium price
Labour market - Answers - - Wages instead of price and # of hours worked instead of
quantity
- If there's more demand for labour, price of labour will go up
- If there's a recession wages will go down
GDP - Answers - gross domestic product
-The market value of all final goods and services produced in a country in a given time
period - 4 parts
Four parts of GDP - Answers - 1. Market value - g&s valued at their market prices and
then added together
2. Final goods and services
Items bought by their final user
- if we counted intermediate goods things would be counted twice
- old houses that are sold for a second time aren't included
- services to sell the house will be
- stock portfolio will not be counted either
- We also calculate which industries are adding the most value
3. Produced within a country
Doesnt matter if its a company from somewhere else, if its produced here its counted
here
4. In a given time period - usually a year
GDP equation - Answers - Y= C+I+G+(X-M)
Y= total income = GDP
C= Consumption expenditure is the total payment for consumer goods and services
I = investment - houses are included in investments because theye around for along
time and can earn interest
G = government spending - use taxes and pay financial transfers to households such as
unemployment benefits - not in GDP
X = exports out of the country
M = imports are subtracted from exports to get net goods going in and out of canada
How to expand PPF and the cost of evonomic growth - Answers - economic growth
from either technological change, capital accumulation
The cost of economic growth - to increase technology, you must give up some goods
and services
Competitive markets - Answers - - Market that has many buyers and sellers and no
single buyer or seller can influence the price
Money price of a good - Answers - is the amount of money needed to buy it
Pelative price of a good - Answers - ratio of its money price to to the money price of its
next best alreanative good - eg oportunity cost
3 things in order to demand something - Answers - 1. Want it,
2 be able to afford it,
3. Have a definite plan to buy it
Why does price effect quantity demanded - Answers - 1. Subsittution effect - when the
relative price of a good or service rises people looks for substitutes for it
2. Income effect - people cant afford stuff if it becomes more expensive
6 factors that change demand - Answers - 1. Prices of related goods
2. Expected future prices
3. Income
4. Expected future income and credit
5. Population
6. Preferences
Subsitute good - Answers - - a good that can be used in place of another good - if price
goes up for one demant for other good will go up fo the other
Complement good - Answers - - a good that is used in conjunction with another good - if
price goes up people will buy less of the main good - people wont buy cars if gas goes
way up
Normal and inferior goods - Answers - normal: a good that consumers demand more of
when their income increases. - eg shrimp
Inferior: a good that consumers demand less of when their incomes increase. - eg mr
noodles
6 factors that change supply - Answers - 1. Prices of factors of production -
2. Prices of related goods produced -
, 3. Expected future prices - if price will be high in the future you're gonna wait to produce
4. The number of suppliers - more suppliers = curve shift to the right
5. Technology - increase in tech moves supply curve to the right
6. State of nature - weather events - disasters move curve leftward
Prices for related goods prodced - Answers - - Substitute in production -supply of a
good increases if the price of a substitute in production falls
- Complements in production -supply of a good increases if the supply of the other good
increases
Market equilibrium - Answers - A situation when opposing forces balance each other
Equilibrium price is the price at which the quantity demand equals quantity supplied
Equilibrium quantity is the quantity bought as sold at the equilibrium price
Labour market - Answers - - Wages instead of price and # of hours worked instead of
quantity
- If there's more demand for labour, price of labour will go up
- If there's a recession wages will go down
GDP - Answers - gross domestic product
-The market value of all final goods and services produced in a country in a given time
period - 4 parts
Four parts of GDP - Answers - 1. Market value - g&s valued at their market prices and
then added together
2. Final goods and services
Items bought by their final user
- if we counted intermediate goods things would be counted twice
- old houses that are sold for a second time aren't included
- services to sell the house will be
- stock portfolio will not be counted either
- We also calculate which industries are adding the most value
3. Produced within a country
Doesnt matter if its a company from somewhere else, if its produced here its counted
here
4. In a given time period - usually a year
GDP equation - Answers - Y= C+I+G+(X-M)
Y= total income = GDP
C= Consumption expenditure is the total payment for consumer goods and services
I = investment - houses are included in investments because theye around for along
time and can earn interest
G = government spending - use taxes and pay financial transfers to households such as
unemployment benefits - not in GDP
X = exports out of the country
M = imports are subtracted from exports to get net goods going in and out of canada
