Introductory Material
What is the definition of economics?
Economics is the study of the production, distribution, and consumption of goods and services.
Give an example of something that would cause a rightward shift of supply.
Improved technology, improved natural conditions, decrease in cost of inputs.
Write down the values that qualify a good as inelastic, elastic, and unit elastic
Inelastic < 1
Elastic > 1
Unit elastic = 1
Write the equation for the expenditure method.
GDP = consumption + investment + government spending + net exports
What is the incentive for supplying financial capital?
An individual has an income of $100, they can buy good 1 which costs $10 (x axis) or good 2 which costs $20 (y axis). What happens to their budget constraint if good 2 changes in price to $10.
Their budget constraint becomes steeper.
Define a price floor, give a real-world example, and draw a binding price floor on a graph.
A new legal minimum price.
Examples: minimum wage, placed on agricultural products (milk eggs etc)
Why do we only care about elasticity values in absolute terms?
Because price elasticity of demand will always be negative because of the law of the demand (inverse relationship between price and quantity)
Which component of GDP is the most stable?
Consumption
Give an example of something that would shift the supply of labor in a market?
Changes in how the job is perceived, changes in government regulation for that occupation.
In a labor leisure budget constraint, explain why a decrease in income would make the budget constraint flatter.
Your opportunity cost for choosing an hour of labor over an hour of leisure has decreased.
Consider the market for coffee. Assume the price of coffee beans decreases and that the general public is trying to decrease their caffeine consumption. What impact will this have on P* and Q*?
P will decrease Q cannot be determined
Give three examples of characteristics that make the demand for that good more elastic.
Many substitutes, large share of income, use of the good in the long-run, luxury good
Give two examples of things not included in GDP.
used goods, illegal goods, goods used for personal consumption, intermediate goods, etc.
What are the three components of the interest rate? (write the equation)
interest rate = risk premium + inflation + time value of money
Who collects the data used to report GDP?
Bureau of Economic Analysis
Using the following equations solve for consumer surplus and producer surplus.
Qd = 15 - 3P
Qs = -5 + 2P
Consumer surplus = 1.5
Producer surplus = 2.25
Product M has 100 units supplied at a price of $12 (P1) and 120 units demanded at a price of $14 (P2). What is the elasticity value, what type of good is it, what does that imply about supplier responsiveness to price?
1.18, elastic, very responsive to changes in price
Define what it means to be in a trade surplus vs a trade deficit.
Trade surplus: exports > imports
Trade deficit: imports > exports
We talked about one type of price control used in financial capital markets. What is the type of price control and what is the legal term used for it.
Price ceiling
Usury laws
Draw the circular flow diagram (include all three markets and the flow of resources/goods and services)
NA
Explain what happens to consumers and producers when a price ceiling is implemented in a market. What happens to overall efficiency?
Consumer surplus will increase, producer surplus will decrease, the market will be more inefficient because their will be deadweight loss in the market.
Along a demand curve, identify which region is more elastic, which region is more inelastic, and where goods are unit elastic.
NA
Identify if the following are included in GDP and if they are included what component of GDP:
1. A couch bought on Facebook marketplace
2. New computers for a public school
3. Someone in the US purchased clothing made in India
1. No
2. Yes (government spending)
3. Yes (net exports)
How does improved technology impact low skill vs high skill workers?
Low-skill workers: leftward shift of labor demand decrease wage, decrease quantity.
High-skill workers: rightward shift of labor demand, increase wage, increase quantity.
Widen the gap of wage inequality.