ECN 101 Final Exam | Actual study |
Questions and verified Answers
What is economics? - ANSW-The study of how individuals and societies manage scarce resources
What is the definition of elasticity? - ANSW-A measure of how buyers or sellers respond to changing
market conditions
What is the equation for profit? - ANSW-Total Revenue - Total Cost
Why is scarcity the fundamental concept of economics? - ANSW-Scarcity compels us to make choices
What is Price Elasticity of Demand? - ANSW-A measure of how the quantity demanded of a good
response to a change in its price
What is total revenue? What is the equation for total revenue? - ANSW-The amount a firm receives from
the sale of its output. Price x Quantity
What is the difference between microeconomics and macroeconomics? - ANSW-Microeconomics-
studies the decision-making of individuals and firms and how these decisions are coordinated in markets
Macroeconomics- studies economy-wide phenomenon such as aggregate production, unemployment,
and inflation
What is the basic formula of Price Elasticity of Demand? - ANSW-Ep= |% change in QD| / |% change in
P|
What is total cost? What is the equation for total cost? - ANSW-The market value of the inputs a firm
uses in production. Explicit Costs + Implicit Costs
Fixed Cost + Variable Cost
Why do people face tradeoffs? - ANSW-What must be given up when making a particular choice
What is the midpoint formula? - ANSW-|(Q2 - Q1/Qaverage)|/|(P2-P1/Paverage)|
What are explicit costs? - ANSW-Input costs that require an outlay of money by the firm. Example:
paying wages to workers
What is the difference between equity and efficiency tradeoffs? - ANSW-Equity (equality)- property of
distributing prosperity uniformly among members in society
Efficiency- property of getting the most it can from scarce resources
What are the determinants of Price elasticity of demand? How do they affect the price elasticity of
demand? - ANSW-Necessity (medicine)- inelastic, Luxury (designer clothing)- elastic
Few substitutes (salt)- inelastic, Lots of substitutes (root beer)- elastic
Broad markets (food)- inelastic, Narrow markets (chips)- elastic
Short time horizon- inelastic, Long time horizon- elastic
What are implicit costs? - ANSW-Input costs that do not require an outlay of money by the firm.
Example: the opportunity cost of the owner's time
What is opportunity cost? - ANSW-Whatever must be given up when making a particular choice
What is elastic demand? - ANSW-Quantity demanded is highly responsive to a price change
% change QD > % change P (Ep > 1)
What is accounting profit? - ANSW-Total Revenue - Explicit Costs (ignores implicit costs)
, What is economic profit? - ANSW-Total Revenue - Total Cost (Explicit + Implicit)
What is inelastic demand? - ANSW-Quantity demanded is less responsive to a price change
% change QD < % change P (Ep < 1)
What is the difference between explicit and implicit costs? - ANSW-Explicit: costs that require a cash
outlay
Implicit: costs that do not require a cash outlay
What is sunk cost? - ANSW-A cost that has already been committed and cannot be recovered
What is perfectly elastic demand? - ANSW-Extreme response, Ep = infinity
What is production function? - ANSW-The relationship between quantity of inputs used to make a good
and the quantity of output of that good
What do you include when calculating opportunity cost? - ANSW-Include: Explicit and Implicit costs
Don't Include: Sunk costs
What is perfectly inelastic demand? - ANSW-No response, Ep = 0
What is marginal product (MP)? - ANSW-The increase in output that arises from an additional unit of
input (slope of the production function)
How do you find marginal product of labor (MPL)? - ANSW-change in Q/change in L
What is unit elastic demand? - ANSW-% change QD = % change P (Ep = 1)
What is marginal change? - ANSW-A small incremental adjustment to a plan of action
How do people respond to incentives? - ANSW-People respond to incentives for rewards or punishments
based on their actions
What role does price elasticity of demand play in the effect of a price change on total revenue? - ANSW-
P-effect (inelastic)= TR increase because P is higher than Q (PxQ)
Q-effect (elastic)= TR decrease because P is lower than Q (PxQ)
Find area between new and old changes and compare
What is diminishing marginal product? - ANSW-Marginal product of an input declines as the quantity of
the input increases
Why does trade make everyone better off? - ANSW-Countries-
-specialize in production goods that they produce
-import several goods at lower costs
-increase their overall consumption of goods
Individuals-
-specialize in activities that they do best
-obtain more goods at a lower cost
-increase their overall consumption of goods
What is the definition of Cross-Price elasticity of demand? - ANSW-A measure of how the quantity
demanded of one good responds to a change in the price of another good
What is marginal cost (MC)? What is the formula for marginal cost? - ANSW-Increase in total cost arising
from an extra unit of production. Change in Total Cost/Change in Quantity
Questions and verified Answers
What is economics? - ANSW-The study of how individuals and societies manage scarce resources
What is the definition of elasticity? - ANSW-A measure of how buyers or sellers respond to changing
market conditions
What is the equation for profit? - ANSW-Total Revenue - Total Cost
Why is scarcity the fundamental concept of economics? - ANSW-Scarcity compels us to make choices
What is Price Elasticity of Demand? - ANSW-A measure of how the quantity demanded of a good
response to a change in its price
What is total revenue? What is the equation for total revenue? - ANSW-The amount a firm receives from
the sale of its output. Price x Quantity
What is the difference between microeconomics and macroeconomics? - ANSW-Microeconomics-
studies the decision-making of individuals and firms and how these decisions are coordinated in markets
Macroeconomics- studies economy-wide phenomenon such as aggregate production, unemployment,
and inflation
What is the basic formula of Price Elasticity of Demand? - ANSW-Ep= |% change in QD| / |% change in
P|
What is total cost? What is the equation for total cost? - ANSW-The market value of the inputs a firm
uses in production. Explicit Costs + Implicit Costs
Fixed Cost + Variable Cost
Why do people face tradeoffs? - ANSW-What must be given up when making a particular choice
What is the midpoint formula? - ANSW-|(Q2 - Q1/Qaverage)|/|(P2-P1/Paverage)|
What are explicit costs? - ANSW-Input costs that require an outlay of money by the firm. Example:
paying wages to workers
What is the difference between equity and efficiency tradeoffs? - ANSW-Equity (equality)- property of
distributing prosperity uniformly among members in society
Efficiency- property of getting the most it can from scarce resources
What are the determinants of Price elasticity of demand? How do they affect the price elasticity of
demand? - ANSW-Necessity (medicine)- inelastic, Luxury (designer clothing)- elastic
Few substitutes (salt)- inelastic, Lots of substitutes (root beer)- elastic
Broad markets (food)- inelastic, Narrow markets (chips)- elastic
Short time horizon- inelastic, Long time horizon- elastic
What are implicit costs? - ANSW-Input costs that do not require an outlay of money by the firm.
Example: the opportunity cost of the owner's time
What is opportunity cost? - ANSW-Whatever must be given up when making a particular choice
What is elastic demand? - ANSW-Quantity demanded is highly responsive to a price change
% change QD > % change P (Ep > 1)
What is accounting profit? - ANSW-Total Revenue - Explicit Costs (ignores implicit costs)
, What is economic profit? - ANSW-Total Revenue - Total Cost (Explicit + Implicit)
What is inelastic demand? - ANSW-Quantity demanded is less responsive to a price change
% change QD < % change P (Ep < 1)
What is the difference between explicit and implicit costs? - ANSW-Explicit: costs that require a cash
outlay
Implicit: costs that do not require a cash outlay
What is sunk cost? - ANSW-A cost that has already been committed and cannot be recovered
What is perfectly elastic demand? - ANSW-Extreme response, Ep = infinity
What is production function? - ANSW-The relationship between quantity of inputs used to make a good
and the quantity of output of that good
What do you include when calculating opportunity cost? - ANSW-Include: Explicit and Implicit costs
Don't Include: Sunk costs
What is perfectly inelastic demand? - ANSW-No response, Ep = 0
What is marginal product (MP)? - ANSW-The increase in output that arises from an additional unit of
input (slope of the production function)
How do you find marginal product of labor (MPL)? - ANSW-change in Q/change in L
What is unit elastic demand? - ANSW-% change QD = % change P (Ep = 1)
What is marginal change? - ANSW-A small incremental adjustment to a plan of action
How do people respond to incentives? - ANSW-People respond to incentives for rewards or punishments
based on their actions
What role does price elasticity of demand play in the effect of a price change on total revenue? - ANSW-
P-effect (inelastic)= TR increase because P is higher than Q (PxQ)
Q-effect (elastic)= TR decrease because P is lower than Q (PxQ)
Find area between new and old changes and compare
What is diminishing marginal product? - ANSW-Marginal product of an input declines as the quantity of
the input increases
Why does trade make everyone better off? - ANSW-Countries-
-specialize in production goods that they produce
-import several goods at lower costs
-increase their overall consumption of goods
Individuals-
-specialize in activities that they do best
-obtain more goods at a lower cost
-increase their overall consumption of goods
What is the definition of Cross-Price elasticity of demand? - ANSW-A measure of how the quantity
demanded of one good responds to a change in the price of another good
What is marginal cost (MC)? What is the formula for marginal cost? - ANSW-Increase in total cost arising
from an extra unit of production. Change in Total Cost/Change in Quantity
