Words To Know

Question 1

World price

Answer 1

The price of a good that prevails in the world market for that good

Question 2

Five principles of economics

Answer 2

People face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, people respond to incentives, trade can make everyone better off.

Question 3

Absolute advantage

Answer 3

The ability to produce a good using fewer inputs than another producer

Question 4

Opportunity cost

Answer 4

Whatever must be given up to obtain some item

Question 5

Comparative advantage

Answer 5

The ability to produce a good at a lower opportunity cost than another producer

Question 6

Market

Answer 6

A group of buyers and sellers of a particular good or service

Question 7

Competitive market

Answer 7

A market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Question 8

Law of demand

Answer 8

The claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

Question 9

Normal good

Answer 9

A good for which, other things being equal, an increase in income leads to an increase in demand

Question 10

Inferior good

Answer 10

A good for which, other things being equal, an increase in income leads to a decrease in demand

Question 11

Substitutes

Answer 11

Two goods for which an increase in the price of one leads to an increase in the demand for the other

Question 12

Compliments

Answer 12

Two goods for which an increase in the price of one leads to a decrease in the demand for the other

Question 13

Equilibrium

Answer 13

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

Question 14

Surplus

Answer 14

A situation in which quantity supplied is greater than quantity demanded

Question 15

Shortage

Answer 15

A situation in which quantity demanded is greater than quantity supplied

Question 16

Law of supply and demand

Answer 16

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Question 17

Elasticity

Answer 17

A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

Question 18

Price ceiling

Answer 18

A legal maximum on the price at which a good can be sold

Question 19

Price floor

Answer 19

A legal minimum on the price at which a good can be sold

Question 20

Willingness to pay

Answer 20

The maximum amount that a buyer will pay for a good

Question 21

Consumer surplus

Answer 21

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Question 22

Cost

Answer 22

The value of everything a seller must give up to produce a good

Question 23

Producer Surplus

Answer 23

The amount a seller is paid for a good minus the seller’s cost of providing it

Question 24

Deadweight loss

Answer 24

The fall in total surplus that results from a market distortion, such as tax

Question 25

The Laffer Curve

Answer 25

A curve that visually shows the relationship between tax rates and the amount of tax revenue collected by governments

Question 26

World price

Answer 26

The price of a good that prevails in the world market for that good

Question 27

Five Arguments for restricting trade

Answer 27

The Jobs Argument, the National Security argument, the Infant-Industry argument, the Unfair-Competition argument, the Protection-as-a-Bargaining-Chip argument

Question 28

Law of supply

Answer 28

The claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises