Unit 2 - Allocation Methods

Question 1

What four resource categories are often referred to as the factors of production?

Answer 1

Land
Labor
Capital
Entrepreneurship

Question 2

What is the desire and willingness of a consumer to pay a price for a specific good or service?

Answer 2

Demand

Question 3

What is the quantity of goods and services that a person, business, or company is willing to offer for a specific price at a given time?

Answer 3

Supply

Question 4

What occurs when the quantity of a good or service demanded by consumers and the quantity of that good or service supplied by producers meet at an acceptable price for both sides?

Answer 4

Market equilibrium

Question 5

The main way the government sets prices is through determining ______________ and _____________.

Answer 5

Price ceilings; price floors

Question 6

What refers to the equipment, machinery, or tools needed for the production of goods or services?

Answer 6

Capital

Question 7

What are workers or employees hired by firms called?

Answer 7

Human capital

Question 8

What is the system where people and businesses operate with little to no interference from the government?

Answer 8

Free-enterprise system

Question 9

What are the three main economic concepts that also help to explain the law of demand?

Answer 9

Income effect, substitution effect, diminishing marginal utility

Question 10

What is income effect?

Answer 10

The change in the demand for a good or service caused by a change in a consumers income

Question 11

What is the substitution effect?

Answer 11

The tendency of people to choose less expensive goods or services instead of the one they first intended to purchase

Question 12

In a free-enterprise system, what is generally the most important factor that affects the quantity demanded and the quantity supplied?

Answer 12

Price

Question 13

What is the financial benefit gained when the amount of earnings gained from a business activity exceeds the costs necessary to sustain that activity?

Answer 13

Profit

Question 14

What occurs when the quantity supplied is above the quantity demanded at a specific price?

Answer 14

Surpluses

Question 15

What occurs when the quantity demanded is higher than the current supply at a specific price?

Answer 15

Shortages

Question 16

In order to have an impact on supply and demand, a price ceiling must be set ________the equilibrium price that would normally be set by the market.

Answer 16

Below

Question 17

In order to be effective, price floors must be set _________ the market equilibrium price.

Answer 17

Above

Question 18

The main disadvantage of setting price floors is that the lowered demand caused by artificially high prices may lead to _______________.

Answer 18

Surpluses

Question 19

What is the artificial restriction of resources, goods, or services enacted by the government?

Answer 19

Rationing

Question 20

What is the illegal buying and selling of goods or services that are highly controlled by the government?

Answer 20

Black markets