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Economics quiz moss
Terms in this set (46)
The authors state that "All of economics rests on one simple principle." What is this
Changes in incentives influence human behavior in predictable ways
Describe the following statement in your own words: "There is little reason to believe
that a person making choices in the voting booth will behave much differently than when
making choices in the shopping mall."
In voting booths, someone will vote for the candidate who will give them the most personal benefits. In a shopping mall you will buy something that will most benefit yourself in your opinion.
Do incentives influence the choices of students? Do incentives influence the decisions of
elected political officials? Did incentives influence choices under the socialist central
planning system of the former Soviet Union? Provide examples
Incentives influence every single person.
Ex: A student might work harder on an assignment if it could get their grade up to an A+
In the Soviet Union, someone is more likely to comply to rules if following the rules keeps their family safe.
If you respond to changes in incentives, does this indicate that you are selfish and
greedy? Did Mother Teresa respond to incentives? Was she selfish and greedy?
No, Mother Teresa was originally going to build a homeless shelter but did not have enough funding so she put the funding where she found it would do more good.
If the price of a good increases because consumers want to purchase more than sellers are
currently supplying, how will the higher price affect the incentive of consumers to
purchase the good? How will the higher price affect the incentive of sellers to supply the
Yes, consumers will be less likely to buy more or any of the product until prices of the product go down. Ex: Gas prices a couple years ago
When prices raise, sellers will be more willing to provide the item while buyers will purchase fewer
Why can't we consume as much of each good or service as we would like? If we become
richer in the future, do you think we will eventually be able to consume as much of
everything as we would like? Why or why not?
Resources are limited so even if we were rich in the future we would not be able to get as much of whatever we want
What does the cost of a good or service reflect? Does it ever make sense to make a choice
without considering the cost? If you choose an option without considering the cost, what
does this mean?
It reflects the value that the seller has put on the good or service. By making a rational decision, we don't consider the opportunity costs and make an action without considering the alternatives
Why is it costly for you to purchase and item or make choices involving the use of your
time? What is the meaning of "opportunity cost"? What is the opportunity cost of
purchasing a book? What is the opportunity cost of reading the book?
Sometimes the cost of doing something is not always money, when you're doing one thing you are taking away the chance of doing something else during the time. By buying the book you are spending money that you can never spend again and by reading it you could be playing video games instead of reading
If a good is provided free of charge to individuals, how will this affect their incentive to
conserve on its use?
They will be more likely to use that item up more quickly as it was free for them
What does it mean to make a decision "at the margin"? Consider your purchases of food
in the next month. As you choose how much you will spend on food and the amount of
each food item you will purchase, will these be "marginal" decisions? Why or why not?
By making decisions at the margin, they almost always include additions or subtractions from the current condition. Buying food is marginal as we can spend all of our money on food but then we would be unable to buy clothes. Similar to opportunity costs.
A restaurant offers an "all you can eat" lunch buffet for $10. Jim has already eaten three
servings, and is trying to decide whether to go back for a fourth. Describe how Jim can
use marginal analysis to make his decision
Jim is getting the additions of the 10 dollars as he is getting more bang for his buck so he would have no financial subtractions in getting a fourth
Pollution is causing $100 million worth of damage to the environment and we are only
spending $1 million to reduce pollution. We are clearly not spending enough on fighting
pollution." Is this statement true? Is marginal analysis needed to answer this question?
Yes because we are losing money in trying to save the environment
Why do people engage in trade? If one of the trading partners gains, must the others
involved in the transaction lose an equal amount? Why or why not?
Trade is a mutual gain as both people agree on an exchange because they know it will benefit their well being. No because it is not the value or amount of the good that's important but the use of the good and how its allocated
Is trade productive? Could trade be productive even if nothing new was produced?
Yes because "one man's trash is another man's treasure"
Someones toy might seem more valuable to someone else than the value in which the owner sees it
What are the three major sources of gains from trade? Explain the source of the gains
derived by the trading partners in each of the three cases.
1. Trade moves goods from people who value them less to someone whole values them more.
2. It allows us to specialize in things that we do best making us more efficient
3. Voluntary Exchange allows firms or businesses to achieve lower per-unit costs.
What is the law of comparative advantage? Why does it lead to specialization, and
explain how this influences the total output the trading partners are able to produce?
When someone is willing to sell or provide a product at a lower cost, you can use your other resources elsewhere.
You are able to focus more on your specialty by having someone else do task that would take away your progress.
Why do you trade for things rather than produce them yourself? Would you be better off
if you did not buy so many things from others? Would Americans in general be better off
if they did not buy so many things from others?
it is often cheaper to trade things than the way you would get them yourself. it benefits buying from others as your able to specialize in your own field. America might be better off buying less as there are many political restraints.
What are economies of scale, and how are they achieved? What role can economies of
scale play in increasing the gains from trade?
Market forces are constantly reallocating production toward low cost producers and in doing so markets can maximize the value and amount of goods and services
What are transaction costs? Why are they an impediment to trade?
The time and effort needed in between when making a purchase such as shipping and handling. They add a higher cost to trade
"Countries that impose obstacles to exchange - either domestic or international - reduce
the ability of their citizens to achieve more prosperous lives." Indicate why you either
agree or disagree with this statement
I disagree as sometimes the middleman in a transaction can be beneficial.
What is a "middleman?" Give a couple of examples of middlemen. Do middlemen
perform valuable services? Why or why not?
People who help to arrange trades and make better choices reduce transaction costs ad services without providing benefits
This may seem not beneficial but transaction costs are unavoidable and they're just people willing to do it for us for a cost
How have the following influenced the volume of trade:
a. the internet?
b. the interstate highway system?
c. tariffs on goods purchased from sellers in another country?
a. items are more acccesible creating a higher volume for trade
b. Trade across the country is now quicker
c. Limited how much buyers buy with the increase in price from tariffs
Why does the demand curve for a good slope downward to the right? What does the
downward slope reflect?
Sloping to the right means buyers are willing to buy more products at higher prices while the downward slope indicates buyers will buy more at lower prices
What is the law of supply? What does it imply about the supply curve for a good or
Other factors stay the same while prices increases.
If the quantity of a good consumers are purchasing exceeds the quantity producers are
willing to supply at the current price, what will happen to the market price in the future?
The price will increase as people are willing to pay more for an item
What does the height of the demand curve for a good indicate? What does the height of
the supply curve for the good indicate? What condition must be present if an exchange is
going to occur?
It indicates the the quantity of goods consumers will buy at alternative prices.
The supply curve indicates the amount of a good the suppliers are willing to supply.
The relationship between a buyer and seller needs to be present
In a market economy, will units of a good be produced and purchased if consumers value
them more than their cost of production? Explain. If the production cost per unit of a
good exceeds the value derived by consumers, will the good continue to be produced and
consumed? Why or why not?
Yes because consumers will believe they are getting more for than it costs. The good would not be produced as much but it would still be consumed until it meets an equilibrium
Any factor that encourages or motivates a person to do something. Prices, taxes, and laws create incentives that influence how people behave.
The condition that results because people have limited resources but unlimited wants.
the value you place on items that must now be given up because you spent the money on the initial purchase
theory that attempts to explain the discrepancy in the value of goods and services
describes a market where buyers and sellers have the right to sell and buy by their own preference or refuse to if they so choose
a person who buys goods from producers and sells them to retailers or consumers.
the process of concentrating on and becoming expert in a particular subject or skill
the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.
Law of Demand
conditional on all else being equal, as the price of a good increases, quantity demanded decreases; conversely, as the price of a good decreases, quantity demanded increases
Law of Supply
fundamental principle of economic theory which states that, keeping other factors constant, an increase in price results in an increase in quantity supplied
Profits and Losses
one of the financial statements of a company and shows the company's revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income or net profit
a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.
a tax or duty to be paid on a particular class of imports or exports.
a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period
an increase in the production of economic goods and services, compared from one period of time to another
Adam Smith's Invisible Hand
moves the market to the point of equilibrium
the changes in economic activity from subsequent rounds of responding of tourism dollars
any documented expenses and allocated cost of personnel reasonably incurred by the Backup Servicer in connection with a transfer of servicing from the Servicer to the Backup Servicer as the successor Servicer
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