Questions for Exam 1 Preparation

1. What is utility?

2. Positive economics describes what?

3. Normative economic statements are what?

4. What is a market?

5. What are the four elements of a circular flow diagram?

6. What do households do in a circular flow diagram?

7. What do firms do in a circular flow diagram?

8. What is a factor market?

9. What is a product market?

10. What do households do in the product market?

11. What is absolute advantage?

12. What is comparative advantage?

13. Is your time ever free?

14. Is the basis for trade absolute advantage or comparative advantage?

15. What do you give up if you decide to trade and specialize?

16. If bread was 5 riyals last year and 7 this year, what was the percentage change?

17. If pizza was 50 riyals last year and 52 this year, what is the percentage change?

18. If shoes were 90 riyals last year and 81 riyals this year, what is the percentage change? (remember the negative sign).

19. What is the general formula for percentage change?

20. Does everyone have a comparative advantage?

21. What four questions do all societies have to ask?

22. How you slice the pie determines the ______ of the pie.

23. Who decides in a planned economy?

24. Who decides in a market economy?

25. Who is Adam Smith?

26. When was The Wealth of Nations published?

27. What is the invisible hand?

28. The Price system is also a __________ system.

29. In every exchange there is one price and ______ values.

30. Who wins in a voluntary exchange?

31. What can government do to insure that a market economy produces wealth?

32. What are property rights?

33. What does the production possibilities frontier illustrate?

34. How is the production possibilities frontier expanded?

35. Can you operate beyond the production possibilities frontier?

36. Sellers ________ and buyers ________________.

37. Who has power in a competitive market?

38. What does Ceteris Paribus mean?

39. Do economists ever use Ceteris Paribus?

40. What two things do you need if you want to buy a product?

41. What is the law of demand?

42. If prices go up, what happens to the quantity demanded?

43. How do you calculate the market demand for a product?

44. When you change the price, does the demand curve shift?

45. What happens to the quantity demanded if the demand curve shifts to the right?

46. Name five factors that may cause the demand curve to shift.

47. If you expect prices to increase tomorrow, what will happen to your demand curve today?

48. What are two reasons that the demand curve slopes downward?

49. Name two goods that are complements

50. Name two goods that are substitutes

51. What is a normal good to you?

52. What would be an inferior good to you?

53. What is the law of supply?

54. Are price and quantity supplied inversely or proportionally related?

55. Name four reasons the supply curve shifts.

56. What is equlilibrium?

57. If the market price is above the equilibrium price, what will happen?

58. If the market price is below the equilibrium price, what will happen?

59. How to you eliminate a surplus?

60. How do you fix a shortage?

61. What three steps to economists follow in analyzing how an event will effect market equilibrium?

62. Prices increase from $10.00 to $11.00. Quantity demanded decreases from 100 units to 80 units.

What is the price elasticity of demand?
What is the total revenue at $10.00 per unit?
What is the total revenue at $11.00 per unit?

63. If I increase prices from $20 to $25, quantity demanded decreases from 1,000 units to 900 units. Should I raise prices? Why?

64. Prices increase from $10 to $15 for product A. Quantity demanded for product B increases from 500 units to 600 units

What is the cross-price elasticity of demand? Are these products compliments or substitutes?

65. Prices increase from $10 to $15 for product C. Quantity demanded for product B decreases from 40 units to 30 units

What is the cross-price elasticity of demand? Are these products compliments or substitutes?

66. Your income increase from $10 to $15 per hour. Quantity demanded for product E decreases from 20 units to 15 units

What is the income elasticity of demand? Is this product an inferior, normal, or luxury good?

67. Your income decreases from $12 to $10 per hour. Quantity demanded for product F increases from 10 units to 12 units

What is the income elasticity of demand? Is this product an inferior, normal, or luxury good?