unit 1 test

Question 1

SCARCITY:

Answer 1

• when a resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it

Question 2

four factors of production:

Answer 2

1. land
2. labor
3. capital
4. entrepreneurship

Question 3

micro vs. macro economics:

Answer 3

• micro: the study of how of how individuals, household, and firms make decisions and how they make decisions
• macro: concerned with the overall ups and downs of the economy

Question 4

trade-offs:

Answer 4

• you make a trade-off when you give up something in order to have something else

Question 5

opportunity cost:

Answer 5

• opportunity lost (the financial or nonfinancial cost of a choice not taken)

Question 6

utility:

Answer 6

• total satisfaction received from consuming a good or service

Question 7

marginal:

Answer 7

• means having a little more or a little less of something

Question 8

allocate:

Answer 8

• the division of things into shares of portions

Question 9

price:

Answer 9

• the current price at which an asset or service can be bought or sold

Question 10

cost:

Answer 10

• monetary value of a good or a measure of what you are losing when making a decisions

Question 11

profit:

Answer 11

• the difference between the revenue a commercial entity has received from its outputs and the opportunity cost of its inputs

Question 12

consumer goods:

Answer 12

• sold to consumers for own use or enjoyment

Question 13

capital goods

Answer 13

• physical assets that a company uses in production producers to manufacture products and services that consumers will use later

Question 14

investments:

Answer 14

• the production of goods that will be used to produce other goods

Question 15

productivity:

Answer 15

• measures how efficiently production inputs such as labor and capital are being used in an economy to produce a given level of output

Question 16

production possibilities curve:

Answer 16

• illustrates the trade-offs facing an economy that produces only two goods. it shoes the maximum quantity of one good that can be produced for each possible quantity of the other good produced

Question 17

constant opportunity cost:

Answer 17

• slope is a straight line

Question 18

increasing opportunity cost:

Answer 18

• upward concave and an increase in opportunity cost

Question 19

three PPC shifters:

Answer 19

1. trade
2. change in resource and quantity
3. technology

Question 20

capital goods and future growth:

Answer 20

• more capital goods = more future growth

- less capital goods = less future growth

Question 21

absolute advantage:

Answer 21

• when the seller can produce more output with a given amount of input

Question 22

comparative advantage:

Answer 22

• an individual has a comparative advantage in producing something if the opportunity cost of that production is lower for the individual than for other people

Question 23

specialization and trade:

Answer 23

• specialization: each person specializes in the task that he or she is good at performing
• trade: they produce goods and services to others and receive good and services in return

Question 24

terms of trade:

Answer 24

• indicate the rate at which one good can be exchanged for another
• to find range of mutually beneficial terms of trade - look at each person’s opportunity cost of producing the good

Question 25

demand:

Answer 25

• our desire, willingness, and ability to purchase something

Question 26

law of demand:

Answer 26

• says that a higher price for a good or service, all other things being equal, leads to people to demand a smaller quantity of that good or service

Question 27

the substitution effect:

Answer 27

• the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises

Question 28

the income effect:

Answer 28

• more income = more likely to purchase a good or service at any price
• when a rise in income decreases the demand for a good that is an inferior good

Question 29

law of diminishing marginal utility:

Answer 29

• as you purchase anything the additional satisfaction provided will decrease as you continue consuming

Question 30

five determinants of demand:

Answer 30

1. tastes
2. prices of related goods
3. income
4. the number of buyers
5. expectations

Question 31

substitutes:

Answer 31

• two goods are substitutes if a rise in the price of one of the goods leads to an increase in the demand for the other good

Question 32

normal goods:

Answer 32

• the demand for goods increases when consumer income rises

Question 33

complements:

Answer 33

• two goods are complements if a rise in the price of one of the goods leads to a decrease in the demand for the other good

Question 34

inferior goods:

Answer 34

• the demand for some goods decrease when income rises and these goods are known as inferior goods

Question 35

supply:

Answer 35

what businesses are able and willing to sell

Question 36

law of supply:

Answer 36

• says that other things being equal, the price and quantity supplied of a good are positively related

Question 37

six determinants of supply:

Answer 37

1. cost inputs or cost production
2. productivity
3. technology
4. the government
5. change in producer expectations
6. change in number of producers

Question 38

equilibrium:

Answer 38

• when no individual would be better off doing something different
• the price that matches the quantity supplied demanded is the equilibrium price and the quantity bought and sold at that price is the equilibrium quantity

Question 39

disequilibrium:

Answer 39

• a loss or lack of equilibrium or stability

Question 40

surplus:

Answer 40

• when the quantity supplied exceeds the quantity demanded - above equilibrium

Question 41

shortage:

Answer 41

• when the quantity demanded exceeds the quantity supplied - below equilibrium

Question 42

free market system:

Answer 42

• supply and demand = free market - the producers can bring it back to equilibrium
• no gov. control means buyers and sellers take control

Question 43

double shift rule:

Answer 43

• if two curves shift at the same time, either price or quantity will be intermediate (ambiguous) price ceiling

Question 44

price controls:

Answer 44

legal restrictions on how high or low a market price may go

Question 45

price ceiling:

Answer 45

• a maximum price sellers are allowed to change for a good or service
• creates shortage

Question 46

price floor:

Answer 46

• a minimum price buyers are required to pay for a good or service
• creates surpluses