Micro Econ Quiz 2

Front 1

Trade-How it works

Back 1

Little kid going to school your mom always gave you carrots, apples, and a tuna sandwich. Your friend gets pringles, doritos, and a hot pocket. So by the end of the week the kids are trading their lunches. Both parties have to be better off or they wouldn't trade.

Front 2

The key concept of trade is

Back 2

Mutual gains from voluntary trade--Unless there is deception or misunderstanding, a voluntary trade between 2 parties MUST make both parties better off!

Front 3

Comparative Advantage

Back 3

The ability to produce something at a lower opportunity cost than the other party.

Front 4

Specialization

Back 4

If one party has a comparative advantage in the production of something, they should produce that product and then trade for the rest because then they would be better off. THere are no new resources but we get more output.

Front 5

Terms of Trade

Back 5

We have to figure out what's good for both parties. We will not trade for something less than we could make ourselves.

Front 6

Absolute Advantage

Back 6

The ability to produce something with fewer resources than another (or produce more output with the same resources).

Front 7

Law of Comparative Advantage

Back 7

An individual (firm or company) should specialize in producing the good or service in which it has a comparative advantage and trade for the rest. Then overall output will increase.

Front 8

Exports

Back 8

Things we have a comparative advantage in producing. They are seen as a good thing because we keep US jobs here.

Front 9

Imports

Back 9

Things we don't have a comparative advantage producing. Seen as a bad thing.

Front 10

Should we outsource or protect workers here?

Back 10

If the other country got a comparative advantage by inventing a new product or process we shouldn't protect workers because we need to take advantage of the new more efficient process.
If the other country has lead based paint or lower quality that allows them the comparative advantage such as child labor then we will want to protect our industry.

Front 11

Market

Back 11

An institution where a buyer and a seller come together to transact with each other. Could be a stock market, Hyvee, Ebay, or a garage sale.

Front 12

Assumption for market transactions

Back 12

We assume the market is competitive. No buyer or seller is big enough to control the price.

Front 13

Demand

Back 13

Buyers side: The goods and services an individaul consumer is willing and able to buy during a given time period.

Front 14

Law of demand

Back 14

Other things being equal as the price falls, the quantity demanded rises. As price rises, quantity demanded falls.

Front 15

Substitution Effect

Back 15

As the price of Pepsi goes up and the price of Coke stays the same consumers substitute Coke for Pepsi, the relatively cheaper product.

Front 16

Income Effect

Back 16

As price increases the purchasing power of a consumer's income fall so they buy less. Vice versa if price decreases the purchasing power increases.

Front 17

The law of diminishing marginal consequences

Back 17

The more you buy the benefit goes down. The first Pizza you enjoy a whole lot. The second one you're like hmm that wasn't as good and by the third one you're like OMG sick of pizza!

Front 18

Change in the Quantity Demanded

Back 18

If the price of the good we're talking about changes, we say there has been a change in the Quantity Demanded. It's a slide on the demand curve.

Front 19

If something else changes in Demand besides price what happens?

Back 19

If something else changes and other things equal is violated, we have a shift in the demand curve. This is a change in demand because at EVERY given price, more or less is demanded.

Front 20

Demand shifters mnemonic

Back 20

PINTE

Front 21

Changin in the price of a related good.

Back 21

Demand shifter. Substitutes: If the 2 goods are substitutes then when the price of one goes up the consumers buy less of that and more of another. We increase the price of coke, that causes a slide on the demand curve. That shifts the demand curve out on the pepsi graph because it is the relatively cheaper product.
Complements: Items used together, like PB&J.
If the items are unrelated then change in one does not affect change in another. If the price of baby food goes up it does not affect the price of tennis shoes.

Front 22

Income

Back 22

Demand shifter. In general if income increases then generally people will buy more and demand will increase. However, there are certain inferior goods that you will buy less of and demand will go down for if this happens such as ramen noodles, spam, and used cars.

Front 23

Inferior goods

Back 23

As income increases we buy less. If income falls you buy more of them. These goods are hot if you are in a recession. Exp. If income goes up you buy ham instead of spam. Spam is an inferior good. You buy new cars instead of used. Used is an inferior good.

Front 24

Number of buyers

Back 24

Demand shifter. If the # of buyers goes up or down we will have a shift. Because there are more people demanding at every point.

Front 25

Tastes and preferences

Back 25

Tastes change based on fads or consumer reports. If a report comes out and says a product is not safe, demand for that product will drop and then price will drop because there is no one who wants to buy it.

Front 26

Substitutes

Back 26

A product that can be substituted for another product. Such as if the price of coke increased you'd buy pepsi instead.

Front 27

COmplement

Back 27

Items used together. PB&J. Gasoline and cars.

Front 28

Expectations about the future

Back 28

Demand shifter. If you expect the price of something to rise in the future, demand today rises. However, if you expect the price of something to fall, such as electronics, then demand today is low because people wait for the price to fall.

Front 29

Why do bars offer happy hour?

Back 29

They make the most money by selling alcohol. They want to bring people in during the middle of the day during their slow time. They have 2 options how to do this.
Option 1: 1/2 price drinks. When we do that we just slide because we change the price. So we have an increase in the quantity demanded not really helpful.
Option 2: 1/2 price appetizers. We would shift because it decreases the price of a complement. we can keep the price of alcohol the same but still sel a whole bunch more.

Front 30

Why do restaurants charge for water and give peanuts away for free?

Back 30

Peanuts are a complement to a drink. So people want it. Water is a substitute for Coke. If people have to pay $2 for water they will think it is a rip off and decide to buy a coke instead. This increases our drink sales.

Front 31

Why would the US want to trade with Spain, given that the US is so much larger and more productive? A) Spain leads the world in technical change and innovation, B) the US wants to acquire Spanish land, C) comparative advantage, D) absolute advantage

Back 31

C Comparative advantage

Front 32

Specilaization and trade are beneficial to two countries: A) provided their opportunity costs of production are not the same for all goods that they produce, B) when each country specializes in producing the good that it can produce at the lowest opportunity cost, C) even when one country can absolutely produce more than the other country, D) all of the above.

Back 32

D all of the above

Front 33

When a country expands its trade with other countries, which is likely to occur: A) most consumers in the country will complain and refuse to buy imported products, B) unemployment will rise in both countries over a long period of time, C) some job losses will occur in some industries, D) incomes will drop in both countries

Back 33

C some job losses will occur in some industries.

Front 34

Markets: A) are typically the same size, B) Bring buyers and sellers together, C) are institutions where sellers always have the advantage, D) are institutions where sellers offer only a physical product.

Back 34

B Bring buyers and sellers together.

Front 35

Which of the following will NOT impact the demand for orange juice? A) consumer income, B) the price of apple juice, C) medical research on the benefits of orange juice, D) agricultural subsidies (government payments) to farmers to grow more oranges.

Back 35

D

Front 36

The law of demand states: A) people always want more, B) you can't always get what you want at the price you want, C) quantity demanded increases as price falls, other things being equal, D) more of a good will be demanded the higher its price, other things being eqaul.

Back 36

C

Front 37

The price of PB falls and as a result the demand for jelly increases. Based on this info, we can conclude that PB and J are: A) substitutes, B) complements, C) normal goods, D) inferior goods

Back 37

B

Front 38

The demand curve for a good will likely shift outward to the right if A) the price of a good is likely to rise in the future, B) the price of a substitute good falls, C) the good goes outta style, D) society's income falls.

Back 38

A