MT 1

Question 1

Efficiency

Answer 1

property of society getting the most it can from scarce resources

Question 2

Equity

Answer 2

property of distributing economic prosperity fairly among society members

Question 3

Rational People

Answer 3

people who do the best they can to achieve their objectives

Question 4

Marginal Changes

Answer 4

small incremental adjustments “around the edge” of a plan of action

Question 5

Property Rights

Answer 5

ability of an individual to own and control scarce resources

Question 6

Market Failure

Answer 6

when the market fails to allocate resources efficiently (usually when left on it’s own), requiring gov intervention

Question 7

2 Causes of Market Failure

Answer 7

Externality & Market Power

Question 8

Externality

Answer 8

one person’s actions impact well-being of a bystander

Question 9

Market Power

Answer 9

one “actor” in market has substantial influence on market prices

Question 10

Productivity

Answer 10

quantity of goods and services produced for each hour of a worker’s time

Question 11

Business Cycle

Answer 11

unpredictable fluctuations economic activity, such as employment and production

Question 12

More money in economy =

Answer 12

more employment, less unemployment (tradeoff between inflation and unemployment)

Question 13

Positive Statement

Answer 13

describes the world as it is

Question 14

Normative Statement

Answer 14

describes the world as it ought to be

Question 15

Absolute Advantage

Answer 15

comparison among producers of a good according to their productivity

Question 16

Comparative Advantage

Answer 16

comparison among producers of a good according to their opportunity cost

Question 17

Law of Demand

Answer 17

P up = QD down, P down = QD up

Question 18

Market Demand

Answer 18

sum of all individual demands for a good or service

Question 19

Normal Good

Answer 19

income up = QD up

Question 20

Inferior Good

Answer 20

income up = QD down

Question 21

Shifts in the Demand Curve

Answer 21

Expectations, Tastes, Substitutes, Number of Buyers, Income

Question 22

Law of Supply

Answer 22

P up = S up, P down = S down

Question 23

Shifts in the Supply Curve

Answer 23

Input Prices, Technology, Expectations, Number of Sellers

Question 24

Law of Supply and Demand

Answer 24

price of any good adjusts to bring QS and QD into balance (by the activities of many buyers and many sellers)

Question 25

Price Elasticity of Demand

Answer 25

how much the QD of a good responds to a change in price

Question 26

Factors Affecting PED

Answer 26

Close Substitutes, Necessities vs Luxuries, Definition of the Market, Time Horizon

Question 27

Income Elasticity of Demand

Answer 27

measures how QD responds to changes in consumer’s income

Question 28

Cross-Price Elasticity of Demand

Answer 28

measures how the increase in price of one good affects the QD of another. (positive if sub, negative if comp)

Question 29

Price Elasticity of Supply

Answer 29

measure of how QS responds to changes in price

Question 30

Consumer Surplus

Answer 30

difference between consumer WTP and what they actually do pay (measure the benefit buyers receive from the market)
= value to buyers - amount paid

Question 31

Producer Surplus

Answer 31

difference between costs of production and what the good sells for (price)
measure the benefit sellers receive from the the market
= amount sold for - production cost

Question 32

Total Surplus

Answer 32

CS + PS or value to buyers - cost to sellers

Question 33

Welfare Economics

Answer 33

study of how allocation of resources affects economic well-being