Econ Test 1 Cards – Flashcards
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economics
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study of the efficient use of limited productive resources to satisfy economic wants
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scarcity
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key economic concept that serves as the basis for the study of economics
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microeconomics
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study of how a business firm sets its prices
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macroeconomics
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study of the effect of government spending to increase employment
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entrepreneur
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the individual who brings together economic resources and assumes the risk in a capitalist economy
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not considered capital
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a share of corporate stock issued by GM
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money is not a economic resource
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because as such it is not productive
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When an economy is full employment and full production, more of any one product
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can be produced only if there is less production of some other products
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on a production possibilities curve, the single optimal or best combination of output for an society:
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depends upon the preferences of the society
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the production possibility curve:
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is the boundary between attainable and unattainable outputs
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a movement along the production possibilities curve would imply that:
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society has chosen a different set of outputs
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A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?
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It would not shift the curve; it would be represented by moving from a point inside the curve toward the curve.
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the law of increasing opportunity costs indicates that:
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to produc more of one good, the society must sacrifice larger and larger amounts of alternative goods
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opportunity cost is best defined as:
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the value of the best foregone alternative
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All of the following would affect the position of a country's production possibilities curve, except:
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the level of employment
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Economic systems differ according to what two main characteristics?
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Ownership of resources, and methods of coordinating economic activity.
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In a market system, well-defined property rights are important because they:
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encourage economic activity
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Why might a company use barter rather than money to make a transaction?
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Barter can enable two firms to trade when cash flows are limited.
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the term consumer sovereignty means that:
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what is produced is ultimately determined by what consumers buy.
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Within a market economy, some industries may be declining while other industries may be expanding. This indicates that:
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resources are being reallocated
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The law of demand states that:
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price and quantity demanded are inversely related.
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A rightward shift in the demand curve for product C might be caused by:
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a decrease in the price of a product that is complementary to C.
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An increase in the price of C will:
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decrease the demand for complementary product D
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Other things equal, which of the following might shift the demand curve for gasoline to the left?
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the development of a low-cost electric automobile
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increased demand
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consumers are now willing to purchase more of this product at each possible price
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price to high to clear the market
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quantity supplied exceeds quantity demanded
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price initially above equillibrium level
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price will decrease, quantity demanded will increase, and quantity supplied will decrease
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equillibrium price will fall when
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supply increases and demand decreases
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effects on equillibrium price is dependent on magnitude of shifts of supply and demand when
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demand rises and supply rises
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if supply and demand curves both decrease
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equillibrium quantity must decline, but equillibrium price may rise, fall, or remain unchanged
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inelastic
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price increases 10 percent, quantity increases 5. demand is considered
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along a linear downward sloping demand curve, the price elasticity of demand will be:
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different across each price
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requirements for economic growth
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increase in one or more factors of production, improvement in production technology
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sources of economic growth
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technological progress, physical capital investment, human capital investment, specialization and division of labor, population growth
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opportunity cost
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value of the good service, or time forgone to obtain something else
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marginal analysis
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comparison of incremental benefits and costs, when making economic decisions
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economic system
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particular set of institutional arrangements and a coordinating mechanism
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market economy
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property resources are mostly privately owned and decentralized markets are used to direct and coordinate economic activity
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command economy
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public ownership and centrally planned resource allocation
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creative destruction
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new products and production methods destroy market positions of firms that are not able or willing to adjust
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distribution of income is determined by
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the owners of the factors of production (mostly labor)
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determinants of supply
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resource prices, technology, taxes and subsidies, prices of other goods, expectations, number of sellers
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as price rises
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producer surplus increases
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ceteris paribus
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the only determinant of demand allowed to vary is the price of the good
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demand curve
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downward sloping
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law of demand
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negative relationship between price and quantity demanded
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income effect
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price increase reduces purchasing power
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determinants of demand
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consumer income, prices of related goods, consumer tastes and preferences, consumer expectations, number of buyers
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demand curve shifts
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when determinants of demand change
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normal good
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increases/decreases directly with changes in money income
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inferior good
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increases/decreases inversely with money income
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consumer surplus
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area below demand curve and above the price
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as price falls
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consumer surplus increases
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law of supply
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firms will offer for sale more of their product at a high price than at a low price
