QUIZ 2 REVIEW - QUIZ 2 BE PREPARED QUIZ 2 WILL BE HARDER...

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QUIZ 2 – BE PREPARED, QUIZ 2 WILL BE HARDER THAN QUIZ 1 Chapter 6 – Elasticity 1. Price Elasticity of Demand: % ∆ in Quantity Demand / % ∆ in Price % ∆ = Q2-Q1 / Q1 (percent change formula do not use for price elasticity of demand, use midpoint formula and say you are using the midpoint formula) 2. Midpoint formula: (Diff in Q / Avg Q) / (Dif in P / Avg P) = [(Q2 – Q1) / (Q2+Q1)] / [(P2-P1) / (P2+P1)] div by 2 falls out 3. Cross Price Elasticity: % ∆ in Quantity (A) Demanded / % ∆ in Price of (B) *** (different) 4. Price Elasticity of Supply: % ∆ in Quantity Supplied / % ∆ in Price 5. ***Income Elasticity of Demand: % ∆ in Quantity Demanded / % ∆ in Income E > 1 ; Normal good that is a luxury (can do without elastic) 0<E<1; Normal good that is a necessity (cannot do without inelastic) E < 1 ; Inferior good ***only instance where we consider sign for E *** Chapter 7 – 1.) Be aware of the A) advantages and B) disadvantages to: Corporations – A) Limited Liability (there are many others) B) Managers’ goals are often different from the goals of the company (Mgrs lack proper incentives). Partnerships- A) Less risk and liability; greater pool for capital (start-up money) B) Decisions are not unilateral (decisions need to be made in agreement) Sole Proprietorships- A) Owner receives all of the profits (proper incentives to work hard) B) Owner bares all the risk and liability (can be sued and lose everything) 2. Silent Partner – a contributor in a partnership/corporation that only participates by providing capital (not involved in decision-making) Chapter 8 – Comparative Advantage and International Issues 1. Review comparative advantage (handout is on blackboard) 2. Why is trade important? Gains to trade, specialization, opp costs Explain why outsourcing does not hurt American economy as a whole Understand that trade allows for increased consumption (a gain to trade) 3. Understand how a country will possess comparative advantage Abundant natural resources and favorable climate Labor advantages (more skilled or more unskilled will determine in which goods a country has advantage) Technological advantage more efficient sue of resources 4. Understand Free Trade and trade with restrictions (positive vs. normative effects) Tariffs: economic benefits/costs and social benefits/costs Quotas and voluntary export restraint: same criteria 5. Dumping: selling a product below cost why would this happen?
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6. Try to figure out the Diamond-Water paradox (Marginal Utility affecting price)
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