ECO Final Exam Terms Flashcards
fluctuations in economic activity, such as employment and production
business cycle
the study of how society manages its scarce resources
economics
the property of society getting the most it can from its scarce resources
efficiency
the property of distributing economic prosperity uniformly among the members of society
equality
the impact of one person’s actions on the well-being of a bystander
externality
something that induces a person to act
incentive
an increase in the overall level of prices in the economy
inflation
small incremental adjustments to a plan of action
marginal changes
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
market economy
a situation in which a market left on its own fails to allocate resources efficiently
market failure
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
market power
whatever must be given up to obtain some item
opportunity cost
the quantity of goods and services produced from each unit of labor input
productivity
the ability of an individual to own and exercise control over scarce resources
property rights
people who systematically and purposefully do the best they can to achieve their objectives
rational people
the limited nature of society’s resources
scarcity
a visual model of the economy that shows how dollars flow through markets among households and firms
circular-flow diagram
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
macroeconomics
the study of how households and firms make decisions and how they interact in markets
microeconomics
claims that attempt to prescribe how the world should be
normative statements
claims that attempt to describe the world as it is
positive statements
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
production possibilities frontier
A plane from St. Louis to Orlando is about to take off, but it still has a few empty seats. If the average cost per seat is $500, the airline must charge standby passengers more than $500 to profit from the sale of the seat.a. True b. False
FALSE
Trade allows countries to specialize in what they do best and to enjoy a greater variety of goods and services.a. True b. False
TRUE
Externalities and market power are two common causes of market failure.a. True b. False
TRUE
An increase in the amount of money in the economy will increase inflation and, as a result, push unemployment higher in the short run.a. True b. False
FALSE
Government policies aimed at equalizing the distribution of economic well-beinga. often result in reductions in economic efficiency in the economy. b. usually fail due to the associated increases in government bureaucracy. c. will most likely cause high levels of inflation in the economy. d. almost always increase the level of efficiency in the economy.
A
Which of the following should not be included in the cost of going to college?a. tuition and fees b. the student’s time, which can no longer be devoted to earning a salary c. room and board (that cost the same amount he was paying before entering college) d. textbooks
C
The federal government enacted regulation in the 1960s requiring people to wear seatbelts in their cars. Which of the following did not occur as a result of this legislation?a. fewer deaths occurred per accident b. less pedestrians were killed in car accidents c. the frequency of accidents increased d. overall driver deaths due to car accidents changed very little in the United States
B
When two individuals voluntarily trade,a. both people generally gain from the exchange. b. the overall well-being of the two individuals remains unchanged. c. one person usually gains at the expense of the other. d. one person always gains at the expense of the other.
A
In a market economy, the decisions of what and how much to produce are generally made bya. the interaction of producers and consumers in the market. b. the President and Congress. c. non-governmental agencies. d. voters in elections.
A
Even though markets do a good job of organizing economic activity, governments are needed to do all of the following excepta. intervene when markets fail due to externalities. b. intervene when markets fail due to market power. c. decide what and how much to produce. d. establish and enforce property rights.
C
Living standards in the United States have risen dramatically over the years mainly due toa. the efforts of labor unions. b. successive increases in the minimum wage. c. trade protection from competition from countries with low wages, such as Thailand. d. increases in the productivity of labor over time.
D
Rapid and persistent inflation occurs mainly due toa. greedy firms that abuse consumers with high prices. b. rapid increases in the quantity of money in the economy. c. trade with other countries. d. high wage increases demanded by labor unions
B
When economists disagree it is always due to disagreement over normative views of the world, because all economists agree on the positive theory about how the world works.a. True b. False
False
Which of the following statements regarding the production possibilities frontier (PPF) is correct?a. Increases in the resources available for production will cause the PPF to shift in towards the origin. b. Any point inside the PPF represents a combination of output that is not feasible to produce. c. All points on the PPF represent efficient levels of production. d. The opportunity cost of producing one more unit of one of the goods is constant as we move along the PPF.
C
Economic models area. typically represented by equations and diagrams. b. often composed of a number of simplifying assumptions. c. simplified versions of the world around us. d. All of these choices are true.
D
Microeconomics is the study ofa. how governments can reduce inflation. b. economy-wide phenomena, including inflation, unemployment, and economic growth. c. how governments can pull the economy out of recessions. d. how households and firms make decisions and how they interact in the market.
D
Points lying on the production possibilities frontier are efficient outcomes while points lying inside the production possibilities frontier are inefficient outcomes.a. True b. False
TRUE
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
competitive market
two goods for which an increase in the price of one leads to a decrease in the demand for the other
complements
a graph of the relationship between the price of a good and the quantity demanded
demand curve
a table that shows the relationship between the price of a good and the quantity demanded
demand schedule
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
equilibrium
the price that balances quantity supplied and quantity demanded
equilibrium price
the quantity supplied and the quantity demanded at the equilibrium price
equilibrium quantity
a good for which, other things equal, an increase in income leads to a decrease in demand
inferior good
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
law of demand
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
law of supply
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
law of supply and demand
a group of buyers and sellers of a particular good or service
market
a good for which, other things equal, an increase in income leads to an increase in demand
normal good
the amount of a good that buyers are willing and able to purchase
quantity demanded
the amount of a good that sellers are willing and able to sell
quantity supplied
a situation in which quantity demanded is greater than quantity supplied
shortage
two goods for which an increase in the price of one leads to an increase in the demand for the other
substitutes
a graph of the relationship between the price of a good and the quantity supplied
supply curve
a table that shows the relationship between the price of a good and the quantity supplied
supply schedule
a situation in which quantity supplied is greater than quantity demanded
surplus
Arises when a person engages in an activity that influences the well being of a bystander but neither pays nor receives any compensation for that effect.
externality
Impact on the bystnader is adverse
negative externality
Impact on the bystander is beneficial
positive externality
Altering incentives so that people take account of the external effects of their actions
internalizing the externality
_____externalities lead markets to produce a larger quantity than is socially desirable; to remedy the problem, the government can internalize by taxing goods
Negative
_____ externalities lead markets to produce a smaller quantity than is socially desirable; ; to remedy the problem, the government can internalize by subsidizing goods
Positive
A firm that is the sole seller of a product without close substitutesEx. One FirmTap Water, Cable TV
Monopoly
A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
Natural Monopoly
A market structure in which only a few sellers offer similar or identical productsEx. Few FirmsTennis Balls, Cigarettes
Oligopoly
A market structure in which many firms sell products that are similar but not identicalEx. Many Firms - Differentiated ProductsNovels, Movies
Monopolistic Competition
A market with many buyers and sellers trading identical products so that each buyer and seller is a price takerEx. Many Firms - Identical ProductsWheat, Milk
Perfect Competition
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
cross-price elasticity of demand
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
elasticity
a measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded / percentage change in income(End - Beg / Mid )
income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded / percentage change in price(End - Beg / Mid )
price elasticity of demand
a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied / percentage change in price(End - Beg / Mid )
price elasticity of supply
the amount paid by buyers and received by sellers of a good, computed as the price good X quantity sold
total revenue
a legal maximum on the price at which a good can be sold
price ceiling
a legal minimum on the price at which a good can be sold
price floor
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
consumer surplus
the value of everything a seller must give up to produce a good
cost
the property of a resource allocation of maximizing the total surplus received by all members of society
efficiency
the property of distributing economic prosperity uniformly among the members of society
equality
the amount a seller is paid for a good minus the seller’s cost of providing it
producer surplus
the study of how the allocation of resources affects economic well-being
welfare economics
the maximum amount that a buyer will pay for a good
willingness to pay
total revenue - total explicit cost
accounting profit
fixed cost / quantity of output
average fixed cost
total cost / quantity of output
average total cost
variable cost / quantity of output
average variable cost
the property whereby long-run average total cost stays the same as the quantity of output changes
constant returns to scale
the property whereby the marginal product of an input declines as the quantity of the input increases
diminishing marginal product
the property whereby long-run average total cost rises as the quantity of output increases
diseconomies of scale
total revenue minus total cost, including both explicit and implicit costs
economic profit
the property whereby long-run average total cost falls as the quantity of output increases
economies of scale
the quantity of output that minimizes average total cost
efficient scale
input costs that require an outlay of money by the firm
explicit costs
costs that do not vary with the quantity of output produced
fixed costs
input costs that do not require an outlay of money by the firm
implicit costs
the increase in total cost that arises from an extra unit of production
marginal cost
the increase in output that arises from an additional unit of input
marginal product
the relationship between quantity of inputs used to make a good and the quantity of output of that good
production function
total revenue - total cost
profit
the market value of the inputs a firm uses in production
total cost
the amount a firm receives for the sale of its output P x Q
total revenue
costs that vary with the quantity of output produced
variable costs
When the demand curve is inelastic… the extra revenue from selling at a higher price… is greater than the lost revenue from selling fewer units
When the demand curve is elastic… the extra revenue from selling at a higher price… is less than the lost revenue from selling fewer units
a legal maximum on the price at which a good can be sold
price ceiling
a legal minimum on the price at which a good can be sold
price floor
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
consumer surplus
the value of everything a seller must give up to produce a good
cost
the property of a resource allocation of maximizing the total surplus received by all members of society
efficiency
the property of distributing economic prosperity uniformly among the members of society
equality
the amount a seller is paid for a good minus the seller’s cost of providing it
producer surplus
the study of how the allocation of resources affects economic well-being
welfare economics
the maximum amount that a buyer will pay for a good
willingness to pay
total revenue minus total explicit cost
accounting profit
fixed cost divided by the quantity of output
average fixed cost
total cost divided by the quantity of output
average total cost
variable cost divided by the quantity of output
average variable cost
the property whereby long-run average total cost stays the same as the quantity of output changes
constant returns to scale
the property whereby the marginal product of an input declines as the quantity of the input increases
diminishing marginal product
the property whereby long-run average total cost rises as the quantity of output increases
diseconomies of scale
total revenue minus total cost, including both explicit and implicit costs
economic profit
the property whereby long-run average total cost falls as the quantity of output increases
economies of scale
the quantity of output that minimizes average total cost
efficient scale
input costs that require an outlay of money by the firm
explicit costs
costs that do not vary with the quantity of output produced
fixed costs
input costs that do not require an outlay of money by the firm
implicit costs
the increase in total cost that arises from an extra unit of production
marginal cost
the increase in output that arises from an additional unit of input
marginal product
the relationship between quantity of inputs used to make a good and the quantity of output of that good
production function
total revenue minus total cost
profit
the market value of the inputs a firm uses in production
total cost
the amount a firm receives for the sale of its output
total revenue
costs that vary with the quantity of output produced
variable costs
total revenue by the quantity sold
Average Revenue
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
competitive market
the change in total revenue from an additional unit sold
marginal revenue
a cost that has already been committed and cannot be recovered
sunk cost
a firm that is the sole seller of a product without close substitutes
monopoly
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
natural monopoly
the business practice of selling the same good at different prices to different customers
price discrimination
