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54 terms

Econ Test 1

STUDY
PLAY
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