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Economics is the study of

How people, institution, ans society make choices under conditions of scarcity

The term scarcity in economics refers to the fact that

no country can produce enough products to satisfy everyodys economic wants

From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the

marginal benefits of more insurance coverage are greater than the marginal cost.

Economic models do not reflect the full complexity of reality and instead are based on:

purposeful simplifications

The Purpose of the ceteris paribus assumption used in economic analysis is to:

restrict the analysis to the effect of a single economic factor

Which question is an example of a microeconomics question?

Will the merger of two airlines likely lead to higher airline ticket prices?

Which would be considered a macroeconomic study? A study of the effect of

government spending to increase employment

If a consumer has an income of 200, the price of X is 5, and the price of Y is 10. the maximum quantity of X the consumer is able to purchase is


Assume that a consumer purchases two products and there is an increase in the consumer's money income. All other things equal, the most likely effect is:

an outward shift in the budget line because the consumer can now purchase more of both products

Which is not consider to be an economic resource?


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

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

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

depends upon the preferences of society

the productive possibilities curve

is the boundary between attainable outputs

If an economy is producing at a point inside of a production possibilities curve

resources are unemployed

Which statement is an economic rationale for the law of increasing opportunity cost?

Many economic resources are better at producing one product than another

opportunity cost is best defined as

the value of the best foregone alternative

A nation can increase its production possibilites by

improving labor productivity

Another term for capitalism is

the market system

Legal ans social rules that affect the ownership of property are

property right

Consumers express self-interest when they

seek the lowest price for a product

competition denotes a condition where

there are many independent buyers and sellers in a market.

Advantages of specialization do not include

less interdependence

consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system

What goods and services will be produced?

From society's point of view, the economic function of profits is to

direct resources in response to changes in the economy

the idea that firms ans resource suppliers in seeking to further their own self interests in a competitive market economy also simultaneously promote the public or social interest is a description of

the "invisible hand"

The influential book written by Adam Smith was

The Wealth of Nations

In the circular flow model, households

buy products ans sell resources

the circular flow model:

illustrates the interdependence of business ans consumers

What is the largest source of earned income for U.S. households

Wages and salaries

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is____

direct, inverse

When the price of a product increase , a consumer is able to buy less of it with a given money income. This describes

the income effect

When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products ans less of the now more expensive products. this describes

the substitution effect

If X is normal good, a rise in money income will shift they:

demand curve for X to the right

When an economist says that the demand for a product has increased, this means that:

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

The law of supply indicates that

producers will offer more of a product at high prices that they will at low prices

An improvement in production is production technology will

shift the supply curve to the right

The equilibrium price

There are pressures on price to either rise or fall

At the current price there is a shortage of a product. We would expect price to

increase, quantity demanded to decrease, and quantity supplied to increase

When price of a product is increase 10 percent, the quantity demanded decreases 15 percent. in this range of prices, demand for this product is


A straight line downward sloping demand curve has a price elasticity of demand which:

decreases as price decrease

When the demand for a good is price-elastic at a given output level

total revenue for the good will increase if its price decrease

Which will cause a demand curve to be relatively elastic?

The time interval considered is large

If demanded for farm crops is inelastic, a good harvest will cause farm revenues to:

decrease because of a percentage fall in price greater than the percentage increase in quantity sold.

When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition

have inelastic demand and students who use financial aid have elastic demand

A positive income elasticity of demand coefficient indicates that

a product is normal good

For complementary goods, the coefficient of the cross price elasticity of demand is


Market failure occurs when

the competitive market system under- or over allocates resources to production goods

What are the two characteristics that differentiate public goods from private goods

non rivalry and non excludability

If a tax takes a larger percentage of a high income that it takes of a low income, the tax is said to be a

progressive tax

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