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Economics Test 1
| Question | Answer |
|---|---|
| All economic questions arise because we have? | limited resources and unlimited desires |
| Our inability to satisfy all our wants | Scarcity |
| Money, time, jobs, workers, natural resources, and office space are examples of? | Scarcity |
| Because we face _____, we must make choices | Scarcity |
| The choices we make depend on the _____ we face | Incentives |
| A reward that encourages an action or a penalty that discourages an action | Incentive |
| Prices, fines, jail time, and social pressure are examples of? | Incentives |
| The social science that studies the choices that individuals, businesses, governments, and entire societies make, how they cope with scarcity and the incentives that influence and reconcile those choices | Economics |
| The study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments | Microeconomics |
| How much should a firm produce? If a persons wages rises, will they work more or less hours? These questions would be considered what type of economics? | Microeconomics |
| The study of the performance of the national and global economies | Macroeconomics |
| Why is the unemployment rate in the U.S. so high? What happens to prices when the Fed raises interest rates? These questions would be considered what type of economics? | Macroeconomics |
| Objects that people value and produce to satisfy human wants | Goods and Services |
| Goods and services are produced using recources that economist call: | Factors of Production |
| Land, labor, capitol, entrepreneurship are examples of? | Factors of Production |
| Who gets the goods and services depends on the _____ that people earn | Incomes |
| Land earns? | Rent |
| Labor earns? | Wages |
| Capital earns? | Interest |
| Entrepreneurship earns? | Profit |
| A choice is a? | Tradeoff |
| People make ______ by comparing benefits and costs | Rational Choices |
| ______ is what you gain from something | Benefit |
| ______ is what you must give up to get something | Cost |
| Most choices are how-much choices made at the ______ | Margin |
| Choices respond to ______ | Incentives |
| Giving up one thing to get something else | Tradeoff |
| Compares sots and benefits and achieves the greatest benefit over cost for the person making the choice | Rational Choice |
| Only the wants of the person making a choice are relevant to determine its __________ | Rationality |
| The gain or pleasure that it brings and is determined by preferences | Benefit |
| What a person likes and dislikes and the intensity of those feelings | Preference |
| The highest-valued alternative that must be give up to get it | Opportunity Cost |
| Opportunity cost is a ________, not just a money price | Tradeoff |
| To make a choice at the ______, you evaluate the consequences of making incremental changes in the use of your time or in the consumption of a good | Margin |
| The benefit of pursuing an incremental increase | Marginal Benefit |
| The opportunity cost of pursuing an incremental increase | Marginal Cost |
| If marginal ______ from an incremental increase in an activity exceeds marginal ______, your rational choice is to do more of that activity | Benefit, Cost |
| A change in marginal cost or a change in marginal benefit changes the _______ that we face and leads us to change our choice | Incentives |
| The central idea of economics is that we can predict how choices will change by looking at changes in ________ | Incentives |
| A key to reconciling self-interest and the social interst | Incentives |
| Most common graph economist use? | Quantity and Price |
| Quantity is on the? | X-Axis |
| Price is on the? | Y-Axis |
| Are used in economic models to show the relationship between variables | Graphs |
| A relationship between two variables that move in the same direction | Positive Relationship |
| Positive relationship is also called? | Direct Relationship |
| A line that slopes upwards shows a? | Positive Relationship |
| A relationship shown by a straight line | Linear Relationship |
| A relationship between two variables that move in opposite directions | Negative Relationship |
| Negative relationship is also called? | Inverse Relationship |
| A line that slopes downward | Negative Relationship |
| The boundary between those combinations of goods and services that can be produced and those that cannot | Production Possibilities Frontier |
| Points outside the PPF are | Unattainable |
| Points inside the PPF are | Attainable |
| Any point inside the PPF is | Inefficient |
| Every choice along the PPF involves a | Tradeoff |
| The _______ of a good or service is the benefit received from consuming one more unit of it | Marginal Benefit |
| We measure __________ by the amount that person is willing to par for an additional unit of a good or service | Marginal Benefit |
| The more we have of any good, the smaller is its marginal benefit | Principle of Decreasing Marginal Benefit |
| Shows the relationship between the marginal benefit of a good and the quantity of that good consumed | Marginal Benefit Curve |
| When we cannot produce more of any one good without giving up some other good | Production Efficiency |
| When we cannot produce more of any one good without giving up some other good that we value more highly | Allocative Efficiency |
| A person has a _________ in an activity if that person can perform the activity at a lower opportunity cost than anyone else | Comparative Advantage |
| A person has an __________ if that person is more productive than others | Absolute Advantage |
| ________ advantage involve comparing productivities while _________ advantage involves comparing opportunity costs | Absolute, Comparative |
| In a market-based economy, the interaction between _______ and ________ determines the price of goods and services and the quantity produced and consumed | Demand, Supply |
| Change in demand or supply leads to changes in the _____ or _______ produced and consumed | Price, Quantities |
| Any arrangement that enables buyers and sellers to get information and do business with each other | Market |
| A market that has many buyers and sellers so no single buyer or seller can influence the price | Competitive Market |
| Exists for goods, services, money, factors of production and input | Competitive Market |
| The _______ of a good is the amount of money needed to buy it | Money Price |
| The _______ of a good-the ratio of its money price to the money price of the next best alternative good-is its opportunity cost | Relative Price |
| The _________ of a good or service is the amount consumers plan to buy during a particular time and at a particular place | Quantity Demanded |
| The entire relationship between the price of the good and quantity demanded of the good | Demand |
| Shows the relationship between the quantity demanded of a good and its price when all other influences on consumers planned purchases remain the same | Demand Curve |
| Other things remaining the same, the higher the price of a good, the smaller the quantity demanded; and the lower the price of the good, the larger the quantity demanded | Law of Demand |
| The law of demand means a ______ sloping demand curve | Downward |
| Law of demand results from: | Substitution Effect and Income Effect |
| When the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded of the good or service decreases | Substitution Effect |
| When the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases | Income Effect |
| Exception to the law of deman | Veblen Goods |
| expensive commodities like diamonds, expensive cars, etc., used as status symbols to display ones wealth. The amount demanded of the commodities increases with an increases in their price because their value status symbol increases | Veblen Goods |
| A demand curve is also a | Willingness and Ability to Pay Curve |
| The smaller the quantity available, the ________ price that someone is willing to pay for another unit | Higher |
| Willingness to pay measures? | Marginal Benefit |
| When demand increases, the demand curve shifts_______ | Rightward |
| When demand decreases, the demand curve shifts_______ | Leftward |
| A good that can be used in the place of another good | Substitute |
| A good that us used in conjunction with another good | Complement |
| When the price of substitute rises or when the price of complement falls, the demand ________ | Increases |
| When income increases,consumers buy more of most goods and the demand curve shifts _______ | Rightward |
| A _____ good is one for which demand increases as income increases | Normal |
| A _______ good is a good for which demand decreases as income increases | Inferior |
| When the price of the good changes and everything else remains the same, the quantity demanded changes and there is a movement ______ the demand curve | Along |
| If the price remains the same but one of the influences on the buyers plans changes, demand changes and there is a shift ______ the demand curve | Of |
| The _________ of a good or service is the amount that producers plan to sell during a given time period at a particular place | Quantity Supplied |
| Other things remaining the same, the higher the price of a good, the greater the quantity supplied, and lower the price of a good, the smaller is the quantity supplied | Law of Supply |
| Refers to the entire relationship between the quantity supplied and the price of a good | Supply |
| Shows the relationship between the quantity supplied of a good and its price when all other influences on producers planned sales remain the same | Supply Curve |
| When some influence on selling plans, other than the price of the good changes, there is a ___________ of that good | Change in Supply |
| The price at which the quantity demanded equals the quantity supplied | Equilibrium Price |
| The quantity bought and sold at the equilibrium price | Equilibrium Quantity |
| At any price above the equilibrium price, a _____ forces the price down | Surplus |
| At any price below the equilibrium price, a _____ shortage forces the price up | Shortage |
| Increase in demand and supply _____ the equilibrium quantity | Increases |
| Decrease in demand and supply _____ the equilibrium quantity | Decreases |
| Decrease in demand and increase in supply _____ the equilibrium supply | Lowers |
| A measure of the responsiveness of one variable to changes in another variable | Elasticity |
| The percentage change in one variable that arises due to a given percentage change in another variable | Elasticity |
| A units-free measure of responsiveness | Elasticity |
| The percentage change in quantity demanded in response to a 1 percent increase in price | Price Elasticity of a Demand |
| When price elasticity is > 1, good is | Elastic |
| When price elasticity is < 1, good is | Inelastic |
| When price elasticity is = 1, good is | Unitary |
| At the midpoint of the demand curve, demand is | Unit Elastic |
| At prices above the mid-point, demand is | Elastic |
| At prices below the mid-point, demand is | Inelastic |
| The ________ from the sale of a good or service equals the price of the good multiplied by the quantity sold | Total Revenue |
| If demand is ________, a 1% price cut increases the quantity sold by more than 1%, and total revenue increases | Elastic |
| If demand is ________, a 1% price cut increases the quantity sold by more than 1%, and total revenue decreases | Inelastic |
| If demand is _______, a 1 percent price cut increases the quantity sold by exactly than 1 percent, and total revenue is unchanged | Unit Elastic |
| A method of estimating the price elasticity of demand by observing the change in total revenues that results from a price change | Total Revenue Test |
| A measure of the responsiveness of the demand for a good to changes in the price of a related good | Cross-Price Elasticity |
| if the goods are ______, the price elasticity > 1 | Substitutes |
| if the goods are ______, the price elasticity < 1 | Complements |
| A measure of the responsiveness of the demand for a good to changes in consumer income | Income Elasticity of Demand |
| Measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remains the same | Elasticity of Supply |
| The relationship between the price of a good and the quantity demanded by one person | Individual Demand |
| The relationship between the price of a good and the quantity demanded by all buyers in the market | Market Demand |
| The excess of the benefit received from a good over the amount paid for it | Consumer Surplus |
| The relationship between the price of a good an d the quantity supplied by one producer | Individual Supply |
| The relationship between the price of a good and the quantity supplied by all producers in the market | Market Supply |
| The principle that states that we should strive to achieve the greatest happiness for the greatest number | Utilitarianism |
| The requirement that people in similar situations be treated similarly | Symmetry Principle |
| A regulation that makes it illegal to charge a price higher than a specified level | Price Ceiling |
| When price ceiling is applied to a housing market it is called _________ | Rent Ceiling |
| A price ceiling set ______ the equilibrium price has no effect | Above |
| A price ceiling set _______ equilibrium price creates a shortage, black market, increased search activity | Below |
| Time spent looking for someone with whom to do business | Search Activity |
| an illegal market that operates alongside a legal market in which a price ceiling or other restriction has been imposed | Black Market |
| A regulation that makes it illegal to trade at a price lower than a specified level | Price Floor |
| If price floor is set ______ the equilibrium price, it has no effect | Below |
| If price floor is set ______ the equilibrium price floor, it creates a surplus and deadweight loss | Above |
| The division of the burden of a tax between buyers and sellers | Tax Incidence |
| An upper limit to the quantity of a good that may be produced during a specified period | Production Quota |
| payment made by the government to a producer | Subsidy |
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