economics 226-300 Flashcards
If demand for a good is highly elastic, then an increase in price will _______.
significantly decrease quantity demanded
What is the formula for price elasticity of demand?
PED = % change in quantity demanded / % change in price
If price elasticity of demand is greater than one, then demand is _____.
elastic
Pens and pocket protectors are complementary goods. The supply of pocket protectors decreases. What happens to the equilibrium price of pens?
decreases - the price of pocket protectors increases, which causes the demand for pens to decrease; as a result, the price of pens decreases
What does price elasticity of demand tell us?
Price elasticity of demand tells us how much quantity demanded will be affected by a change in price.
The equilibrium point is at the intersection of what two curves?
the supply curve and the demand curve
What does it mean for a market to “clear”?
A market “clears” at the price where the quantity demanded equals the quantity supplied, so there is no surplus or shortage.
What effect does a price floor set over the equilibrium price have on a market?
Suppliers supply more, and consumers demand a lesser quantity. A surplus results.
Which two curves interest at the point of market equilibrium?
supply and demand
What does the market “do” at the point of equilibrium?
it “clears”
What is the term for the quantity at which buyers and sellers ask the same price?
equilibrium quantity
What usually results from a price floor?
a surplus
In a market, what is the “common language” that helps a buyer and seller agree on the value of the resources, goods, and/or services to be exchanged?
price
Define “market equilibrium.”
The point at which quantity exchanged equals quantity supplied.
How do price signals affect markets?
Price signals are instrumental to markets. Depending on prices, consumers decide whether or not to consume and businesses decide whether or not to produce
True or false: A market consists of an exchange that takes place at a given location and at a particular time.
FALSE
What effect does a price ceiling set below the equilibrium price have on a market?
Suppliers supply less, and consumers demand a greater quantity. A shortage results.
A surplus is a normal result of a price (ceiling/floor).
floor
What usually results from a price ceiling?
a shortage
What do you call a buyer and a seller, exchanging resources, goods, and/or services?
a market
What effect does a price ceiling set over the equilibrium price have on a market?
none
Rent control is a price (ceiling/floor).
ceiling
To keep farmers in business, the government often sets a price (ceiling/floor) on agricultural goods.
floor
What is the common economic language that makes comparison of values easier?
prices
What determines price in free market economy?
te interaction of supply and demand
What is another term for the equilibrium price?
the market-clearing price
Does a market have to occur in a physical place?
No
Equilibrium is best represented as a (curve/straight line/single point)/
single point
What effect does a price ceiling have on demand?
none
As the price of a good increases, what happens to the quantity demanded of that good?
quantity demanded decreases
In general, as the price of a good decreases, quantity demanded of that good (increases/decreases/stays the same).
increases
As price increases, the quantity demanded (increases/decreases).
decreases
in a free market, (self-interest) results from the value of private property.
self-interest
do economists think people are selfish?
no
what law can explain the bowed-out shape of a typical production possibilities curve?
the law of increasing opportunity cost
what will cause a production possibilities curve to shift inward?
a decrease in the amount of a factor of production
what will cause a production possibilities to shift outward?
an increase in a factor of production
describe the shape of a typical production possibilities curve.
bowed outward from the origin
what must an economy do in order to consume at a point beyond its production possibilities curve?
it must engage in trade
list two qualities of the points along a possibilities curve
- all points are attainable and 2. all points are efficient
what dos PPC stand for?
production possibilities curve
what happen to a production possibilities curve when the amount of a factor of production is increased?
the curve expands outward
what happens to a production possibilities curve when the amount of a factor of production diminishes in availibility?
the curve shifts inward
in which type of economic system are all resources owned by private fims and individuals?
a pure market system
is economic regulation more likely to favor producers or consumers?
producers
what type of economic system is in place in cuba?
a mostly command/ planned system
What country has the most market-oriented economic system in the world?
the United States
what drives self-interest in a market economy?
the value of private property and ownership
if two countries have similar resources, but one has a command economic system and the other has a market system, which country will most likely have the higher income per capita?
the country with a market system
what type of firm has the greatest amount of market power?
a monopoly
what country has the most centrally-planned economic system in the world?
north korea
in which type of economic system is a person who owns no resource most likely to starve?
a pure market system
“pure capitalism” is another name for which type of economic system?
pure market economy, free enterprise system or free market system
since the former soviet union dissolved, what type of economic system has been in place in the majority of the resulting independent republics?
mixed market systems; most are trying to increase privatization
what does the herfindahl index measure?
the sales concentration among firms in a given industry; the degree of competition in the industry
In a market economy, ho is the question of “what to produce”answered?
by market forces
what is a horizontal merger?
a merger of two or more firms in the same market
What type of economic system is in place un the U.S.?
a mixed market system
What is a trade deficit?
a condition in which a nation spends more on imports than what it receives for its exports
How does an embargo differ from a tariff or a quota?
Tariffs and quotas are intended to help domestic producers, but embargoes are intended to hurt foreign consumers
How do two nations trade when they each use different currencies and different price structures?
Each nation uses an exchange rate to determine the value of its goods in terms of the other country’s currency
How do political leaders tend to act toward foreign competition with domestic industries?
Many political leaders urge other countries to engage in free trade, but promote protectionist policies in their own countries
What is a product market?
a market in which goods or services are bought and sold
What kind of money is a gold coin?
commodity money
What is a market system?
an economic system in which a group allows market forces and the behavior of buyers and sellers to influence economic decision-making
What is an import?
a good produced in a foreign country but purchased by domestic consumers
How do rational people decide how to specialize?
People specialize in the production of the good they can produce for the lowest opportunity cost
What does a price floor have on demand?
none
As the price of a good increases, what happens to the demand for that good?
nothing
Define comparative advantage
the ability of one country to produce a good at a lower opportunity cost (with a greater efficiency relative to other goods) than another country
True or False: a change in price results in a change in the quantity demanded
TRUE
True or False: a change in price results in a change in the demand
FALSE
A minimum wage is a price floor or ceiling
floor
Movement along the demand curve represents a change in (demand or quantity demanded)
quantity demanded
As price increases, the quantity supplied (increases or decreases)
increases
