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Econ 201 Midterm Exam: Updated Solution
equilibrium (Ans- A situation in which the market price has reached the level at which quantity supplied equals quantity demanded equilibrium price (Ans- The price that balances quantity supplied and quantity demanded equilibrium quantity (Ans- The quantity supplied and the quantity demanded at the equilibrium price surplus (Ans- a situation in which quantity supplied is greater than quantity demanded Shortage (Ans- a situation in which quantity demanded is greater than quantity supplied
law of supply and demand (Ans- The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance Elasticity (Ans- a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants price elasticity of demand (Ans- a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price midpoint method (Ans- (Q2-Q1)/ [(Q2+Q1)/2] DIVIDED BY (P2-P1)/[(P2+P1)/2] total revenue (in a market) (Ans- the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold perfectly inelastic demand (Ans- elasticity = 0
cross-price elasticity of demand (Ans- a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good price elasticity of supply (Ans- a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price price ceiling (Ans- a legal maximum on the price at which a good can be sold price floor (Ans- a legal minimum on the price at which a good can be sold welfare economics (Ans- the study of how the allocation of resources affects economic well being willingness to pay (Ans- max amount a buyer will pay for a good
consumer surplus (Ans- the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Cost (Ans- value of everything a seller must give up to produce a good producer surplus (Ans- the amount a seller is paid for a good minus the seller's cost of providing it efficiency (Ans- the property of a resource allocation of maximizing the total surplus received by all members of society equity (Ans- fairness of the distribution of well-being among the members of society deadweight loss
(Ans- A market in which there are many buyers and many sellers so that each has a negligible impact on the market price quantity demanded (Ans- the amount of a good that buyers are willing and able to purchase law of demand (Ans- the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises demand schedule (Ans- a table that shows the relationship between the price of a good and the quantity demanded demand curve (Ans- a graph of the relationship between the price of a good and the quantity demanded normal good (Ans- a good for which, other things equal, an increase in income leads to an increase in demand
inferior good (Ans- a good for which, other things equal, an increase in income leads to a decrease in demand substitutes (Ans- Two goods for which an increase in the price of one leads to an increase in the demand for the other complements (Ans- Two goods for which an increase in the price of one leads to a decrease in the demand for the other demand curve shifters (Ans- income, prices of related goods, tastes, expectations, number of buyers, price quantity supplied (Ans- the amount of a good that sellers are willing and able to sell law of supply (Ans- the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
