economics 76-150 Flashcards
what is commodity money
a form of money that people value both because it serves as a medium of exchange and because of its intrinsic quality
what is the relative price of a good
the opportunity cost of producing it, expressed in units of the next best alternative good
what is the major reason that an assembly line can produce an automobile faster than a group of individuals who work in a small garage
In the assembly line, each worker is a specialist in a particular part of the production process
what conditions must be met in order for the barter to occur
all participating parties must expect to gain and there must be a double coincidence of wants
what is a subsidy
a payment from the government to an individual or group to encourage or support production but without any anticipation of production in return
what is a quota
a limit on the quantity of a good that may be imported or exported
what are complementary goods
goods that are purchased together such that the demand for one can directly affect the demand for the other. the classic example: hot dogs and hot dog buns
what is a tariff
a tax on an imported good
what is token money
money whose face value is greater than the cost of producing it
What happens to total world output if every nation specializes in the goods in which it has a comparative advantage
total world output increases
The (supply/demand) curve for a profit-maximizing firm is equal to its rising marginal cost curve.
supply
The law of demand states that quantity demanded is (directly/inversely) related to price.
inversely
How are exchange rates determined?
Supply and demand for both currencies naturally sets an equilibrium price.
The Paris Conference of 1867 set most of the world on a ____ exchange rate system based on the ____ gold standard.
fixed, gold
One ice cream cone may be very satisfying. The next ice cream cone will probably be less so. Ten ice cream cones would probably make a person sick. This example illustrates what economic law?
the law of diminishing marginal utility
Complementary goods have a (positive/negative) cross-price elasticity.
negative
You can sell 10 hockey pucks at $5 each or 9 hockey pucks at $6 each. Demand in this price range is (elastic/inelastic).
inelastic; $54 is more than $50
Suppose that the price elasticity of demand of bread is 0.2, and the price of bread increases by 10%. What will happen to the quantity demanded of bread?
It will decrease by 2%.
If the cross-price elasticity between two products is negative, what can be said about the two products?
They are complements.
If the cross-price elasticity between two products is positive, what can be said about the two products?
They are substitutes.
If a change in price has no effect on the quantity demanded, demand is completely (elastic/inelastic).
inelastic
What type of elasticity represents the relationship between the demand for one product and the price of another?
Cross-price elasticity.
If demand is elastic, what does this mean for the price elasticity of demand?
The price elasticity of demand is greater than one.
What is marginal utility?
the value of consuming an additional unit of a good or service
Why can’t a supply curve extend infinitely to the right?
At some point, producers will not have enough resources to produce additional units of a good or service, no matter how high the price.
The downward slope of the demand curve is explained by the law of ______ marginal utility.
diminishing (or decreasing)
In a graph of supply and demand, what does the vertical axis represent?
price
True or false: Supply and demand curves are always straight lines.
False (but they are usually drawn as straight lines in economics textbooks)
The law of diminishing marginal utility helps to explain the law of (supply/demand).
demand
Spaghetti and tomato sauces are (complements/substitutes).
complements
What factors affect the supply of a good or service?
productivity changes, taxes, subsidies, expectations, regulation. the number of sellers
What factors affect the demand of a good or service?
the number of buyers, consumer, income, tastes and preferences, consumer expectations, the prices of complements and substitute
You can sell 10 hockey pucks at $5 each or 9 hockey pucks at $6 each. Demand in this price range is (elastic/inelastic).
inelastic; $54 is more than $50
what is the balance of trade
the difference in value between a nation’s exports and imports
how does the concept of absolute advantage apply to international trade
it doesn’t. international trade is based on comparative advantage.
what is a resource market
a market in which resources are bought and sold
how does the division of labor save time in the production process
workers do not spend any time moving from one task to another, and each worker becomes a specialist in his particular part of the production process
when is the best time for two countries to set an exchange rate for an international transaction
at the time of the trade (in order to avoid changes in the exchange rate before the transactions occurs)
in general, what happens to people and countries who specialize and trade?
they become independent
what is an unfavorable balance of trade
a condition in which a nation imports more than it exports
what are three reasons why the division of labor is effective
tasks are assigned according to each worker’s preference and abilities, more sophisticated technology can be used, and each worker can become very good at one isolated part of the production process.
what is an embargo
a restriction on exports intended for sale in another country
what happens to total production for two nations who specialize according to their comparative advantages and then trade?
total production increases
how did many Asian economies achieve rapid economic growth in the 1970s and 1980s
their goods were competitively priced because their wage rates and capital costs were low
what is money
anything that is generally accepted in return for resources, goods. or services, or for the repayment of debts
what is a favorable balance of trade
a condition in which a nation exports more than it imports
what is the main reason that a fast food restaurant produces a meal faster than the average person can produce it in his/her kitchen
a fast food restaurant has division of labor, so large scale production machinery is practical
what is an exchange
a reciprocal transfer of money or a resource, good, or service in return for a resource, good or service
how do people and nations become economically interdependent
by specializing in the production of some goods and trading to obtain others
what is an export
a good that is produced domestically but sold to consumers in a foreign country
what is a comparative advantage
the position of an individual or a nation that can produce a good for the lowest opportunity cost
why is the concept of comparative advantage important to international trade
nations specialize in the production of goods in which they have a comparative advantage and this gives them an incentive to trade with other nations that specialize in the production of other goods
why is a barter system inefficient
finding a double coincidence of wants for every transaction is costly and time consuming
what condition must be met in order for voluntary exchange to occur
all participating parties must expect to gain
what is a trade barrier
a government imposed restriction that prevents or inhibits free trade between countries
what good was the subject of an embargo that devastated the US economy in the 1970s
oil ( the embargo was imposed by OPEC)
quantity demanded decreases as price increases because higher prices provide a (positive/negative) incentive for consumers
negative
on a graph of the supply and demand for a particular god, where is the equilibrium price found
at the intersection of the supply and demand curves
what happens to exchange quantity if there is a decrease in demand
exchange quantity decreases
as the price of a good increases what typically happens to the quantity supplied
quantity supplied increases
what is quantity supplied
the amount of a good that producers are willing and able to sell at a particular price
what is the equilibrium price of a good or service
the price at which the quantity demanded equals the quantity supplied
what happens to exchange quantity if there is a simultaneous decrease in demand and increase in supply
we cannot tell exactly
how is quantity demanded related to demand
demand is the quantity demanded at each price within a range of prices
what happens to exchange quantity if there is an increase in demand
exchange quantity increases
what area of economics explores how a firm decides what price to charge for its product
microeconomics
how do prices act as signals to consumers
they help consumers decide how best to allocate their incomes
what happens to the equilibrium price of a good if there is a decrease in supply, ceteris paribus
the price increases
as the price of a good decreases, what typically happens to the quantity supplied
quantity supplied decreases
how is an internet website an example of a market
a website may be used to bring buyers and sellers together to make an exchange
what happens to exchange quantity if there is a simultaneous increase in both supply and demand
exchange quantity increases
what happens to exchange quantity if there is a simultaneous decrease in both supply and demand
exchange quantity decreases
what is supply
the relationship between the price of a good and the quantity of it that sellers are willing and able to produce and sell
what is market demand
the sum of individual demand for every consumer in a market
what happens to equilibrium price if there is a simultaneous decrease in both supply and demand
we cannot tell exactly
