2 - Economic Concepts and Analysis

Question 1

A _________ is an economic system is one in which the government largely determines production, distribution, and consumption of goods and services.

Answer 1

Command economic system

Question 2

A ___________ is an economic system in which individuals, businesses, and distinct entities determine production, consumption, and distribution of goods and services.

Answer 2

Market (Free enterprise) economic system

Question 3

Businesses acquire which three things from individuals in a free market economy:

Answer 3

Labor, Capital, and Natural Resources

Question 4

As a result of the reciprocal relationship between the economic resources provided by individuals and the compensation received, the cost of production to business firms is _____________

Answer 4

equal to money compensation (income) of individuals

Question 5

The desire, willingness, and ability to acquire a commodity is known as _______

Answer 5

Demand

Question 6

Which two factors contribute to increase in individual demand at lower prices:

Answer 6

Income effect, substitution effect

Question 7

The _________ effect is the ability of consumers to buy more units at a lower price

Answer 7

Income

Question 8

The __________ effect contends that lower-priced items are purchased as substitutes for higher-priced items.

Answer 8

Substitution

Question 9

The individual demand schedule is ________ sloped as quantity demanded increases as price decreases.

Answer 9

Negatively

Question 10

The _________ is the quantity of a commodity that will be demanded by all individuals in the market at various prices during a specified time.

Answer 10

Market demand

Question 11

Which 5 variables can change market demand:

Answer 11

Size of market
Income/wealth of market participants
Preferences of market participants
Change in prices of other goods/services
Expectations of price changes

Question 12

The demand for a good or service that results from the demand for another related good or service

Answer 12

Derived demand

Question 13

The quantity of a commodity provided either by an individual producer or all producers of a good or service at alternative prices during a specified period

Answer 13

Supply

Question 14

Producers are normally willing to provide ________ quantities of goods and services only at ________ prices.

Answer 14

Higher quantities

higher prices

Question 15

The _________ recognizes that once the fixed factors of production are being used efficiently, increasing production will cost more than the price average cost per unit.

Answer 15

Principle of increasing costs

Question 16

The __________ shows the quantity of a commodity that will be supplied by all producers.

Answer 16

Market supply schedule

Question 17

These 5 changes in the market can change aggregate supply:

Answer 17

Number of providers
Cost of inputs change
Technological advances
Prices of other productive goods
Expectations of price changes

Question 18

The price at which the quantity of the commodity supplied in the market is equal to the quantity demanded by the market

Answer 18

Market equilibrium

Question 19

A __________ occurs when the actual price is less than the equilibrium price;

Answer 19

Market shortage

Question 20

A ________ occurs when the actual price is more than the equilibrium price

Answer 20

Market surplus

Question 21

Government _______ and ________ can have the effect of increasing or decreasing the cost of production.

Answer 21

taxation

subsidization

Question 22

The imposition of government regulation tends to _________ the cost of production and shift the market supply curve to the _________.

Answer 22

Increase

Left (Up)

Question 23

An imposed _________ results in market supply being less than market demand.

Answer 23

Price ceiling - less than market equilibrium

Question 24

An imposed __________ results in market supply being more than market demand.

Answer 24

Price floor - greater than market equilibrium

Question 25

The measurement of the percentage change in one market factor as a result of an given change in another market factor.

Answer 25

Elasticity

Question 26

% change in quantity demanded/ % change in price (perform a practice calculation)

Answer 26

Elasticity of demand

Question 27

Which difference values can be used to calculate elasticity of demand: (3)

Answer 27

Prechange quantity demand and price (original Q/P)
Average of old and new quantity and price (midpoint/arc method)
New quantity and price

Question 28

When the calculated elasticity of demand is greater than 1, then demand is ________.

Answer 28

elastic

Question 29

Elastic demand results in a ________ in total revenues and price increases.

Answer 29

decrease

Question 30

When the calculated elasticity of demand is less than 1, then demand is _________

Answer 30

Inelastic