Exam 1 Flashcards
1
Q
The study of how society manages its scarce resources.
A
Economics
2
Q
Society is getting the maximum benefits
from its scarce resources; the size of the economic pie.
A
Efficiency
3
Q
The property of distributing economic prosperity uniformly among the members of society; how the pie is divided into individual slices.
A
Equality
4
Q
Whatever must be given up to obtain some item (includes both implicit and explicit costs).
A
Opportunity Cost
5
Q
People who systematically and purposefully do the best they can to achieve their objectives.
A
Rational People
6
Q
A small incremental adjustment to a plan of action.
A
Marginal Change
7
Q
A rational decision maker takes an action if and only if the action’s _______ exceeds its ________ .
A
Marginal Benefit
Marginal Cost
8
Q
_______ allows countries to specialize in what they do best and to enjoy a greater variety of goods and services.
A
Trade
9
Q
An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
A
Market Economy
10
Q
______ are the instrument with which the invisible hand directs economic activity.
A
Prices
11
Q
Name the 2 rationales for a government to intervene in the economy and change the allocation of resources.
A
To Promote Efficiency
To Promote Equality
12
Q
A situation in which a market left on its own fails to allocate resources efficiently.
A
Market Failure
13
Q
The uncompensated impact of one person’s actions on the well-being of a bystander.
A
Externality
14
Q
The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
A
Market Power
15
Q
Name 2 possible causes of market failure.
A
Externality
Market Power
16
Q
The ability of free markets to reach desirable outcomes, despite the self-interest of market participants.
A
Invisible Hand
17
Q
Almost all variation in living standards is attributable to differences in countries’ _______ .
A
Productivity
18
Q
The quantity of goods and services produced from each unit of labor input.
A
Productivity
19
Q
An increase in the overall level of prices in the economy.
A
Inflation
20
Q
Fluctuations in economic activity, such as employment and production.
A
Business Cycle
21
Q
_______ can simplify the complex world and make it easier to understand.
A
Assumptions
22
Q
_______ simplify reality to improve our understanding of it.
A
Models
23
Q
Name the 2 markets in the circular flow diagram.
A
Market for Goods and Services
Market for Factors of Production
24
Q
Name the 2 decision-makers in the circular flow diagram.
A
Firms
Households
25
In the market for factors of production in the circular flow diagram, _____ sell and _____ buy.
Households Sell
| Firms Buy
26
In the market for goods and services in the circular flow diagram, _____ sell and _____ buy.
Firms Sell
| Households Buy
27
Name the 3 inputs included in the factors of production market in the circular flow diagram.
Labor
Land
Capital (buildings and machines)
28
The _______ diagram is a visual model that explains how the economy is organized and how participants in the economy interact with one another.
Circular Flow
29
A graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms use to turn these factors into output.
Production Possibilities Frontier
30
Points on the production possibilities frontier represent ______ levels of production.
Efficient
31
Points inside the production possibilities frontier represent ______ levels of production.
Inefficient
32
Points outside the production possibilities frontier represent ______ levels of production.
Impossible
33
The study of how households and firms make decisions and how they interact in specific markets.
Microeconomics
34
The study of economy-wide phenomena.
Macroeconomics
35
_____ statements are descriptive.
Positive
36
_____ statements are prescriptive.
Normative
37
The limited nature of society's resources.
Scarcity
38
True or False
Models are built with assumptions.
True
39
Name the 2 limitations on production of goods in the production possibilities frontier model.
Factors of Production
| Production Technology
40
The slope of the production possibilities frontier represents the _______ .
Opportunity Cost
41
What can shift the production possibilities frontier?
Technological Advances
42
True or False
Normative statements can be confirmed or refuted by examining evidence.
False
43
The ability to produce a good using fewer inputs than another producer.
Absolute Advantage
44
When each person specializes in producing the good in which he or she has a ______ , total production in the economy rises
Comparative Advantage
45
The ability to produce a good at a lower opportunity cost than another producer.
Comparative Advantage
46
For both parties to gain from trade, the price at which they trade must...
Be between their opportunity costs
47
In order to be consider a good deal, the price at which a traded good is purchased should be...
Lower than the buyer's opportunity cost to produce the good
48
Who owns the factors of production in the circular flow diagram?
Households
49
Who produces good and services in the circular flow diagram?
Firms
50
Who gains from specialization and trading?
Everyone
51
True or False
The price of trade occurs between opportunity costs.
True
52
Name the 5 variables that shift the demand curve.
```
Income
Prices of Related Goods
Tastes
Expectations
Number of Buyers
```
53
A good for which an increase in income leads to an increase in demand.
Normal Good
54
A good for which an increase in income leads to a decrease in demand.
Inferior Good
55
Goods for which an increase in the price of one leads to an increase in the demand for the other.
Substitutes
56
Goods for which an increase in the price of one leads to an decrease in the demand for the other.
Complements
57
Other things equal, when the price of a good rises, the quantity demanded of the good falls.
Law of Demand
58
Other things equal, when the price of a good rises, the quantity supplied of the good also rises.
Law of Supply
59
Name the 4 variables that shift the supply curve.
Input Prices
Technology
Expectations
Number of Sellers
60
Name the 4 variables that shift the supply curve.
Input Prices
Technology
Expectations
Number of Sellers
61
A scenario in which quantity supplied is greater than quantity demanded.
Surplus
62
A scenario in which quantity demanded is greater than quantity supplied.
Shortage
63
The price of any good adjusts to bring the quantity supplied and the quantity demanded into balance.
Law of Supply and Demand
64
A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants.
Elasticity
65
How much the quantity demanded of a good responds to a change in the price of that good
Price Elasticity of Demand
66
Name the 4 types of elasticity.
Price Elasticity of Demand
Income Elasticity of Demand
Cross-Price Elasticity of Demand
Price Elasticity of Supply
67
Scenario where the quantity demanded responds substantially to changes in price.
Elastic Demand
68
Scenario where the quantity demanded responds only slightly to changes in price.
Inelastic Demand
69
Name the 4 determinants of price elasticity of demand.
Availability of Close Substitutes
Necessities Versus Luxuries
Definition of the Market
Time Horizon
70
True or False
Goods with close substitutes have more inelastic demand.
False
71
True or False
Necessities have inelastic demand.
True
72
True or False
Luxuries have inelastic demand.
False
73
True or False
Narrowly defined market have more inelastic demand.
False
74
True or False
Demand is more elastic over longer time horizons.
True
75
Percentage change in quantity demanded divided by percentage change in price.
Equation for Price Elasticity of Demand
76
[ (Q2 - Q1) / ((Q2 + Q1)/2) ] / [ (P2 - P1) / ((P2 + P1)/2) ]
Midpoint Method Equation for Price Elasticity of Demand
77
The flatter the curve, the more elastic / inelastic.
Elastic
78
A vertical curve is perfectly elastic / inelastic.
Inelastic
79
A horizontal curve is perfectly elastic / inelastic.
Elastic
80
If demand is elastic, the price elasticity of demand is :
> 1
< 1
= 1
> 1
81
If demand is inelastic, the price elasticity of demand is :
> 1
< 1
= 1
< 1
82
If demand has unit elasticity, the price elasticity of demand is :
> 1
< 1
= 1
= 1
83
If a 22% increase in price leads to an 11% decrease in quantity demanded, demand is elastic / inelastic / unit elastic.
Inelastic
84
If a 22% increase in price leads to an 22% decrease in quantity demanded, demand is elastic / inelastic / unit elastic.
Unit Elastic
85
If a 22% increase in price leads to an 67% decrease in quantity demanded, demand is elastic / inelastic / unit elastic.
Elastic
86
Total revenue equals ___ x ___ .
Price x Quantity
87
The area of the box under the demand curve.
Total Revenue
88
The elasticity of a vertical curve is ___ .
0
89
The elasticity of a horizontal curve is ___ .
Infinity
90
How much the quantity demanded of a good responds to a change in consumer's income.
Income Elasticity of Demand
91
Percentage change in quantity demanded divided by the percentage change in income.
Equation for Income Elasticity of Demand
92
Normal goods have positive / negative income elasticities.
Positive
93
Inferior goods have positive / negative income elasticities.
Negative
94
True or False
Luxuries have lower income elasticities than necessities.
False
95
How much the quantity demanded of one good responds to a change in the price of another good.
Cross-Price Elasticity of Demand
96
Percentage change in quantity demanded of the first good divided by percentage change in price of the second good.
Equation for Cross-Price Elasticity of Demand
97
Substitutes have positive / negative cross-price elasticity.
Positive
98
Complements have positive / negative cross-price elasticity.
Negative
99
How much the quantity supplied of a good responds to a change in the price of that good.
Price Elasticity of Supply
100
Percentage change in quantity supplied divided by percentage change in price.
Equation for Price Elasticity of Supply
101
Name the determinant of price elasticity of supply.
Time Period
102
Supply is more / less elastic in the long run.
More
103
True or False
The elasticities of supply curves behave in the same way as the elasticities of demand curves.
True
104
Name the 2 types of price controls.
Price Ceilings
| Price Floors
105
A legal maximum on the price at which a good can be sold.
Price Ceiling
106
A legal minimum on the price at which a good can be sold.
Price Floor
107
Name an example of a price ceiling.
Rent Control
108
Name an example of a price floor.
Minimum Wage
109
A price ceiling set below the equilibrium price is binding / nonbinding.
Binding
110
A price floor set below the equilibrium price is binding / nonbinding.
Nonbinding
111
A price ceiling set below the equilibrium price creates a shortage / surplus.
Shortage
112
A price floor set above the equilibrium price creates a shortage / surplus.
Surplus
113
Manner in which the burden of a tax is
| shared among participants in a market.
Tax Incidence
114
A tax on sellers shifts the supply curve upward / downward by...
Upward
| Exact size of the tax
115
True or False
A tax on sellers reduces the size of the market.
True
116
True or False
A tax on buyers reduces the size of the market.
True
117
True or False
Both buyers and sellers share the burden of tax when a tax is levied on sellers.
True
118
True or False
Only buyers have the burden of tax when a tax is levied on buyers.
False
119
A tax on buyers shifts the demand curve upward / downward by...
Downward
| Exact size of the tax
120
Describe the burden of tax when supply is very elastic and demand is relatively inelastic.
Sellers bear a small burden of tax
| Buyers bear most of the burden
121
Describe the burden of tax when demand is very elastic and supply is relatively inelastic.
Sellers bear most of the tax burden
| Buyers bear a small burden
122
The tax burden falls more heavily on the side of the market that is more / less elastic.
Less
123
When demand is inelastic, price and total revenue move in the same / opposite directions.
Same
124
When demand is inelastic, price and total revenue:
Move in the same direction
Move in opposite directions
Move in the same direction
125
When demand is inelastic, price and total revenue:
Move in the same direction
Move in opposite directions
Move in opposite directions
126
When demand is is unit elastic and the price increases, total revenue will:
Increase
Decrease
Remain constant
Remain constant
