Microeconomics Mid-Term

Front 1

What is economics

Back 1

It is a social science that describes the factors that determine the production, distribution and consumption of goods and services.

Front 2

What is the main economic problem

Back 2

Scarcity (nepriteklius)

Front 3

Indicate and define resources in economics

Back 3

Land, labor and capital.

Front 4

Differences of micro and macroeconomics

Back 4

Microeconomics refers to more individual or company specific studies in economics while Macroeconomics refers to big picture study of economics, so looking at concepts like industry, country or global economic factors.

Front 5

What is demand

Back 5

It is the willingness and ability of buyers to purchase different quantities of a good at different prices during a specific time period.

Front 6

Why demand might increase (rightward shift in the demand curve)

Back 6

Income increases (for normal goods); Income decreases (for inferior goods); Changes in preferences; The price of substitute increases; The price of complement decreases; The number of buyers increases; Price increase expectations.

Front 7

Why demand might decrease (leftward shift in the demand curve)

Back 7

Income decreases (for normal goods); Income increases (for inferior goods); Changes in preferences; The price of substitute; The price of complement increases; The number of buyers decreases; Price decrease expectations.

Front 8

Why does quantity demanded go down as price goes up

Back 8

Because people tend to buy more when price goes down and buy less when price goes up.

Front 9

What is supply

Back 9

It is the willingness and ability of sellers to produce and offer to sell different quantities of a good at a different prices during a specific time period.

Front 10

Why supply might increase (rightward shift in the supply curve)

Back 10

The price of relevant resources decreases; The advance in technology; The price of substitute decreases; The price of complement in production increases; The number of sellers increases; Price decrease expectations; The taxes decrease.

Front 11

Why supply might decrease (leftward shift in the supply curve)

Back 11

The supply of relevant resources increases; Technology gets old; The price of substitute increases; The price of complement decreases; The number of sellers decreases; Price increase expectations; The taxes increase.

Front 12

Movement and shift of the demand curve

Back 12

Demand curve shifts to the rights as demand increases. It shows how the quantity of a good demanded by consumers depends on its price. It is downward sloping. Holding other things equal, consumers will want to purchase more of a good as its price goes down.

Front 13

Movement and shift of the supply curve

Back 13

Supply curve shifts to the right as supply increases. It shows how the quantity of a good offered for sale changes as the price of the good changes. It is upward sloping. The higher the price, the more firms are able and willing to produce and sell.

Front 14

What is equilibrium price

Back 14

It is a price that equates the quantity supplies to the quantity demanded.

Front 15

What is market mechanism

Back 15

It is a tendency in free market for price to change until the market clears.

Front 16

What is surplus

Back 16

It is a situation in which the quantity supplied exceeds the quantity demanded.

Front 17

What is shortage

Back 17

It is a situation in which the quantity demanded exceeds the quantity supplied.

Front 18

How is equilibrium price determined

Back 18

It is a point where supply and demand curves intersect.

Front 19

What happens if market price is higher than the equilibrium price

Back 19

The surplus occurs. Goods are storaged thus producers are forced to decrease prices. The quantity demanded increases, the quantity supplied decreases and price moves to equilibrium price.

Front 20

What happens if market price is lower than the equilibrium price

Back 20

The shortage occurs. Consumers are not able to find the products they need thus they are willing to increase prices. The quantity demanded decreases, the quantity supplied increases and price moves to equilibrium price.

Front 21

Who initiates new prices

Back 21

When there is surplus, producers initiate new prices, when there is shortage, consumers initiate new prices.

Front 22

What is elasticity

Back 22

It is a measurement of how responsive one economic variable is to another.

Front 23

What is the measurement unit of elasticity

Back 23

It does not have a measurement unit.

Front 24

How do you calculate price elasticity of demand

Back 24

Percentage change in quantity demanded divided by percentage change in price. Percentage change of average of two quantities demanded divided by percentage change of average of two prices.

Front 25

How do you calculate price elasticity of supply

Back 25

Percentage change in quantity supplied divided by percentage change in price. Percentage change of average of two quantities supplied divided by percentage change of average of two prices.

Front 26

What might be the values of elasticity

Back 26

Perfectly elastic (E = infinity), relatively elastic (E>1), unit elastic (E=1), relatively inelastic (0

Front 27

Represent values of elasticity of demand graphically

Back 27

Front 28

Represent values of elasticity of supply graphically

Back 28

Front 29

Examples of perfectly elastic demand

Back 29

A small percentage change in price causes an extremely large percentage change in the quantity demanded. For ex: the demand of electricity of Tesla.

Front 30

Examples of relatively elastic demand

Back 30

The quantity demanded changes proportionately more than price changes.

Front 31

Examples of unit elastic demand

Back 31

The quantity demanded changes proportionately to price changes.

Front 32

Examples of relatively inelastic demand

Back 32

The quantity demanded changes proportionately less than price changes.

Front 33

Examples of perfectly inelastic demand

Back 33

The quantity demanded does not change as price changes.

Front 34

Examples of perfectly elastic supply

Back 34

The quantity supplied does not change as price changes.

Front 35

Examples of relatively elastic supply

Back 35

The quantity supplied changes proportionately more than price changes.

Front 36

Examples of unit elastic supply

Back 36

The quantity supplied changes proportionately to price changes.

Front 37

Examples of relatively inelastic supply

Back 37

The quantity supplied changes proportionately less than price changes.

Front 38

Examples of perfectly inelastic supply

Back 38

The price does not change as the quantity supplied changes.

Front 39

What are time periods in economics

Back 39

Moment (instant); short period of time (short-run); long period of time (long-run).

Front 40

If a firm’s goal is to maximize income, what should you do increase or decrease prices

Back 40

It depends on elasticity of demand. When demand is elastic, total revenue increases when the price decreases. When the demand is inelastic, total revenue increases when the price increases. When the demand is unit elastic, total revenue doesn’t change when price changes.

Front 41

What is income elasticity of demand

Back 41

It is a measure of the responsiveness of quantity demanded to changes in income.

Front 42

How does demand depend on normal good

Back 42

For normal goods the income elasticity of demand is positive, meaning that the quantity demanded for normal necessities will increase with income, but at a slower rate than luxury goods. For ex: car market.

Front 43

How does demand depend on inferior good

Back 43

For inferior goods the income elasticity of demand is negative, meaning that the quantity demanded for inferior goods falls as incomes rise. For ex: tobacco.

Front 44

What is cross elasticity of demand

Back 44

It is a measure of the responsiveness in quantity demanded of one good to changes in the price of another good. It indicates whether the goods are substitutes or complements.

Front 45

Positive cross elasticity of demand

Back 45

If the elasticity coefficient is positive, the goods are substitutes meaning that the increase in one product’s price will increase consumption of another product.

Front 46

Negative cross elasticity of demand

Back 46

If the elasticity coefficient is negative, the goods are complements meaning that increase in one product’s price will decrease consumption of another product.