Economics Test 2 Answers – Flashcards
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Black markets
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developed to avoid governmental regulations
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Command economy
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type of economy which a totalitarian government has
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Consumer
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the one, in a free market, who ultimately determines what goods are produced and in what quantities
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Demand
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the relationship between a good's price and the amount consumers buy. Five factors: consumer expectations, income, prices of related goods, population, tastes and preferences
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Demand curve
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a graphic representation pf the amount of goods purchased at different prices
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Diminishing marginal utility
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the concept illustrated when someone owns a certain number of products and then they are given another of the same item
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Equilibrium
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the point at which quantity demanded and quantity supplied are equal
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Equity
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the value of something minus liabilities
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Horizontal axis
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the part of the graph that economists use to represent supply
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Inelastic
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the type of demand created when a producer suddenly triples the price he charges for a product but consumers consumers continue to buy the same amount of the product
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Inferior goods
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the purchase of these decreases as the average income rises
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Marginal utility
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the amount of satisfaction that results from a one-unit increase of a good
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Market signals
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signs sent by consumers which show business owners what kids of products to make available
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Non-durable goods
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has a life expectancy of less than 3 years
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Opportunity cost
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the value of the best alternative that is foregone when a different alternative is taken
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Price
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the amount of good the buyer gives the seller
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Price ceilings
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tend to cause shortages of goods
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Price floor
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tend to cause surpluses of goods (minimum wage)
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Profit
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for the producer, the excess of total revenue over a total expense
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Profit motive
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gives people the incentive to work in order to acquire money and goods
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Public sector
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the group which controls the economy of a country when that country's resources are distributed by the government
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Subsidies
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granted by the government for the assistance of industries
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Substitution effect
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the effect which occurs when the price of a certain good rises and this in turn causes people to find alternative that are less expensive
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Supply
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the quantity of a good the producers will make available at different prices. Six factors: governmental taxes, subsidies, and regulations, number of sellers, prices of related goods, producer expectations, resource prices, technology
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Value in exchange
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the value of a particular good in trade for some other good
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Value in use
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the value of the direct benefit the owner of a good receives
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Essay question: Explain the laws of supply and demand in your own words. Answers should include the following concepts in your own words
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Law of Demand ("Other things remaining equal, the higher the price of a good rises, the smaller is the quantity demanded and vice versa in a free market economy."); Law of Supply ("Other things remaining equal, the higher the price of a good rises, the greater is the quantity supplied and vice versa in a free market economy.")
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Essay question: Why are businesses that are able to make tremendous profits relatively rare in a free market economy? Answers should include some of the following ideas
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The presence of competition usually prohibits businesses from charging prices that would make them large profits. If a business sets its prices too high, consumers will buy from its competitors. Businesses have many expenses, including what they must pay for natural resources, labor, capital, entrepreneurship, taxes, insurance, advertising, etc.
