unknown terms for exam #1

Question 1

Economics

Answer 1

Social science is concerned with the way society chooses to employ scarce resources which have alternative uses to produce and distribute goods and services from present and future consumption

Question 2

Marginal thinking/at the margin

Answer 2

The contribution of each individual unit to the toal product at the time that the unit is applied; every unit has its own marginal contribution

Question 3

Consumer Sovereignty

Answer 3

We decide what we want and what happens to the economy through out choices

Question 4

what is a market?

Answer 4

A set of arrangements by which buyers and sellers of a good or service are in contact to trade that good or service

Question 5

Invisible Hand Theory

Answer 5

Adam smith; when a person acts in their own self-interest, it will lead to the best outcome for everyone. Individuals guided by an invisible hand pushing the market to equilibrium

Question 6

Behavioral Economics

Answer 6

Combines elements of economics and psychology to understand how and why people behave the way they do in the real world

Question 7

What is driving peoples decisions?

Answer 7

1. Limited income (and time) necessitates choosing among alternatives
2. amount of satisfaction each good gives you
3. One good can usually be substituted for another
4. Consumers make decisions based on imperfect information
5. The law of diminishing marginal returns applied in consumption

Question 8

What will shift a demand curve?

Answer 8

Income
Tastes and preferences
Price of substitutes
Price of compliments
Uncertainty
population

Question 9

Ceteris Paribus

Answer 9

Other things help the constant; other things being equal

Question 10

What will shift a supply curve?

Answer 10

Change in resource (input) costs
Change in technology
“Supply Shocks”

Question 11

Perfect competition

Answer 11

a market structure characterized by many buyers and sellers, freedom of entry and exit, and no one buyer or seller is large enough to affect price

Question 12

Marginal utility

Answer 12

The change in total utility resulting from one additional unit of a commodity consumer

Question 13

Elasticity

Answer 13

Change in the behavior of buyers and sellers in response to a change in price for a good or service

Question 14

Determinants of relative elasticity

Answer 14

Presence (absence) of good substitutes
% of income spent on good
Time

Question 15

PPF Shifters

Answer 15

Increase in resource availability
Technology
trade

Question 16

Types of efficiencies

Answer 16

1. Technological: highest quantity of outputs produced from the smallest number of inputs
2. Economic: All resources are allocated ofr their best uses to creat the most utltuy for everyone

Question 17

law of diminishing marginal returns

Answer 17

If the quantities of some factors of production are fixed then the marginal product () of any variable will eventually decline

Question 18

law of demand

Answer 18

Quantity demanded of a good is inversely related to its price

Question 19

Real income effect

Answer 19

Change in quantity demanded due to changes in consumer’s real income resulting from a change in the price of goods, ceteris paribus

Question 20

law of supply

Answer 20

The quantity supplied of a good is directly related to its own price

Question 21

Own price elasticity of demand

Answer 21

Percentage increase in quantity demanded that occurs as a result of a 1% reduction in price, ceteris paribus

Question 22

Real income

Answer 22

how much can your money buy you in terms of goods/services

Question 23

Why might the market fail?

Answer 23

• Lack of competition
• Externalities (External to the market, good or bad)
• Public goods
• Common property ( being Nonexclusive/Rival )