ECON 302 Exam 1 Questions & Answers 100%Solved

Economics - Answer The social science that studies production and trade. Positive Analysis - Answer Analysis that attempts to describe the way things are in reality Normative Analysis - Answer Analysis that attempts to describe the way things should be Theory - Answer A principle that explains some phenomenon. Model - Answer A simplified representation of a phenomenon How models work: - Answer Assumptions → Analysis → Implications The Four Starting Points of Economics - Answer Scarcity, Unlimited Desires, Methodological Individualism, and Rational Choice Scarcity - Answer The amount of goods available is not sufficient to satisfy all human desires. Unlimited Desires - Answer No matter what one's current circumstances, it is always possible to imagine and achieve a more desirable state of affairs. Methodological Individualism - Answer The principle that the individual human being is the basic unit of research in the social sciences. Rational Choice - Answer People pursue their values. Is there a difference between rational and moral? - Answer yes What does economics take into consideration? - Answer Economics takes people's values as given Rational people can still make mistakes - Answer ... Microeconomics studys what? - Answer individual decision making Market Clearing Price - Answer the price at which the number of units that people are willing and able to buy is equal to the number of units that people are willing and able to sell, such that every willing buyer can find a willing seller, and every willing seller can find a willing buyer How do we clarify concepts of the market clearing price? - Answer Use math to clarify concepts and reach precise answers Marginal Revenue - Answer the additional revenue if another item is sold What is the Cost function? - Answer Y = C(x) where X is # of units and Y is f(x) Marginal Cost - Answer MC(x) is the derivative of the Cost function A derivative - Answer determines the marginal cost What is the marginal cost? - Answer ∆y/∆x (derivative) If you have a function of the form y = f(x), the derivative of y with respect to x is defined as: - Answer The limit of ∆y/∆x as ∆x approaches zero. The derivative of a constant - Answer If y = a (where a is a constant), dy/dx = 0 The derivative of a power function - Answer y = ax^b, where a and b are constants, dy/dx = bax^(b-1) The Partial Derivative - Answer Take 1st derivative, but pretend all other variables are constants besides derivative of interest Partial derivative example U = -20 + 100x + 80y - 10x2 - 10y2 - 5xy - Answer Ux = 100 - 20x - 5y Uy = 80 - 20y - 5x