question

What are the advantages of specialization?

answer

- allows workers to focus on the parts of the production process where they have an advantage. -workers who specialize in certain tasks often learn to produce more quickly and with higher quality. -specialization allows businesses to take advantage of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

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Monetary Policy

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involves policies that affect bank lending, interest rates, and financial capital markets, is determines by country's central bank (fed. reserve)

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Fiscal Policy

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involves government spending and taxes, is determined by a nation's legislative body

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Theory

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a simplified representation of how two or more variables interact with each other

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Circular-Flow Diagram

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shows the economic interaction between households and firms.

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Goods and Services Market

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firms sell and households buy

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Labor Market

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households sell labor to business firms or other employees

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Market

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an institution that brings together buyers and sellers of goods or services

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Command Economy

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an economy where economic decisions are passed down from government authority and where resources are owned by the government

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Underground Economy

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in heavily regulated economies there oftern are markets where the buyers and sellers make transactions without the government's approval

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Globalization

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the expanding cultural, political, and economic connections between people around the world. One measure of this is international trade and financial capital flows

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Private Enterprise

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the means of production are owned and operated by private individuals or groups of private individuals. Businesses supply goods and services based on demand. What goods and services are supplied depends on what is demanded. A person's income is based on his or her ability to convert resources (especially labor) into something that society values

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Economies of Scale

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when the average cost of producing each individual unit declines as total output increases

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Exports

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products (goods and services) made domestically and sold abroad

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Gross Domestic Product

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measure of the size of total production in an economy

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Imports

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products (goods and services) made abroad and then sold domestically

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Allocative Efficiency

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when the mix of goods being produced represents the mix that society most desires

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Budget Constraint

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all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

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Comparative Advantage

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when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production

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The Invisible Hand

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idea that self-interested behavior by individuals can lead to positive social outcomes

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Law of Diminishing Marginal Utility

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as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units

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Law of Diminishing Returns

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as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline (the original gains are fairly large, but gradually diminish)

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Marginal Analysis

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comparing the benefits and costs of choosing a little more or a little less of a good

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Normative Statement

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statement philosophers use that describes how the world should be

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Opportunity Cost

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measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative

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Opportunity Set

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all possible combinations of consumption that someone can afford given the prices of goods and the individual's income

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Positive Statement

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statement philosophers use that describes the world as it is

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Production Possibilities Frontier (PPF)

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diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available. It defines the set of choices society faces for the combinations. of goods and services it can produce given the resources available. Shape typically curved outward. Choices outside the PPF are unattainable and choices inside the PPF are wasteful

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Productive Efficiency

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when it is impossible to produce more of one good without decreasing the quantity produced of another good

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Sunk Costs

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costs that are made in the past and cannot be recovered

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Utility

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satisfaction, usefulness, or value one obtains from consuming goods and services

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Ceteris Paribus

answer

The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product's price, are changing. The assumption that all else is held equal. A demand curve or a supply curve is a relationship between two, and only two, variables when all other variables are kept constant

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Complements

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goods that are often used together so that consumption of one good tends to enhance consumption of the other

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Consumer Surplus

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the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid

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Deadweight Loss

answer

The imposition of a price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity, and thus will create an inefficient outcome. As a result, two changes occur. The loss in social surplus that occurs when the economy produces at an inefficient quantity is called ________________.

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Demand

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the relationship between price and the quantity demanded of a certain good or service

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Demand Curve

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a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

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Demand Schedule

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a table that shows a range of prices for a certain good or service and the quantity demanded at each price

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Equilibrium

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the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity tochange

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Equilibrium Price

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the price where quantity demanded is equal to quantity supplied

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Equilibrium Quantity

answer

the quantity at which quantity demanded and quantity supplied are equal for a certain price level

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Excess Demand

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at the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage

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Excess Supply

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at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus

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Factors of Production

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the combination of labor, materials, and machinery that is used to produce goods and services; also called inputs

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Inferior Good

answer

a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

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Inputs

answer

the combination of labor, materials, and machinery that is used to produce goods and services; also called factors of production

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Law of Demand

answer

the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded

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Law of Supply

answer

the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied

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Normal Good

answer

a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

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Price Ceiling

answer

a legal maximum price

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Price Control

answer

government laws to regulate prices instead of letting market forces determine prices

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Price Floor

answer

a legal minimum price

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Producer Surplus

answer

the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept

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Quantity Demanded

answer

the total number of units of a good or service consumers are willing to purchase at a given price

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Quantity Supplied

answer

the total number of units of a good or service producers are willing to sell at a given price

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Shift in Demand

answer

when a change in some economic factor (other than price) causes a different quantity to be demanded at every price

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Shift in Supply

answer

when a change in some economic factor (other than price) causes a different quantity to be supplied at every price

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Social Surplus

answer

the sum of consumer surplus and producer surplus also called economic surplus

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Substitute

answer

a good that can replace another to some extent, so that greater consumption of one good can mean less of the other

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Supply

answer

the relationship between price and the quantity supplied of a certain good or service

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Supply Curve

answer

a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis

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Supply Schedule

answer

almost same as demand schedule: table that shows a range of prices for a good or service and the quantity supplied at each price

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Surplus

answer

at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply

question

_____________ a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

answer

economies of scale

question

In a discussion of economics, which of the following would exert the most influence on an individual firm's decision to hire workers?

answer

the macroeconomy

question

Which of the following best denotes the reason for the existence of substantial black markets government regulations or command economy?

answer

command economy

question

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

answer

law of diminishing marginal utility

question

As a person receives more of a good, the _______________ from each additional unit of the good declines.

answer

marginal utility

question

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

answer

utility

question

Which of the following is generally accepted as a valid criticism of the production of useful goods and services? a. the black market b. government involvement Incorrect c. economic freedom d. environmental pollution

answer

environmental pollution

question

When quantity demanded decreases in response to a change in price:

answer

there is a movement up along the demand curve

question

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:

answer

goods X and Y are complement goods

question

When quantity demanded decreases in response to a change in price...

answer

there is a movement down along the demand curve

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