QUIZ 1 Review 1) Opportunity cost- the value of opportunities lost due to a choice that is made.

a) The opportunity cost of going to college for 4 years (assuming that you are giving up a 25k/year position) is $100,000. 2) Rational- the principle that one would want more than less of a certain good. 3) Utility- Utility is the happiness attained from purchases, which may become less as the customer purchases more of that particular product. 4) Ceteris Paribus- Latin term that translates to all other things being equal. In economics, the term is used as shorthand to describe the effect of one economic variable on another. a) For example: if demand of a product outweighs supply, Ceteris Paribus, prices on that product will rise. i) Demand > Supply= Prices Rise. 5) Normal Goods vs. Inferior Goods a) Normal Goods- a good for which demand increases when income increases. i) Cars, electronics, restaurant meals, etc. b) Inferior Goods- goods for which demand decreases when income increases. i) Ramen noodles, no name brand clothing, etc. 6) Substitutes- Natural gas to oil; Pepsi to Coca Cola, a common item that can vary between 2 products. a) If the price of substitute increases, then the demand will also follow suit, and vice versa. 7) Complements- Two products that complement each other. a) Hamburger buns and beef i) Price of beef goes down, people buy more beef, and the demand for buns increases. 8) Normative vs Positive a) Normative is describing is debate on what economic policy should be. b) Positive economics is describing, explaining, and predicting economic events. 9) Equilibrium- when quantity demanded is equal to quantity supplied. a) Price remains constant, no need to change at equilibrium. 10) Graphically vs Conceptually a) Graphically- is how it is viewed on the graph. i) Equilibrium= where the S curve meets D curve b) Conceptually- how it would be described i) Equilibrium= if the amount supplied equals the amount demanded.

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a) The effect on Equilibrium P and Q i) Increase in Supply= shifts right and up. ii) Increase in Demand=shits right. iii)Decrease in Supply= shifts down and left. iv)Decrease in demand= shits left.

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a) b) c) 13) a) Equilibrium P&Q= $25/400 At 35$ the supply is significantly higher than demand: Surplus. At 15 the supply is lower than the demand: Shortage. In each event, describe the circumstances: Pineapples after a hurricane in Hawaii i) Supply decreases (supply curve left); drives prices up and keeps quantity down. b) Home heating oil as weather warms i) Demand decreases (demand curve left); drives prices down and quantity up. c) Cars as steel becomes more affordable i) Supply increases (supply curve right); drives prices down, and

quantity up. d) Bread as wheat gets more expensive i) Supply decreases (supply curve left); drives prices up and quantity down. 14) If a certain piece of land is better for hunting, and other better for farming, as a society emerges from its all hunting phase, the worse hunting land would be used first for farming to keep the opportunity cost of farm products down. 15) Bob can make 10 thingies and 5 gizmos/hr; Tina can make 8 thingies and 12 gizmos per hour a) Bob 1 thingy=1/2 gizmo b) Tina 1 thingy= 11/2 gimzos c) Bob would specialize in producing thingys. 16) Which line moving (S or D) would affect each case? a) Increase in P & Q= demand curve right (demand increase) b) Increase in P, decrease in Q= supply curve left (supply decrease) c) Decrease in P & Q= demand curve left (demand decreases) d) Decrease in P, increase in Q= supply curve right (supply increases)