Economics Midterm Review Test Questions – Flashcards
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Economics
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the study of how indidivudals and societies make choices about ways to use scarces resources to fulfill their wants.
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Want
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everything other than basic survival needs.
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Scarcity
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condition of not being able to have all of the goods and services one wants, because wants exceed what can be made from all available resources at any given time.
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Factors of production
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resources of land, labor, and entrepreneurship used tp produce goods and services.
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land
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(factor of production)-natural resources and surface land and water
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labor
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(factor of production)-human effort directed toward producing goods and services
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goods
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tangible objects that can satisfy people's wants or needs
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services
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actions that can satisfy people's wants or needs
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capital
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(factor of production)-previously manufactured goods used to make other goods and services.
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productivity
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the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, entrepreneurship
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entrepreneurship
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(factor of reproduction)-ability of risk taking individuals to develop new products and start new businesses in order to make profits.
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technology
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(some consider to be factor of production)-advance in knowledge leading to new and improved goods and services and better ways of producing them.
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trade-off
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sacrifcing one good or service to purchase or produce another.
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opportunity cost
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value of the next best alternative given up for the alternative that was chosen
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production possibilities curve
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graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time.
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microeconomics
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the branch of economic theory that deals with behavior and decision making by small units such as individuals and firms.
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macroeconomics
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the branch of economic theory dealing with the economy as a whole and decision making by large units such as governments
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economy
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the production and distribution of goods and services in a society.
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economic model
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a theory or simplified representation that helps explain and predict economic behavior in the real world.
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hypothesis
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an assumption involving two or more variables that must be tested for validity.
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demand
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the amount of a good or service that consumers are able and willing to buy at various possible prices during a specifed time period
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supply
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the amount of a good or service that producers are able and willing to sell at various prices during a specified time period.
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market
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the process of freely exchanging goods and services between buyers and sellers.
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voluntary exchange
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(basis of activity in a merket economy)-a transaction in which a buyer and a seller exercise their economic freedom by working out their own terms of exchange.
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the law of demand
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as price goes up, quantity demanded goes down; as price goes down, quantity demanded goes up.
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quantity demanded
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the amount of a good or service that a consumer is willing and able to purchase at a specific price.
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real income effect
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economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.
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substitution effect
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economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other.
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utility
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(or satisfaction)-the ability of any good or service to satisfy consumer wants.
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marginial utility
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an additional ammount of satisfaction
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the law of diminishing marginal utility
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the rule stating that the additional satisfaction a consumer gets from purchasing one more unit of product will lessen with each additional unit purchased.
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demand schedule
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table showing the quantities demanded at different possible prices
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demand curve
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downward sloping line that shows in graph form the quantities demanded at each possible price.
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determinants of demand
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change in population; changes in income; changes in tastes and preferences; substitutes; complementary goods
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complementary good
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a product often used with another ptoduct
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elasticity
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economic concept dealing with consumers' responsiveness to an increase or decrease in price of a product.
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price elasticity of demand
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economic concpet that deals with how much demand varies according to changes in price.
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elastic demand
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situation in which the rise or fall in a product's price greatly affects the amount that people are willing to buy.
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inelastic demand
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situation in which a product's price change has little impact on the quantity demanded by comsumers.
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determinants od pricw elasticity
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the existence of substitutes; the percentage of a person's total budget devoted to the purchase of that good; and the time consumers are given to adjust to the change in price.
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supply
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the ability and willingness of producers to provide goods and services at different prices in the marketplace.
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the law of supply
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as the price rises for a good, the quantity supplied generally rises; as the price falls for a good, the quantity supplied also falls.
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quantity supplied
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the amount of a good or service that a producer is willing and able to supply at a specific price.
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supply schedule
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table showing quantities supplied at different possible prices.
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supply curve
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an upward-sloping line that shows in graph form the quantities supplied at each possible price.
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determinants of supply
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price of inputs; number of firms; taxes; and technology
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technology
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any use of land, labor, and capital that produces goods and services more efficiently
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law of diminishing returns
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economic rule that says as more units of a factor of production (such as labor) are added to other factors of production (such as equipment) after some point total output continues to increase but at a diminishing rate.
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equilibrium price
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the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
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shortage
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situation in which the quantity demanded is greater than the quantity supplied at the current price.
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surplus
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situation in which quantity supplied is greater than quantity demanded at the current price.
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price ceiling
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a legal maximum price that may be charged for a particular good or service.
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rationing
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the distribution of goods and services based on something other than price (i.e. limiting items that are in short supply)
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black market
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"underground" or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold.
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price floor
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a legal minimum price below which a good or service may not be sold.
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national income accounting
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measurement of the national economy's performance, dealing with the overall economy's output and income.
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gross domestic produce (GDP)
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total dollar value of all final goods and services produced in a nation in a single year.
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consumer sector
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goods and services bought by consumers for their direct use.
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investment sector
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business purchases of tools, machines, buildings, etc. to produce other goods.
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government sector
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goods and services bought by federal, state, and local governments.
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net exports
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difference between what the nation sells to other countries and what it buys from other countries.
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depreciation
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loss of value because of wear and tear to durable goods and capital goods.
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net domestic product (NDP)
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value of the nation's total output (GDP) minus the total value lost through depreciation on equipment.
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national income(NI)
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total income earned by everyone in the economy
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personal income (PI)
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total income that individuals receive before personal taxes are paid.
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transfer payments
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welfare and other supplementary payments that a state or the federal government makes to individuals.
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disposable personal income (DI)
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income remaining for people to spend or save after all taxes have been paid.
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inflation
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prolonged rise in the general price level of goods and services.
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purchasing power
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the real goods and services that money can buy; determines the value of money.
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deflation
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prolonged decline in the general price level of goods and services.
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consumer price index (CPI)
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measure of the change in price over time of a specific group of goods and services used by the average household.
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market basket
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representative group of goods and services used to compile the consumer price index.
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base year
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year used as a point of comparison for other years in a series of statistics
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producer price index (PPI)
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measure of the change in price over time that the United States producers charge for their goods and services.
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GDP price deflator
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price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year.
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real GDP
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GDP that has been adjusted for inflation by applying the price deflator.
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aggregates
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summation of all individual parts in the economy.
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aggregate demand
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total quantity of goods and services in the entire economy that all citizens will demand at any single time.
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aggregate demand curve
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a graphed line showing the relationship between the aggregate quantity demanded and the average of all prices as measured by the implicit GDP price deflator.
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aggregate supply
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real domestic output of producers based on the rise and fall of the price level.
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aggregate supply curve
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a graphed line showing between the aggregate quantity supplied and the average of all prices as measured by the implicit GDP price deflator.
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business fluctuations
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ups and downs in an economy
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business cycle
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irregular changes in the level of total output measured by real GDP
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peak/boom
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period of prosperity in a business cycle in which economic activity is at its highest point.
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contraction
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part of the business cycle during which economic activity is slowing down.
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recession
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part of the business cycle in which the nation's output (GDP) does not grow for at least six months
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depression
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major slowdown of economic activity.
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trough
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lowest part of the business cycle in which the downward spural of the economy levels off.
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expansion/recovery
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part of the business cycle in which economic activity slowly increases.
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innovations
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inventions and new production techniques.
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economic indicators
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statistics that measure variables in the economy
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leading indicators
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statistics that point to what will happen in the economy
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coincident indicators
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economic indicators that usually change at the same time as changes in overall business activity
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lagging indicators
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indicators thaat seem to lag behind changes in overall business activity.
