Econ Test 1

Front 1

What are the four factors of production (categories of resources)?

Back 1

Natural (land), Capital (machines), Labor (people), Entrepreneur (puts it all together).

Front 2

What is opportunity cost?

Back 2

What you gave up to get what you got.

Front 3

What is the law of increasing opportunity cost?

Back 3

As production increases, opportunity cost rises.

Front 4

Define the other-things-equal assumption. (all things are equal)

Back 4

The assumption that factors other than those being considered do not change.

Front 5

Macro vs. Micro Economics?

Back 5

Macro= big picture, Micro= specific.

Front 6

What does Diminishing Marginal Utility affect?

Back 6

Demand only. (not supply)

Front 7

Define scarcity.

Back 7

Unlimited wants, with limited resources.

Front 8

Describe the relationship between Marginal Cost and Marginal Benefit. When MC=MB, MC>MB, MC<MB.

Back 8

MC=MB: Efficient. MC>MB: No purchase. If the cost is greater than the benefit, you would not buy it. MC<MB: Deal. If the cost is less than the benefit, buy it. Bang for your buck.

Front 9

Resources are considered being efficiently allocated when...

Back 9

Marginal Cost = Marginal Benefit.

Front 10

The economic rationale for the law of increasing opportunity costs is...

Back 10

That economic resources are not completely adaptable to alternative uses.

Front 11

What is marginal analysis? (what does it involve)

Back 11

The comparisons of marginal benefits and marginal costs, usually for decision making.

Front 12

(fill in the blank) A market is an institution or mechanism ____

Back 12

that brings buyers and sellers into contact.

Front 13

Law of demand. (fill in the blank) All else equal, as price falls ____

Back 13

the quantity of demand rises. (and as price rises, demand falls)

Front 14

What does the demand curve show?

Back 14

The various amounts of a product that consumers are willing and able to purchase at each of a series of possible price.

Front 15

What does the supply curve show?

Back 15

various amounts of a product that producers are willing and able to make.

Front 16

What is the law of supply?

Back 16

As prices rise, quantity of supply rises. (and as prices fall, quantity of supply falls)

Front 17

Name two examples of the inverse relationship between price and demand.

Back 17

1. Human Nature: If price goes down, people will buy more. 2. Diminishing Marginal Returns (Utility): Not wanting more of something after you already have it.

Front 18

List 3 determinates of demand other than price and explain 1.

Back 18

1. Consumer taste 2. Number of buyers in the market 3. Consumer income: If a consumer's income goes up, they will have more demand for luxury items.

Front 19

What role do related goods have in the price of other goods?

Back 19

If price rises for a one good, the demand for it's substitute will increase (and vice vera). If price rises for a good, the demand for it's compliment will decrease.

Front 20

What is the difference between a substitute good and a complementary good?

Back 20

A substitute good is one that can be used in place of another good. A complementary good is one that is used together or in addition to another good.

Front 21

(name 2) What are some determinates of supply?

Back 21

Change in: resource prices, technology, taxes and subsidies, or price of other goods.

Front 22

How does income effect the demand for inferior, normal, and superior goods?

Back 22

A rise in income increases demand for superior and normal goods while decreasing demand for inferior goods. (vice versa for decrease in income)

Front 23

What is the reason for a rise in the supply curve?

Back 23

Increased marginal cost.

Front 24

(list 4) Characteristics of the market place system.

Back 24

1. Private property 2. Active but limited government 3. Competition 4. Specialization

Front 25

(write out) What test must an item pass to serve as money?

Back 25

It has to be widely accepted as exchange for goods and services.

Front 26

What does self-sufficiency breed?

Back 26

Inefficiency.

Front 27

(write out) What generally determines which goods and services will be produced for the market place?

Back 27

Those that can produce a continuous profit.

Front 28

(fill in the blank) Any product will be distributed to consumers on the basis of ____

Back 28

their ability and willingness to pay the market price.

Front 29

What do we mean by economic efficiency?

Back 29

Obtaining a particular output of product with the least input of scarce resources.

Front 30

What does "The Invisible Hand" by Adam Smith ensure?

Back 30

That when firms maximize their profits, they also help maximize society's output and income.

Front 31

What is the greatest source of national income?

Back 31

Wages and salaries.

Front 32

How is the majority of the nation's wages and salaries consumed?

Back 32

Personal consumption.

Front 33

Personal consumption when broken down is dominated by spending on...

Back 33

Services.

Front 34

List 3 roles of government in the economy and explain one of them.

Back 34

1. Maintaining competition 2. Redistributing income 3. Promoting stability: controlling unemployment and inflation.

Front 35

Define the equilibrium price.

Back 35

The price at which the quantity of suppliers are willing to supply equals the quantity of consumers are willing to buy.