Test 1 Flashcards
What is a Demand Schedule?
table of price vs quantity demanded
What is a Demand Curve?
A graph of the relationship between price and quantity demanded.
What is a Product Market?
A market for goods and services.
What is quantity demanded?
The amount a consumer is willing/able to purchase at a given price.
What is a Competitive Market?
A market where there are many buyers and sellers; all firms are selling identical products, there are no barriers to new firms entering the market.
What are the factors for a Demand Curve shift?
Consumer income, tastes, population or demographics, expected future prices, prices of related goods.
What is a factor market?
A market for factors of production such as labor, natural resources and capital.
What is an Entrepreneur?
Operates a business that produces goods or services and brings together factors of production.
What is a Circular Flow Diagram?
Diagram showing how households and firms are linked through product and labor.
What is a Production Possibilities Frontier?
A curve that shows the max attainable goods with the available resources. Pts on the curve reflect efficiency, under the curve reflect inefficiency, outside show unattainable with current resources.
What is microeconomics?
The examination of individual markets.
What is GDP growth rate?
The economic growth rate. (Value (second period) - Value (first period))/Value (first period)
What is Positive Analysis?
Analysis concerned with what is.
What is Normative Analysis?
Analysis concerned with what should be.
What is macroeconomics?
The examination of the economy as a whole.
What is Marginal Cost?
The opportunity cost of a decision.
What is Marginal Benefit?
The benefit of a decision.
What is Scarcity?
When unlimited wants exceed limited resources: every choice involves an opportunity cost.
What is rational (economic)?
All available information is used in the decision making process and actions related.
What is market demand?
The demand by all consumers of a give good or service.
What is the law of demand?
Holding everything else constant, the quantity demanded increases when price decreases.
What are substitutes?
Goods that can be used for the same purpose.
What are complements?
Goods that are used together.
What is a normal good?
A good that increases when income increases.
What is an inferior good?
A good that demand decreases when income increases.
What is ceteris paribus?
All else equal.
What is the difference between change in supply and change in quantity supplied?
quantity supplied is a result in the product’s own price and supply is caused by a variety of other variables other than price.
What is quantity supplied?
The amount of good or service that a firm is willing/able to supply at a given price.
What is a supply schedule?
A table that shows the relationship between price and the quantity supplied.
What is the law of supply?
Holding all else constant: as price of a product increases the quantity supplied increases. Directly proportional.
What are factors that shift the supply curve?
Prices of Inputs, Technological changes, Prices of substitutes, # firms in the market, expected future prices.
What is a price ceiling?
A legally determined maximum price that sellers may charge.
What is a price floor?
A legally determined minimum price that sellers may receive.
What is market equilibrium?
When quantity demanded equals quantity supplied.
What is a surplus?
When quantity supplied > quantity demanded.
What do price floors cause?
A surplus.
What is a shortage?
When quantity demanded > quantity supplied.
What do price ceilings cause?
Shortages.
What is the marginal benefit curve?
(demand curve) Shows the willingness of consumers to purchase a product at different prices.
What is the marginal cost curve?
(supply curve) shows the willingness of firms to supply product at different prices.
What is consumer surplus?
The difference between what a consumer is willing to pay and what the consumer actually pays.
What is producer surplus?
The difference between the lowest price a firm is willing to accept and what the firm actually receives.
What is economic surplus?
At a maximum (most efficient) when marginal benefit = marginal cost and consumer surplus = producer surplus.
What is deadweight loss?
A reduction in economic surplus resulting from a market not being in equilibrium.
What is a black market?
A market in which buying and selling occur at prices that violate market control.
T/F Every good (except undesirable things) is scarce.
True.
What is a sole proprietorship?
A firm owned by a single individual and not organized as a corporation.
T/F If the demand and supply for a product both increase, the equilibrium quantity of the product must also increase.
True
T/F If the demand and supply for a product both increase, the equilibrium price of the product must also increase.
False
T/F If the demand for a product decreases and the supply of the product increases, the equilibrium price of the product may increase or decrease, depending on whether the supply or demand is shifted more.
False
As the price of a good rises, consumer surplus —– , and as the price of a good falls, consumer surplus ——– .
decreases, increases
As the price of a good rises, the producer surplus ——- , and as the price of the good falls the producer surplus ———.
increases, decreases
What are the three major firms in the US called?
sole proprietorships, partnerships, corporations
Limited liability becomes more important for firms trying to raise funds from a large number of investors rather than a small number of investors because:
investors that make a small investment in a firm may be unwilling to risk all of their personal assets if the firm fails.
What is minimum wage law?
Dictates the lowest wage that firms may pay for labor.
What takes place in the direct finance market?
Ownership in corporations is sold in the form of preferred stock.
What is the primary purpose of patents and copyrights?
To encourage the expenditure of funds on research and development to create new products.
What are the three fundamental questions that any economy must address?
what goods and services to produce; how will theses goods and services be produced, who receives them.
What is an asset?
Something a company owns.
What is a liability?
Something the company owes.
What is a Balance Sheet?
A firm’s overall financial position.
What is an income statement?
A firm’s revenues, costs, profits.
What is an explicit cost?
A monetary opportunity cost.
What is an implicit cost?
A non-monetary opportunity cost.
