ECN 101 Final Exam Flashcards

Questions and Answers

What is economics?

The study of how individuals and societies manage scarce resources.

What is the definition of elasticity?

A measure of how buyers or sellers respond to changing market conditions.

What is the equation for profit?

Total Revenue - Total Cost.

Why is scarcity the fundamental concept of economics?

Scarcity compels us to make choices. Signup and view all the answers

What is Price Elasticity of Demand?

A measure of how the quantity demanded of a good responds to a change in its price. Signup and view all the answers

What is total revenue, and what is the equation for it?

The amount a firm receives from the sale of its output. Price x Quantity. Signup and view all the answers

What is the difference between microeconomics and macroeconomics?

Microeconomics studies the decision-making of individuals and firms, while macroeconomics studies economy-wide phenomenon such as aggregate production, unemployment, and inflation. Signup and view all the answers

What is the basic formula of Price Elasticity of Demand?

Ep= |% change in QD| / |% change in P|. Signup and view all the answers

What is total cost, and what is the equation for total cost?

The market value of the inputs a firm uses in production. Explicit Costs + Implicit Costs. Signup and view all the answers

What is opportunity cost?

Whatever must be given up when making a particular choice. Signup and view all the answers

What is elastic demand?

Quantity demanded is highly responsive to a price change. Signup and view all the answers

What is accounting profit?

Total Revenue - Explicit Costs (ignores implicit costs). Signup and view all the answers

What is economic profit?

Total Revenue - Total Cost (Explicit + Implicit). Signup and view all the answers

What is inelastic demand?

Quantity demanded is less responsive to a price change. Signup and view all the answers

What is the difference between explicit and implicit costs?

Explicit costs: costs that require a cash outlay. Implicit costs: costs that do not require a cash outlay. Signup and view all the answers

What is sunk cost?

A cost that has already been committed and cannot be recovered. Signup and view all the answers

What is production function?

The relationship between the quantity of inputs used to make a good and the quantity of output of that good. Signup and view all the answers

What is the cost in the short run?

Some inputs are fixed. Signup and view all the answers

What is the cost in the long run?

All inputs are variable. Signup and view all the answers

What is the definition of Price Elasticity of Supply?

A measure of how quantity supplied of a good responds to a change in its price. Signup and view all the answers

What is marginal product (MP)?

The increase in output that arises from an additional unit of input. Signup and view all the answers

How do you find marginal product of labor (MPL)?

change in Q/change in L. Signup and view all the answers

What is the law of demand?

The quantity demanded of a good falls when the price of the good rises, and the quantity demanded of a good rises when the price of the good falls. Signup and view all the answers

What is quantity supplied?

The quantity of a good that firms are willing and able to sell. Signup and view all the answers

What is the definition of a Price Ceiling?

Sets a legal maximum on the price of a good with the intention of making the good affordable. Signup and view all the answers

What is the effect of a non-binding Price Ceiling?

When a Price Ceiling is set above the equilibrium price, the market reaches equilibrium. Signup and view all the answers

What is a demand shift?

When the entire demand curve shifts right or left due to changes in factors affecting demand. Signup and view all the answers

What are some examples of Price Ceiling, shortages, and rationing?

Long lines, buyers waiting to obtain the good, sellers rationing based on biases. Signup and view all the answers

What is the law of supply?

The quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls. Signup and view all the answers

What is the definition of a Price Floor?

Sets a legal minimum on the price of a good with the intention of preventing the price from falling too low. Signup and view all the answers

When do firms decide to shut down?

Firms shut down temporarily in the short run if TR < VC and P < AVC. Signup and view all the answers

Study Notes

Economics Basics

Economics studies how individuals and societies manage scarce resources.
Scarcity necessitates making choices, illustrating the concept's fundamental role.
Profit is calculated as Total Revenue minus Total Cost.

Elasticity Concepts

Elasticity measures buyer or seller responsiveness to market changes.
Price Elasticity of Demand (PED) assesses quantity demanded changes in response to price shifts.
The formula for Price Elasticity of Demand is Ep = |% change in QD| / |% change in P|.
Elastic demand occurs when the quantity demanded significantly responds to price changes (Ep > 1).
Inelastic demand is characterized by less responsiveness to price alterations (Ep < 1).

Revenue and Costs

Total Revenue equals Price multiplied by Quantity sold.
Total Cost comprises Explicit Costs (out-of-pocket expenses) and Implicit Costs (opportunity costs).
Marginal Cost (MC) reflects costs incurred for producing an additional unit, expressed as Change in Total Cost/Change in Quantity.

Production and Efficiency

The Production Function demonstrates the relationship between input quantity and output.
Production efficiency signifies the optimal use of all resources, while inefficiency arises when resources are underutilized.
The Production Possibilities Frontier (PPF) graphically represents the maximum possible output combinations.

Consumer Behavior

Opportunity Cost represents what must be forgone when making a choice.
Demand shifts occur due to changes in tastes, income, number of buyers, prices of related goods, and future expectations.
In the context of goods, a normal good's demand increases as consumer income rises, while an inferior good's demand decreases.

Market Dynamics

Perfect competition features numerous buyers and sellers, identical products, and no entry or exit barriers.
Firms are price takers in perfectly competitive markets and cannot influence prices.

Government Regulations

Price Ceilings set maximum prices, aimed to make goods affordable; binding ceilings lead to shortages.
Price Floors impose minimum prices to prevent prices from dropping too low; non-binding floors do not affect market equilibrium.

Firm Decisions and Profit Maximization

In the short run, firms decide whether to produce or shut down temporarily based on profit maximization where Marginal Revenue equals Marginal Cost.
Long-run decisions involve altering plant size or entering/exiting markets.

Elasticity of Supply

Price Elasticity of Supply (PES) measures how quantity supplied responds to price changes.
Elastic supply indicates high responsiveness (Ep > 1); inelastic supply shows low responsiveness (Ep < 1).

Economic Theory

Positive statements aim to describe reality and are testable, while normative statements offer opinions on what ought to be.
Economic models simplify complex real-world phenomena by focusing on key factors and assumptions.

Trade and Specialization

Comparative advantage drives specialization and trade, allowing countries and individuals to benefit from producing goods efficiently.
Economic scale describes how average total costs change with output levels, impacting competitiveness and market structure.

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Test your knowledge about fundamental economics concepts with these flashcards. Learn key definitions, such as the meaning of economics, elasticity, and profit equations. Perfect for ECN 101 students preparing for their final exam.