econ_midterm1

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School

Stanford University *

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Course

ECON 1

Subject

Economics

Date

Feb 20, 2024

Type

rtf

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Uploaded by MajorMorningDragon73

Section A: Multiple Choice (20 points) Which of the following best defines the concept of opportunity cost? a) The total cost of producing a good or service b) The value of the next best alternative forgone when a choice is made c) The cost incurred when a firm produces beyond its production possibilities curve d) The total fixed costs incurred by a firm in the short run In economics, the term "elasticity" refers to: a) The responsiveness of quantity demanded to changes in price b) The ability of a good to satisfy human wants and needs c) The proportion of income spent on a particular good or service d) The degree to which a market is characterized by perfect competition Which of the following is NOT considered a factor of production? a) Land b) Labor c) Money d) Capital When an economy is operating at full employment, which of the following is true? a) There is no unemployment in the economy b) The economy is producing at its maximum potential output c) The economy is experiencing inflation d) There is a surplus of goods and services in the market The law of diminishing marginal utility states that:

a) As the price of a good increases, the quantity demanded decreases b) As more units of a good are consumed, the additional satisfaction derived from each additional unit decreases c) Total utility increases at a decreasing rate as more units of a good are consumed d) Marginal cost decreases as output increases in the short run Section B: Short Answer (40 points) Explain the difference between a normal good and an inferior good. Provide an example of each. Define price elasticity of demand. How is it calculated, and what does it indicate about the responsiveness of quantity demanded to changes in price? Describe the concept of comparative advantage in international trade. How does it contribute to the gains from trade between countries? Discuss the relationship between inflation and unemployment according to the Phillips curve. What factors might cause this relationship to shift over time? Explain the difference between fiscal policy and monetary policy. Give examples of each and discuss how they can be used to stabilize the economy. Section C: Essay (40 points) In recent years, there has been a growing concern about income inequality in many countries. Discuss the causes and consequences of income inequality from an economic perspective. What policies could be implemented to address this issue effectively?

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