Final Test

Question 1

Scarcity?

Answer 1

This exists if the amount of a good that is available is less than the amount users would want if it were free

Question 2

What are the factors of production?

Answer 2

• labor
• capital
• human capital
• entrepreneurship
• natural resources

Question 3

Opportunity cost

Answer 3

the value of the next best alternative; what you give up to do something or pursue something

Question 4

Tradition based economic system?

Answer 4

social customs dictate the means of production and distribution and the choice of productive activities

Question 5

Market capitalism?

Answer 5

• means of production are privately owned
• no restrictions on voluntary exchange
• buyers and sellers are free to pursue their self interest through market truncations (laissez faire)

Question 6

Socialism?

Answer 6

means of production are collectively owned and decision are made collectively (by the state)

Question 7

Mixed economy?

Answer 7

elements of all the different types of economies

Question 8

Absolute advantage?

Answer 8

One country can produce more of a good than another country

Question 9

Comparative advantage?

Answer 9

one country has a lower opportunity cost of pro ducting a good than another country

Question 10

Allocative effciency

Answer 10

the mix of goods and services produced is just what the society desires

Question 11

PPF?

Answer 11

production possibility frontier

• outside it is unattainable
• inside of it is not efficient

Question 12

Foundations of market exchange?

Answer 12

specialization, voluntary exchange, AND self interest

Question 13

The law of demand?

Answer 13

there is an inverse relationship between the price of a good and the quantity demanded

Question 14

Ceteris paribus?

Answer 14

assumption where other relevant factors or variables are held constant

Question 15

Normal good?

Answer 15

a good for which demand varies positively with real income

Question 16

Inferior goods?

Answer 16

goods that have income elasticities that are negative. when consumer income grow, quanitiy demanded falls for inferior goods

Question 17

Elastic demand?

Answer 17

is greater than one

Question 18

inelastic demand?

Answer 18

is less than one

Question 19

Unit elastic demand?

Answer 19

is equal to one

Question 20

Market response

Answer 20

• large initial price increase, existing sellers increase the quantity supplied by a small amount
• the high price, induces entry of new sellers
• entry of new sellers, expands supply, which drives down the price, and meets the needs of those residents

Question 21

Earned income tax credit?

Answer 21

• refundable tax credit
• reduces (or eliminates) the taxes owed by low income workers
• if the credit exceeds taxes owed, still receive the credit as income subsidy (negative income tax)

Question 22

Efficiency

Answer 22

weighing costs and benefits

Question 23

Equity

Answer 23

fair distribution of goods and services

Question 24

Pareto criterion?

Answer 24

a change is pareto superior if at least one person is made better off and no one is made worse off

Question 25

Pareto optimum

Answer 25

the only way one person can become better off is by making someone else worse off

Question 26

Market failure?

Answer 26

• externalities
• public goods
• imperfect competition
• imperfect information

Question 27

Externalities

Answer 27

occur when costs (or benefits) spill over to affect third parties not directly involved in the transaction

Question 28

Public good?

Answer 28

a good for which there is non rival consumption

• national defense
• street lighting

Question 29

Pollution charges?

Answer 29

• the gov. sets a price on each ton of each pollution emitted
• the price varies depending on the type of pollution

Question 30

Tradable pollution permits? “cap and trade”

Answer 30

• the gov. sets an overall cap on a pollutant
• this cap determines the number or permits that will be issued
• the permits can then be traded
• trading should only be allowed among sources within a given air shed to avoid “hotspot” issues

Question 31

Command and control regulation?

Answer 31

gov. regulation specify
- the amount of pollution that can be emitted from each source
- the control equipment to be used

Question 32

Sustainability?

Answer 32

we should meet our wants and needs in a manner that does not deprive future generations of an equivalent opportunity to meet their wants and needs

Question 33

Asymmetric info

Answer 33

occurs when one party to a transaction has significantly better info than another party

Question 34

Adverse selection?

Answer 34

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