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67 Cards in this Set
- Front
- Back
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the study of economics arises due to:
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scarcity
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What is an economic model
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it is a simplified version of some aspect of economic life used to analyze an economic issue
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what does the term marginal mean in economics
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additional or extra
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when goods and services are produced at the lowest possible cost_______occurs
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productive efficiency
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Which of the following correctly describes the relationship between economic efficiency and economic equity
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there is often a trade-off between the two
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technology is defined as:
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the processes used to produce goods and services
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the production possibilities frontier model shows that:
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if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good
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increasing marginal opportunity cost implies:
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that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts
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Comparative advantage means:
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the ability to produce a good or service at a lower opportunity cost than any other producer
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the circular flow model demonstrates
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the roles played by households and firms in the market system.
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The term property rights refers to:
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the ability to exercise control over one's own resources within the confines of the law.
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opportunity cost
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the highest-valued alternative that must be given up to engage in an activity
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market economy
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an economy in which the decisions of households and firms interacting in markets allocate economic resources
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absolute advantage
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the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
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comparative advantage
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the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
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What is the difference between an increase in demand and an increase in quantity demanded?
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an increase in demand is represented by a rightward shift of the demand curve while an increase in quantity demanded is represented by a movement along a given demand curve
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A change in which variable will change the market demand for a product?
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expected future prices
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the income effect of a price change refers to the impact of a change in:
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the price of a good on a consumer's purchasing power
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farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?
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a decrease in the price of corn
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a product's equilibrium price:
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any buyer who is willing and able to pay the price will find a seller for the product
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Substitution effect
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the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes
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income effect
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the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power
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deadweight loss refers to:
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the reduction in economic surplus resulting from not being in competitive equilibrium
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if in a competitive market, marginal benefit is greater than marginal cost:
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the quantity sold is less than the equilibrium quantity
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the minimum wage is an example of:
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a price floor
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describe the difference between scarcity and shortage
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In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.
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how does negative externality affect a competitive market?
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the externality causes a difference between the private cost of production and the social cost
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when there is a positive externality...
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the social benefit received by consumers is greater than the private benefit
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Coase theorem is...
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Under some circumstances private solutions to the problems that result from externalities can be found
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an example of the Pigovian tax is...
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a tax imposed on a utility that internalizes the cost of externalities caused by the utility
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an excludable good is...
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anyone who does not pay for good cannot consume it
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a public good is...
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good that is nonrivalrous and nonexcludable
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consumer surplus
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the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
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marginal benefit
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the additional benefit to a consumer from consuming one more unit of a good or service
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producer surplus
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the difference between the lowest price a firm would be willing to accept and the price it actually receives
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economic surplus
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the sum of consumer surplus and producer surplus
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economic efficiency
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a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum
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price elasticity of demand
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measures the responsiveness of quantity demanded to a change in price
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if the slope of the demand curve is equal to -0.1 then:
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we dont know whether the demand is elastic or inelastic
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the cross-price elasticity of demand measures the:
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percentage change in the quantity demanded of one good divided by the percentage change in the price of another good
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elastic demand
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demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value
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inelastic demand
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refers to when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value.
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unit-elastic demand
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refers to when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.
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perfectly inelastic demand
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occurs when a change in price results in no change in quantity demanded.
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perfectly elastic demand
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occurs when a change in price results in an infinite change in quantity demanded.
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income elasticity of demand
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measures the responsiveness of quantity demanded to changes in income. It is calculated as follows:
(percentage change in quantity demanded) / (percentage change in income) |
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price elasticity of supply
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is the responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product's price.
(percentage change in quantity supplied) / (percentage change in price) |
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trade that is within a country or between countries is based on the principle of:
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comparative advantage
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autarky
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is a situation in which a country does not trade with other countries
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terms of trade refers to:
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the ration at which a country can trade its exports for imports from other countries
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the smoot-hawley tariff:
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raised average tariff rates by over 50 percent in the US in 1930
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Dumping is:
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the selling of a product for a price below its cost of production
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absolute advantage
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the ability to produce more of a good or service than competitors when using the same amount of resources
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protectionism
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the use of trade barriers to shield domestic firms from foreign competition
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the economic model of consumer behavior predicts that:
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consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets will allow them to buy
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the income effect of a price change refers to:
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the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant
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the result of a price increase for an inferior good
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the substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good
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Giffen good
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it has an upward sloping demand curve
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network externalities
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It is defined as a situation where the usefulness of a product increases with the number of consumers who use it.
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behavioral economics
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A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational.
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Positive technological change
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is a change in the ability of a firm to produce a given level of output with a given quantity of inputs
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the short run and the long run
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When firms analyze the relationship between their level of production and their costs they separate the time period involved into:
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long run
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long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant.
Total cost = Fixed cost + Variable cost |
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Average total cost is:
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total cost divided by the quantity of output produced.
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marginal product of labor
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the change in output that a firm produces as a result of hiring one more worker.
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diseconomies of scale occur when
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long-run average costs rise as a firm increases its output
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minimum efficient scale
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The level of output at which all economies of scale have been exhausted is known as:
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