Econ 201 Test 1
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| economics | the study of how people deal with scarcity
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| scarcity | the situation in which the quantity of resources is insufficient to meet all wants
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| choice | a selection among alternative goods, services, or actions
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| economic interactions | exchanges of goods and services between people
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| market | an arrangement by which economic exchanges between people take place
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| opportunity cost | the value of the next-best forgone alternative that was not chosen because something else was chosen
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| gains from trade | gains from trade: improvements in income, production, or satisfaction owing to the exchange of goods or services
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| specialization | people concentrating their production efforts on what they are good at/ a concentration of production effort on a single specific task
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| division of labor | occurs when some workers specialize in one task while others specialize in another task/ the division of production into various parts in which different groups of workers specialize
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| comparative advantage | a situation in which a person or group can produce one good at a lower opportunity cost than another person or group
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| international trade | the exchange of goods and services between people or firms in different nations
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| production possibilities | alternative combinations of production of various goods that are possible, given the economy’s resources
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| increasing opportunity cost | a situation in which producing more of one good requires giving up an increasing amount of production of another good
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| production possibilities curve | a curve showing the maximum combinations of production of two goods that are possible, given the economy’s resources
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| market economy | an economy characterized by freely determined prices and the free exchange of goods and services in markets
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| command economy | an economy in which the government determines process and production; also called a centrally planned economy
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| freely determined prices | prices that are determined by the individuals and firms interacting in markets
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| property rights | rights over the use, sale, and proceeds from a good or resource / gives individuals the legal authority to keep or sell a property, land or resource
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| incentive | a device that motivates people to take action, usually so as to increase economic efficiency - ppl would have no incentive to invent or specialize in something
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| market failure | any situation in which the market does not lead to an efficient economic outcome and in which there is a potential role for government/ when market does not answer what how and for whom questions
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| government failure | the situation where the government fails to improve on the market or even makes things worse
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| relative price | the price of a particular good compared to the price of other things
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| economic variable | any economic measure that can vary over a range of values
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| controlled experiments | empirical tests of theories in a controlled setting in which particular effects can be isolated
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| experimental economics | a branch of economics that uses laboratory experiments to analyze economic behavior
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| economic model | an explanation of how the economy or a part of the economy works
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| microeconomics | the branch of economics that examines individual decision-making at firms and households and the way they interact in specific industries and markets
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| macroeconomics | the branch of economics that examines the workings and problems of the economy as a whole—GDP growth and unemployment
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| gross domestic product (GDP) | a measure of the value of all the goods and services newly produced in an economy during a specified period of time
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| positively related | a situation in which an increase in one variable is associated with an increase in another variable; also called directly related
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| negatively related | a situation in which an increase in one variable is associated with a decrease in another variable; also called inversely related
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| capitalism | an economic system based on a market economy in which capital is individually owned, and production and employment decisions are decentralized
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| socialism | an economic system in which the government owns and controls all the capital and makes decisions about prices and quantities as part of a central plan
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| mixed economy | a market economy in which the government plays a very large role
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| positive economics | economic analysis that explains what happens in the economy and why, without making recommendations about economic policy
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| normative economics | economic analysis that makes recommendations about economic policy
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| Cartesian coordinate system | a graphing system in which ordered pairs of numbers are represented on a plane by the distances from a point to two perpendicular lines, called axes
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| time series graph | a graph that plots a varable over time, usually with time on the horizontal axis
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| dual scale | a graph that uses time on the horizontal axis and different scales on the left and right vertical axes to compare the movements of two variables over time
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| scatter plot | a graph in which points in a Cartesian coordinate system represent the values of two variables
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| slope | a characteristic of a curve that is defined as the change in the variable on the vertical axis divided by the change in the variable on the horizontal axis
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| positive slope | a slope of a curve that is greater than zero, representing a positive or direct relationship between two variables
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| negative slope | a slope of a curve that is less than zero, representing a negative or inverse relationship between two variables
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| linear | a situation in which a curve is straight, with a constant slope
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| movement along the curve | a situation in which a change in the variable on one axis causes a change in the variable on the other axis, but the position of the curve is maintained
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| shift of the curve | a change in the position of a curve, usually caused by a change in a variable not represented on either axis
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| demand | a relationship between price and quantity demanded price
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| quantity demanded | the quantity of a good that people want to buy at a given price during a specific time period
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| demand schedule | a tabular presentation of demand showing the price and quantity demanded for a particular good, all else being equal
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| law of demand | the tendency for the quantity demanded of a good in a market to decline as its price rises
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| demand curve | a graph of demand showing the downward-sloping relationship between price and quantity demanded
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| normal good | a good for which demand increases when income rises and decreases when income falls
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| inferior good | a good for which demand decreases when income rises and increases when income falls
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| substitute | a good that has many of the same characteristics as, and can be used in place of another good
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| complement | a good that is usually consumed or used together with another good
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| supply | a relationship between price and quantity supplied
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| quantity supplied | the quantity of a good that firms are willing to sell at a given price
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| supply schedule | a tabular presentation of supply showing the price and quantity supplied of a particular good, all else being equal
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| law of supply | the tendency for the quantity supplied of a good in a market to increase as its price rises
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| supply curve | a graph of supply showing the upward-sloping relationship between price and quantity supplied
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| shortage (excess demand) | a situation in which quantity demanded is greater than quantity supplied
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| surplus (excess supply) | a situation in which quantity supplied is greater than quantity demanded
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| equilibrium price | the price at which quantity supplied equals quantity demanded
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| equilibrium quantity | the quantity traded at the equilibrium price
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| market equilibrium | the situation in which the price is equal to the equilibrium price and the quantity traded equals the equilibrium quantity
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| international trade | the exchange of goods and services between people or firms in different nations
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| tariff | a tax on imports
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| quota | a governmental limit on the quantity of a good that may be imported or sold
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| commerce clause | the clause in the U.S. Constitution that prohibits restraint of trade between states
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| comparative advantage | a situation in which a person or country can produce one good at a lower opportunity cost than another person or country
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| absolute advantage | a situation in which a person or country is more efficient at producing a good in comparison with another person or country
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| relative price | the price of a particular good compared with the price of other things
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| capital abundant | a higher level of capital per worker in one country relative to another
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| labor abundant | a lower level of capital per worker in one country relative to another
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| capital intensive | production that uses a relatively high level of capital per worker
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| labor intensive | production that uses a relatively low level of capital per worker
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| revenue tariffs | an import tax whose main purpose is to provide revenue to the government
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| Smoot-Hawley tariff | a set of tariffs imposed in 1930 that raised the average tariff level to 59 percent by 1932
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| trade war | a conflict among nations over trade policies caused by imposition of protectionist policies on the part of one country and subsequent retaliatory actions by other countries
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| World Trade Organization (WTO) | an international organization that can mediate trade disputes
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| antidumping duty | a tariff imposed on a country as a penalty for dumping goods
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| nontariff barriers | any government action other than a tariff that reduces imports, such as a quota or a standard
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| infant industry argument | the view that a new industry may be helped by protectionist policies
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| multilateral negotiations | simultaneous tariff reductions on the part of many countries
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| Uruguay Round | a most recent round of multilateral negotiations, opened in 1986 and completed in 1993
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| Doha Development Round | the latest round of multilateral negotiations, opened in November 2001 in Doha, Qatar
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| trade diversion | the shifting of trade away from the low-cost producer toward a higher-cost producer because of a reduction in trade barriers with the country of the higher-cost producer
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| trade creation | the increase in trade due to a decrease in trade barriers
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| free trade areas (FTA) | an area that has no trade barriers between the countries in the area
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| customs unions | a free trade area with a common external tariff
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