Economics Concepts and Final Exam Requirements

The final exam in this course is optional if you successfully complete the first three exams.

Incentives are factors that motivate a person to make a decision or take action.

The "ceteris paribus" assumption allows economists to focus on the relationship between two variables while holding all other factors constant.

An inferior good is a good whose demand decreases when consumer income rises. In this case, consumers are choosing to buy used furniture, a cheaper alternative, because their income has decreased due to the recession.

If consumers are unresponsive to price changes, they will continue to buy the same quantity of a good or service, regardless of whether the price increases or decreases.

In this scenario, the consumer bears some, but not all, of the tax burden.

Opportunity cost is the value of the next best alternative that is forgone when making a decision.

Scarcity refers to the fundamental economic problem that resources are limited, while human wants are unlimited.

Marginal cost is the additional cost incurred by producing one more unit of a good or service.

Julia should work 30 hours this week. This is because her marginal benefit (MB) of $18 per hour is greater than her marginal cost (MC) for the first 30 hours worked.

The marginal benefit (MB) is the additional benefit gained from consuming one more unit of a good or service.

Variables that are not controlled for in a model. The value of these variables can change without any influence from the model.

The relationship between the price of a good and the quantity supplied. For example, a decrease in the price of bottled orange juice would likely lead to a decrease in the quantity supplied.

Complementary goods are those that are consumed together, and a change in the price of one good will impact demand for the other.

A decrease in the price of a good leads to a decrease in the quantity demanded by consumers. As price goes down, the demand goes down.

The price at which the quantity supplied equals the quantity demanded. It's where the demand curve and the supply curve intersect.

The quantity of goods that sellers are willing to supply at different prices, assuming all other variables remain constant.

The amount of goods that buyers are willing and able to purchase at different prices, assuming all other variables remain constant.

Producer surplus decreases, while consumer surplus remains unchanged.

Both consumer and producer surplus increase in both the orange juice and apple juice markets.

Apple juice consumers are worse off, but orange juice producers benefit.

Consumers lose out in the orange juice market, while apple juice producers gain.

Goods with inelastic demand.

The price of lawn fertilizer will decrease due to the reduced demand for lawns.

The total consumer surplus is the sum of each consumer's surplus, or the difference between their willingness to pay and the actual price.

The total surplus is the sum of consumer surplus and producer surplus.

The price elasticity of demand is a measure of how much the quantity demanded of a good changes in response to a change in its price. For example, if the price of a good increases by 10%, and the quantity demanded decreases by 20%, the price elasticity of demand is -2.0 (the percentage change in quantity demanded divided by the percentage change in price).

When the price elasticity of demand is greater than 1, demand is considered elastic. This means that a change in price will lead to a relatively larger change in the quantity demanded. For example, if the price of a good increases by 10% and the quantity demanded decreases by 20%, demand is elastic. Elastic demand usually applies to goods that have readily available substitutes, are considered luxuries, or represent a significant portion of a consumer's budget.

When the price elasticity of demand is less than 1, demand is considered inelastic. This means that a change in price will lead to a relatively smaller change in the quantity demanded. For example, if the price of a good increases by 10% and the quantity demanded decreases by only 5%, demand is inelastic. Inelastic demand typically applies to goods with few substitutes, essential goods or services, or goods that represent a small portion of a consumer's budget

The cross-price elasticity of demand measures how the quantity demanded of one good changes in response to a change in the price of another good. It can be positive (for substitutes, meaning an increase in the price of one good causes an increase in the demand for the other) or negative (for complements, meaning a price increase in one good causes a decrease in the demand for the other).

Substitute goods are goods that can be used in place of one another. For example, Coke and Pepsi, or butter and margarine. If the price of one substitute good increases, the demand for the other good increases. For example, if the price of Coke increases, consumers might switch to Pepsi, increasing the demand for Pepsi.

Income elasticity of demand measures how the quantity demanded of a good changes in response to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. When income elasticity of demand is positive, it indicates that a good is a normal good (as income increases, demand increases). When it is negative, it indicates an inferior good (as income increases, demand decreases).

The demand curve shifts to the left, meaning consumers will buy fewer hamburgers at each price.

When the price of a good changes, consumers will move along the existing demand curve to a different quantity demanded.

Price elasticity of demand (ED) measures the responsiveness of quantity demanded to a change in price. A value of -1.5 means that if the price of Dunkin Donuts increases by 1%, quantity demanded will decrease by 1.5%.

Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. A negative value indicates that the two goods are complements, meaning that a decrease in the price of one good leads to an increase in the demand for the other good.

Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. A negative value indicates that the two goods are complements, meaning that a decrease in the price of one good leads to an increase in the demand for the other good.

Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in consumer income. A positive value indicates that the good is a normal good, meaning that demand increases as income increases.

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. This is a way to measure how sensitive demand for a good is to changes in its price.

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. This is a way to measure how sensitive demand for a good is to changes in its price. The midpoint method is a way to calculate the percentage changes used in the price elasticity of demand calculation.