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Economics 2301 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Economics

A

the study of the choices we make among our many wants and desires given our limited resources

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2
Q

Scarcity

A

unlimited wants exceed limited resources

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3
Q

Resources

A

inputs to produce goods and services

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4
Q

The economic problem

A

scarcity

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5
Q

Scarcity forces us to

A

choose

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6
Q

Choices are costly because

A

we must give up other oppurtunities that we value

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7
Q

Self-interest

A

doing what will make you better off

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8
Q

Rational

A

people do the best they can, based on their values and information, under current and anticipated future circumstances

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9
Q

Theories

A

established explanations or propositions used to explain and predict behavior in the real world

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10
Q

Ceteris Paribus

A

assumption of holding all other variables constant

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11
Q

All other variables must be held constant so

A

we can really know the relationship between two variables of interest

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12
Q

Economists try to predict the behavior of

A

groups rather than individuals

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13
Q

The founder of economics

A

Adam Smith

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14
Q

Adam Smith’s book

A

The Wealth of Nations

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15
Q

Budgets

A

limit what we can buy as individuals

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16
Q

In a global sense its ___ that limit humans

A

resources

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17
Q

Categories of resources:

A

labor, land, physical capital, human capital, and entrepreneurship

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18
Q

Labor

A

physical and mental effort

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19
Q

Land

A

physical area and natural resources (includes trees, animals, minerals, and water)

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20
Q

Pyhsical Capital

A

equipment and structures used to produce goods and services

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21
Q

Human Capital

A

skills and knowledge

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22
Q

Entrepreneurship

A

process of combining labor, land, and capital to produce goods and services (requires taking risks and being innovative)

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23
Q

A good is scarce if

A

we want more than exists and so we have to pay for it

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24
Q

The pricing system

A

allocates resources

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25
Q

Oppurtunity cost

A

the value of the best alternative not chosen

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26
Q

A personal cost is also a

A

societal cost

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27
Q

Marginal also can mean

A

additional

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28
Q

Marginal Thinking

A

thinking about the consequences of “additional action”

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29
Q

Rule of rational choice

A

pursue an activity as long as the marginal benefit is larger than the the expected marginal cost (MB>MC)

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30
Q

The marginal cost is the smae as the

A

oppurtunity cost

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31
Q

Efficiency

A

getting the most out of your resources

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32
Q

In acting rationally people are

A

responding to incentives

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33
Q

Positive incintives

A

reduces costs or increases benefits in order to increase in an activity

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34
Q

Negative incentives

A

increases costs or decreases benefits in order to decrease in an activity

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35
Q

Prices are the same as

A

incentives

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36
Q

Falling prices are incentives to

A

buy more

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37
Q

Rising prices are incentives to

A

buy less

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38
Q

Specialize

A

concentrate energies on only one or a few activities

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39
Q

Trade

A

buying from each other

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40
Q

What you specialize in involves your

A

oppurtunity cost

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41
Q

You should specialize in what

A

has a lower oppurtunity cost

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42
Q

Having the lowest oppurtunity cost means you have a

A

comparative advantage in something

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43
Q

Specialization and trade is rational and it is our self interest because

A

it builds wealth due to increased productivity

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44
Q

We are all specialists consuming

A

the products of other specialists

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45
Q

Comparative advantage

A

a person, region, or country can produce a good or service at a lower oppurtunity cost than others

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46
Q

Prosperity

A

the saving of time and satisfying your needs

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47
Q

We are all working for each other to draw upon specialization and trade to

A

raise each other’s living standards

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48
Q

Market

A

the process of buyers and sellers exchanging goods and services

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49
Q

Markets put

A

specialization and trade into action

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50
Q

Markets bulid

A

wealth

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51
Q

Wealth

A

more goods and services for all

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52
Q

The process of buyers and sellers interacting results in a

A

price and quantity of goods and services exchanged

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53
Q

A market economy provides

A

a way for buyers and sellers to allocate scarce resources efficiently

54
Q

The price determined by the market communicates the

A

relative scarcity of resourecs

55
Q

Markets are extraordinarily

A

complex things

56
Q

Milton Friedman

A

a Nobel-Prize winning economist

57
Q

Markets are dependent on

A

protection of property rights

58
Q

The basis of efficient market allocation is that

A

the people making the decisions enjoy all of the benefits and incur all of the costs of the decisions

59
Q

Sometimes markets don’t allocate resources effciently because

A

people don’t know all of the costs or benefits or don’t pay foe all of the cost or get all of the benefits

60
Q

Market Failure

A

when the market does not allocate resources efficently on its own

61
Q

Economic growth is defined as a

A

percentage change in the output of goods and services per capita

62
Q

Greater productivity is

A

key for economic growth

63
Q

More capital per person is

A

the key to greater productivity

64
Q

Factors that contribute to economic growth:

A

physical and human capital, natural resources, technological change, incentives for innovation, and low taxes

65
Q

When we trade we create a

A

market

66
Q

A market is a ____ not a place

A

process

67
Q

Quantity

A

the allocation of our scarce resources

68
Q

Relative scarcity

A

how much is there relative to how much is desired

69
Q

The value of markets goes way beyond

A

productive efficency

70
Q

Productive

A

producing a higher output

71
Q

The 3 economic questions

A

What is to be produced?
How are they produced?
For whom are they produced?

72
Q

Command economy

A

an economy in which the government uses central planning to coordinate most economic activities

73
Q

Market economy

A

an economy that allocates goods and services through the private decisions of consumers, input suppliers, and firms

74
Q

In command economies the _____ or _____ ____ decides WHAT is to be produced

A

government or central planning board

75
Q

In market economies, resources are allocated by

A

individual decision makers responding to market prices

76
Q

Consumer Sovereignty

A

the decisions of individual consumers determine what is to be produced

77
Q

Market economies use _______ to determine the most efficient ways of using resources.

A

market mechanisms

78
Q

The United States has what kind of economy?

A

mixed economy

79
Q

Mixed economy

A

both the government and the private sector determine the allocation of resources

80
Q

Capital intensive

A

production that uses a large amount of capital (labor is scarce)

81
Q

Labor intensive

A

production that uses a large amount of labor (capital is scarce)

82
Q

The best method of production is

A

the least cost method

83
Q

Distribution of goods in a market economy go to those who

A

have sufficient income and are willing and able to pay the price

84
Q

In a comand economy those with ____ power get the most of the goods and services.

A

political

85
Q

Markets determine

A

price and quantity

86
Q

Product market

A

markets for output goods and services where households are buyers and firms are sellers

87
Q

Factor market

A

market for inputs to produce goods and services, where households are sellers and firms are buyers (labor)

88
Q

The production possibilities cure illistrates

A

an economy’s potential for allocating its limited resources for producing various combinations of goods in a given time period

89
Q

Demand

A

the buyer side of the market

90
Q

Market demand

A

the sum of individual demand curves

91
Q

3 reasons for the negative relationship between price and quantity demanded

A

diminishing marginal utility, substitution effect, and income effect

92
Q

Diminishing marginal utility

A

as you consume more of a good your satisfaction is consuming the good decreases

93
Q

Marginal utility

A

marginal benefit for the consumer

94
Q

Substitution effect

A

as prices rise, we tend to substitute out to other goods

95
Q

Income effect

A

as prices rise the buyer power of our income falls, so we can’t buy as much

96
Q

Price and quantity are not held _____ along demand.

A

constant

97
Q

5 conditions held constant along demand

A

income, taste or preference, number of buyers, and expected prices of goods

98
Q

Normal good

A

demand increases as income increases (steak, shoes, cars)

99
Q

Inferior good

A

demand decreases as income increases (rahmen noodles, off brand, used clothing)

100
Q

Expectations of rising prices tomorrow

A

causes an increase in demand today

101
Q

Complements

A

increase in the price of one good causes a decrease in the demand for the other (increase in ice cream price=less cones demanded)

102
Q

If the demand for milk is downward sloping, then an increase in the price of milk will result in

A

a decrease in the quantity of milk demanded

103
Q

Most likely to increase the demand for jelly

A

an increase in income, jelly is a normal good

104
Q

Would not cause a change in demand for cheese

A

an increase in price of cheese

105
Q

Ceteris paribus, an increase in the price of DVD players would tend to

A

decrease the demand for DVDs (complaments)

106
Q

Whenever the price of good A decreases, the demand for good B increases

A

complements

107
Q

Whenever the price of good A increases and the demand for good B increases as well

A

substitutes

108
Q

The difference between change in QD and a change in demand

A

QD is caused by a change in a good’s own price, while a change in demand is caused by a change in some other variables such as income, tastes or expectations

109
Q

Suppose CNN announces that bad weather has reduced the number of cocoa bean plants and prices of chocolate are expected to rise. As a result:

A

the current market demand for chocolate will increase (if its going to get expensive, buy it cheap now)

110
Q

An upward sloping supply curve shows that

A

suppliers are willing to increase production of their goods if they recieve higher prices for them

111
Q

Along a supply curve

A

quantity supplied changes as price changes

112
Q

What will not affect the supply of a good?

A

an increase in consumer income

113
Q

What will affect the demand of a good?

A

an increase in consumer income

114
Q

Shifters of supply

A

higher wages for workers, higher prices for inputs, and technological improvement

115
Q

The difference between a change in quantity supplied and a change in supply

A

a change in quantity supplied is caused by a change in a good’s own price, while a change in supply is caused by a change in some other factor such as input prices, prices of related goods, expectations, or taxes

116
Q

Not a determinate of supply

A

tastes

117
Q

Determinates of supply

A

input prices, technology, expectations, and the prices of substitutes in production

118
Q

If incomes are rising,in the market for an inferior good

A

demand will fall

119
Q

If a farmer were choosing between growing wheat or soybeans an increase in the price of soybeans would

A

decrease the supply of wheat

120
Q

A supply curve illistrates a _____ relationship between _____ and _____.

A

direct; price;quantity supplied

121
Q

A leftward shift in supply could be caused by

A

some firms leaving the industry

122
Q

Supply

A

the quantity producers are willing and able to supply to the market at different prices

123
Q

Items held constant in supply

A

“SENT” seller’s input prices, expectations, number of sellers and technology

124
Q

Higher labor costs will

A

cause a decrease in supply

125
Q

A decrease in the price of a substitute in production will cause an

A

incresae in the supply of the other good

126
Q

Expectations of higher prices tommorrow will cause

A

a decrease in supply today

127
Q

When there is a excess quantity demanded for a product at the current price

A

the price will rise

128
Q

When there is an excess quantity supplied of a product at the current price

A

the price will fall

129
Q

A simultaneous increase in demand and decrease in supply wuld lead to

A

uncertain effect on the equalibrium quantity but an increase in the equalibrium price

130
Q

A decrease in demand results in

A

a smaller equilibrium price and quantity both

131
Q

The quantity of a good bought and sold ina market will be below the equilibrium quantity if

A

the market price is either above or below the equilibrium price

Economics 2301 (5 decks)

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