Eco 312 First Exam 3

Front 1

Theme of ECO 312?

Back 1

Studying human behavior as a relationship between given ends and scarce means which have alternative uses

Front 2

3 Possible Scopes of Economics:

Back 2

1. Fertility decisions
2. Business profit maximization
3. Criminal behavior

Front 3

3 Most Common Economic Errors in Decision Making:

Back 3

1. Ignoring implicit costs
2. Caring about sunk costs
3. Measuring costs and benefits as proportions and not as absolute values

Front 4

What is the principle of the "invisible hand"?

Back 4

Self-interested consumers are driven to produce the greatest social good

Front 5

What are the limitations of the "invisible hand"?

Back 5

External costs and benefits

Front 6

question about what policies or institutional arrangements lead to the best outcomes

Back 6

normative question

Front 7

question about the consequences of specific policies or institutional arrangements

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positive question

Front 8

Concept of the marginal benefit being greater than the marginal cost

Back 8

thinking marginally

Front 9

study of individual choices and the study of group behavior in individual markets

Back 9

microeconomics

Front 10

study of broader aggregations of markets

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macroeconomics

Front 11

people choose the best patterns of consumption that they can afford

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optimization principle

Front 12

quantity demanded becomes equal to quantity supplied through price changes

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equilibrium principle

Front 13

In equilibrium, there is no ___________ and no ______________.

Back 13

shortages; surpluses

Front 14

compare one equilibrium to another after a shock

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comparative statics

Front 15

Derived demand curve based on the concept of _________________.

Back 15

reservation price

Front 16

the set of price-quantity pairs for which suppliers are satisfied

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supply curve

Front 17

3 Non-competitive ways to allocate a good:

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1. Price discrimination
2. Monopoly
3. Rent control

Front 18

It is attained when the only way to make someone else better off is to make someone else worse off

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Pareto efficiency

Front 19

a particular combination of two or more goods

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consumption bundle

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(x1, x2)

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consumption bundle

Front 21

bundles on or below the budget constraint

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budget set

Front 22

the set of all bundles that exactly exhaust the consumer's income at given prices

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budget constraint

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opportunity cost of x1 in terms of x2

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slope of budget constraint

Front 24

What happens to the budget constraint graphically when income increases from m to m'?

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shifts parallel outward

Front 25

X > Y

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X is strictly preferred to Y

Front 26

X ~ Y

Back 26

Indifferent between X and Y

Front 27

X >_ Y

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X is weakly preferred to Y

Front 28

3 Basic Assumptions about preferences:

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1. Complete
2. Reflexive
3. Transitive

Front 29

Two Principles of Well-behaved preferences:

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1. "more is better"
2. Averages are preferred to extremes

Front 30

at any point on an indifference curve, the rate at which the consumer is willing to exchange the good measured along the vertical axis for the good measured along the horizontal axis

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marginal rate of substitution

Front 31

the more food the consumer has, the more she is willing to give up to obtain an additional unit of shelter

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diminishing marginal rate of substitution

Front 32

Utility is __________ (not ___________)

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ordinal; cardinal

Front 33

_____________________ of the utility function do not change the ranking of consumption bundles

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monotonic transformations

Front 34

This occurs at the tangency of indifference curves and budget constraint

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maximization of utility

Front 35

At the optimal bundle, MRS =?

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P1/P2

Front 36

one whose quantity demanded rises as income rises

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normal good

Front 37

one whose quantity demanded falls as income rises

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inferior good

Front 38

Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity.

Back 38

market demand

Front 39

Difference between market demand and individual demand?

Back 39

The market demand gives the total quantity demanded by all consumers.

The individual demand is the demand of one individual or firm.

Front 40

a measure of responsiveness

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elasticity

Front 41

% change in y / % change in x

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elasticity

Front 42

Price elasticity of demand has an absolute value greater than 1, then it has an __________ demand.

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elastic

Front 43

Price elasticity of demand is less than 1, then it has an ___________ demand.

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inelastic

Front 44

Income elasticity of demand is greater than 0, then it is a ________ good.

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normal

Front 45

Income elasticity of demand is greater than 1, then it is a _________ good.

Back 45

luxury

Front 46

Income elasticity of demand is less than 0, then it is an ___________ good.

Back 46

inferior

Front 47

Cross price elasticity of demand is greater than 0, then the items are considered to be _____________.

Back 47

substitutes

Front 48

Cross price elasticity of demand is less than 0, the goods are considered to be ___________.

Back 48

complements

Front 49

If demand is elastic, _______ price.

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reduce

Front 50

If demand is inelastic, _________ price.

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increase

Front 51

If demand is unit elastic, ____________ price.

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do not change