Econ Test 1

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economics

study of the efficient use of limited productive resources to satisfy economic wants

scarcity

key economic concept that serves as the basis for the study of economics

microeconomics

study of how a business firm sets its prices

macroeconomics

study of the effect of government spending to increase employment

entrepreneur

the individual who brings together economic resources and assumes the risk in a capitalist economy

not considered capital

a share of corporate stock issued by GM

money is not a economic resource

because as such it is not productive

When an economy is full employment and full production, more of any one product

can be produced only if there is less production of some other products

on a production possibilities curve, the single optimal or best combination of output for an society:

depends upon the preferences of the society

the production possibility curve:

is the boundary between attainable and unattainable outputs

a movement along the production possibilities curve would imply that:

society has chosen a different set of outputs

A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?

It would not shift the curve; it would be represented by moving from a point inside the curve toward the curve.

the law of increasing opportunity costs indicates that:

to produc more of one good, the society must sacrifice larger and larger amounts of alternative goods

opportunity cost is best defined as:

the value of the best foregone alternative

All of the following would affect the position of a country's production possibilities curve, except:

the level of employment

Economic systems differ according to what two main characteristics?

Ownership of resources, and methods of coordinating economic activity.

In a market system, well-defined property rights are important because they:

encourage economic activity

Why might a company use barter rather than money to make a transaction?

Barter can enable two firms to trade when cash flows are limited.

the term consumer sovereignty means that:

what is produced is ultimately determined by what consumers buy.

Within a market economy, some industries may be declining while other industries may be expanding. This indicates that:

resources are being reallocated

The law of demand states that:

price and quantity demanded are inversely related.

A rightward shift in the demand curve for product C might be caused by:

a decrease in the price of a product that is complementary to C.

An increase in the price of C will:

decrease the demand for complementary product D

Other things equal, which of the following might shift the demand curve for gasoline to the left?

the development of a low-cost electric automobile

increased demand

consumers are now willing to purchase more of this product at each possible price

price to high to clear the market

quantity supplied exceeds quantity demanded

price initially above equillibrium level

price will decrease, quantity demanded will increase, and quantity supplied will decrease

equillibrium price will fall when

supply increases and demand decreases

effects on equillibrium price is dependent on magnitude of shifts of supply and demand when

demand rises and supply rises

if supply and demand curves both decrease

equillibrium quantity must decline, but equillibrium price may rise, fall, or remain unchanged

inelastic

price increases 10 percent, quantity increases 5. demand is considered

along a linear downward sloping demand curve, the price elasticity of demand will be:

different across each price

requirements for economic growth

increase in one or more factors of production, improvement in production technology

sources of economic growth

technological progress, physical capital investment, human capital investment, specialization and division of labor, population growth

opportunity cost

value of the good service, or time forgone to obtain something else

marginal analysis

comparison of incremental benefits and costs, when making economic decisions

economic system

particular set of institutional arrangements and a coordinating mechanism

market economy

property resources are mostly privately owned and decentralized markets are used to direct and coordinate economic activity

command economy

public ownership and centrally planned resource allocation

creative destruction

new products and production methods destroy market positions of firms that are not able or willing to adjust

distribution of income is determined by

the owners of the factors of production (mostly labor)

determinants of supply

resource prices, technology, taxes and subsidies, prices of other goods, expectations, number of sellers

as price rises

producer surplus increases

ceteris paribus

the only determinant of demand allowed to vary is the price of the good

demand curve

downward sloping

law of demand

negative relationship between price and quantity demanded

income effect

price increase reduces purchasing power

determinants of demand

consumer income, prices of related goods, consumer tastes and preferences, consumer expectations, number of buyers

demand curve shifts

when determinants of demand change

normal good

increases/decreases directly with changes in money income

inferior good

increases/decreases inversely with money income

consumer surplus

area below demand curve and above the price

as price falls

consumer surplus increases

law of supply

firms will offer for sale more of their product at a high price than at a low price

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