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eco 102 test 1
| Question | Answer |
|---|---|
| What do firms do? | produce and sell goods and services |
| What do households do? | buy and consume goods and services |
| What do households own and sell? | factors of production |
| What do firms hire and use? | factors of production |
| What is part of the markets for factors of production? | Households that sell, firms that buy |
| What is part of the markets for goods and services? | Firms that sell, households that buy |
| What does the production possibilites frontier show? | Combinations of outputs (ex: cars & computers) that the economy can possibly produce |
| What does the production possibilities frontier depend on? | The avaliable factors of production and the available production technology |
| What is not feasible? | Points outside of the PPF |
| When is the PPF efficient? | the economy is getting all it can from the scarce resources available |
| What happens when points are inside the PPF? | The PPF is at insufficient levels of production |
| What is economics? | The study of how society manages its scarce resources |
| What is the opportunity cost of an item? | What must be given up to obtain it |
| What is an incentive? | Something that induces a person to act |
| What is a market? | A group of buyers and sellers |
| What is Adam Smith's "invisible hand"? | Prices adjust to guide market participants to reach outcomes that, often, maximize the well-being of society as a whole |
| What is market failure? | When a market is left on its own and fails to allocate resources efficiently |
| Will the government always improve market outcomes? | No, but it can |
| What does a country's standard of living depend on? | Its ability to produce goods and services |
| What does a straight line PPF mean? | Constant opportunity cost |
| What does a bowed outward PPF mean? | increasing opportunity cost |
| What does it mean when you're moving along the PPF? | Shifting resources from the production of one good to the other |
| What does the slope of the PPF represent? | The opportunity cost of one good in terms of the other |
| Normative statements are | prescriptive |
| Positive statements are | descriptive |
| Why do economists sometimes disagree? | They have a difference in scientific judgements or values |
| If a price celling is binding... | It is below the equilibrium price |
| If a price celling is NOT binding... | It is above the equilibrium price |
| What is interdependence? | Rely on many people from around the world to provide you with goodss and services, and they get something in return |
| What are imports? | Goods produced abroad and sold domestically |
| What are exports? | Goods produced domestically and sold abroad |
| How to calculate consumption under trade? | Use the original amount produced by the country and then add imports, subtract exports (respective to each good). Total after imports and exports are added/subtracted is the amount of each good consumed in the country |
| What is absolute advantage? | The ability to produce a good using fewer inputs (labor hours/days) than another producer |
| What good should a country specialize in? | The good that it producess at the lowest cost (hours/days)/or has a comparative advantage in |
| Airplanes vs. Soybeans opportunity cost | The opportunity cost of one airplane is the amount of soybeans that could be produced using the time needed to produce one airplane |
| What is comparative advantage? | The ability to produce a good at a lower opportunity cost than another producer |
| What is a perfectly competitive market | All goods are exactly the same, so many buyers and sellers no one can affect market price |
| What is the law of demand? | All other things equal, the quantity demanded of a good falls when the price of the good rises, or the quantity demanded of a good rises when the price of the good falls |
| What is a demand schedule? | A table that shows the relationship between the price of a good and the quantity demanded |
| What is the demand curve? | A graph of the relationship between the price of a good and the quantity demanded |
| What is the market demand? | The sum of all individual demands for a good or service |
| How do we find the total quantity demanded at any price? | Add the quantity demanded by each individual |
| What are things that cause a shift in the demand curve? | Number of buyers, income, prices of related goods, tastes, expectations |
| What does an increase in the number of buyers do? | Increase the quantity demanded at each price, demand curve shifts to the right |
| What does a decreasse in the number of buyers do? | Decreases the quantity demanded at each price, shifts the demand curve to the left |
| What happens to the demand of an inferior good when income increases? | Demand decreases, demand curve shifts to the left |
| What happens to the demand of a normal good when income increases? | Demand increaes, demand curve shifts to the right |
| What makes two goods substitutes? | An increase in the price of one good leads to an increasse in the demand for the other |
| Examples of substitute goods? | Pizza and hamburgers, Coke and Pepsi, laptops and tablets, movie streaming and the movie theater |
| What makes two goods complements? | An increase in the price of one leads to a decrease in the demand for the other (If people buy less of one thing, they'll buy less of a thing that goes along with it) |
| Examples of complement goods? | College tutition and books, bagels and cream cheese, milk and cookies, phones and apps |
| What happens to demand if people expect an increase in income in the future? | Current demand increases |
| What happens to demand if people expect higher prices in the future? | Current demand increases |
| Future income increase example | If people expect their incomes to rise because they got a promotion at work, their demand for meals at expensive restaurants may increase now |
| What happens to the demand curve when there are changes in demand? When does it happen? | Demand curve shifts (left or right). It happens when a non-price determinant of demand changes, like income or number of buyers |
| What happens to the demand curve when a change in quantity demanded happens? When doess it happen? | A point along the fixed demand curve moves. It happens when the price changes |
| What is the only change that moves a point along the fixed demand curve? | A change in the price of the good itself |
| What is quantity supplied? | The amount of a good sellers are willing and able to sell |
| What is the law of supply? | The quantity supplied of a good rises when the price of the good rises, or the quantity of a good falls when the price of the good falls |
| What is a supply schedule? | A table that shows the relationship between the price of a good and the quantity supplied |
| What is a supply curve? | A graph of the relationship between the price of a good and the quantity supplied |
| What is the market supply? | The sum of the supplies of all sellers of a good or service |
| What is the market supply curve? | Sum of individual supply curves horizontally |
| How can we find the total quantity supplied at a price? | Add the individual quantities on the horizontal axis |
| What causes a shift in the supply curve? | Changes in input prices, technology, number of sellers, or expectations about the future |
| What are non-determinants of supply? | Things that determine producers' supply for a good, other than the good's price |
| What are input prices? | Wages, ingredients, prices of raw materials |
| What happens to the supply curve when input prices fall? | It shifts to the right, firms supply a larger quantity |
| When is the only time that there is movement along the fixed demand curve? | When there is a change in the quantity supplied |
| What kinds of factors shift the supply curve? | A change in the input price, technology, expectations, or number of sellers |
| What is the equilibrium? | When price has reached the level where quantity supplied equals quantity demanded |
| What is a surplus? | excess supply, the quantity supplied is greater than the quantity demanded |
| What is a shortage? | Excess demand, the quantity demanded is greater than the quantity supplied |
| Is price elasticity higher for luxuries or necesities? | Luxuries |
| What does it mean when something is very inelastic? (low number) | quantity demanded responds little to price changes |
| What does it mean when something is very elastic? (high number)? | quantity demanded responds strongly to price changes |
Created by:
lavenderdreamy
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