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Econ 201 Komnenos Exam 1|138 Questions with Verified
Answers
Economics - CORRECT ANSWER the study of how society manages its scarce resources scarcity - CORRECT ANSWER the limited nature of society's resources principle 1 - CORRECT ANSWER People face trade-offs principle 2 - CORRECT ANSWER The cost of something is what you give up to get it principle 3 - CORRECT ANSWER Rational people think at the margin principle 4 - CORRECT ANSWER People respond to incentives efficiency - CORRECT ANSWER society gets the maximum benefits from its scarce resources equality - CORRECT ANSWER economic prosperity is distributed uniformly among society's members opportunity cost - CORRECT ANSWER whatever must be given up to obtain some item marginal changes - CORRECT ANSWER small incremental adjustments to a plan of action example of thinking at the margin - CORRECT ANSWER hiring a cashier that would cause $400 additional revenue and makes $300 per week government - CORRECT ANSWER enforce property rights and promote efficiency and equality
incentive - CORRECT ANSWER something that induces a person to act source of market failure - CORRECT ANSWER externality (how the production affects bystanders) and market power ( a single buyer or seller has too much power) principle 5 - CORRECT ANSWER Trade can make everyone better off principle 6 - CORRECT ANSWER Markets are usually a good way to organize economic activity principle 7 - CORRECT ANSWER Governments can sometimes improve market outcomes market - CORRECT ANSWER a group of buyers and sellers market economy - CORRECT ANSWER allocates resources through the decentralized decisions of many households and firms as they interact in markets prices - CORRECT ANSWER determined by the interaction of buyers and sellers - reflect the good's value to buyers Principle 8 - CORRECT ANSWER A country's standard of living depends on its ability to produce goods and services principle 9 - CORRECT ANSWER Prices rise when the government prints too much money principle 10 - CORRECT ANSWER Society faces a short-run trade-off between inflation and unemployment productivity - CORRECT ANSWER the quantity of goods and services produced from each unit of labor input most important determinant of living standards - CORRECT ANSWER productivity
imports - CORRECT ANSWER goods produced abroad and sold domestically exports - CORRECT ANSWER goods produced domestically and sold abroad absolute advantage - CORRECT ANSWER the ability to produce a good using fewer inputs than another producer comparative advantage - CORRECT ANSWER the ability to produce a good at a lower opportunity cost than another producer principle of comparative advantage - CORRECT ANSWER each good should be produced by the individual that has the smaller opportunity cost of producing that good gainsv from trade - CORRECT ANSWER arise from comparative advantage, not absolute advantage when each country specializes in the goods in which it has a comparative advantage - CORRECT ANSWER total production in all couintries is higher and all countries can gain from trade the price of trade - CORRECT ANSWER must lie between the two opportunity costs why trade makes everyone better off - CORRECT ANSWER allows people to specialize in those activities in which they have a comparative advantage buyers as a group determine the - CORRECT ANSWER demand for a product competitive market - CORRECT ANSWER many buyers and many sellers, each has a negligible impact on market price perfectly competitive market - CORRECT ANSWER All goods are exactly the same; Buyers & sellers are so numerous that no one can affect market price—each is a "price taker"
law of demand - CORRECT ANSWER all things equal, when the price of a good rise, the quantity demanded falls, and reverse demand schedule - CORRECT ANSWER a table that shows the relationship between the price of a good and the quantity demanded demand curve - CORRECT ANSWER a graph of the relationship between the price of a good and the quantity demanded - shows how price affects quantity demanded market demand - CORRECT ANSWER sum of all individual demands for a good or service shifts in the demand curve are caused by changes in (5) - CORRECT ANSWER 1. number of buyers
- income
- prices of related goods
- tastes
- expectations increase in the number of buyers - CORRECT ANSWER increases quantity demanded at each price, shifts D curve to the right change in income for a normal good - CORRECT ANSWER leads to an increase in demand - shifts D curve to the right change in income for an inferior good - CORRECT ANSWER an increase in income leads to a decrease in demand - shifts D curve to the right two goods are substitutes if - CORRECT ANSWER an icnrease in the price of one leads to an increase in demand for the other two goods are complements if - CORRECT ANSWER an increase in the price of one leads to a decrease in the demand for the other; peanut butter and jelly people expect an increase in income - CORRECT ANSWER the current demand increases
a cost-saving tech improvement - CORRECT ANSWER has the same effect as a fall in input prices a decrease in the number of sellers - CORRECT ANSWER decreases quantity supplied at each price - shifts supply curve to the left change in supply - CORRECT ANSWER A shift of the supply curve caused by a change in a variable other than the price of the product change in the quantity supplied - CORRECT ANSWER a movement along a fixed supply curve occurs when price changes equilibrium - CORRECT ANSWER price has reached the level where quantity supplied equals quantity demanded surplus - CORRECT ANSWER quantity supplied is greater than quantity demanded
- market is above equilibrium price how to face a surplus - CORRECT ANSWER sellers cut price until market reaches equilibrium shortage - CORRECT ANSWER quantity demanded is greater than quantity supplied - market is below equilibrium price how to face a shortage - CORRECT ANSWER sellers raise price three steps to analyzing change in equilibrium - CORRECT ANSWER 1. decide whether the event shifts the supply curve, the demand curve, or both
- decide whether the curve shifts to the right or left
- use the supply and demand diagram - compare initial and new equilibrium if demand increases more than supply - CORRECT ANSWER price rises in market economies prices - CORRECT ANSWER adjust to balance supply and demand
in market economies, prices are - CORRECT ANSWER the signals that guide economic decisions and allocate scarce resources elasticity - CORRECT ANSWER a measure of how much buyers and sellers respond to changes in market conditions price elasticity of demand - CORRECT ANSWER how much the quantity demanded of a good responds to a change in its price - price-sensitivity of buyers' demand price elasticity of demand equation - CORRECT ANSWER % change in Qd / % change in price midpoint method - CORRECT ANSWER end value - start value / midpoint x 100% price elasticity is higher when - CORRECT ANSWER close substitutes are available; airplanes are not elastic but cheerios are broadly defined goods have a higher or lower elasticity - CORRECT ANSWER lower price elasticities for luxuries vs necessities - CORRECT ANSWER elasticity is higher for luxuries than for necessities in the long run, price elasticity is - CORRECT ANSWER higher price elasticity of demand > 1 - CORRECT ANSWER elastic price elasticity of demand < 1 - CORRECT ANSWER inelastic unit elasticity - CORRECT ANSWER price elasticity = 1 demand is perfectly inelastic - CORRECT ANSWER Price elasticity of demand = 0 Demand curve is vertical demand is perfectly elastic - CORRECT ANSWER Price elasticity of demand = infinity Demand curve is horizontal
price elasticity of supply - CORRECT ANSWER how much quantity supplied of a good responds to a change in its price price elasticity of supply equation - CORRECT ANSWER % change in quantity supplied / % change in price elastic supply - CORRECT ANSWER the quantity supplied responds substantially to price changes inelastic supply - CORRECT ANSWER if the quantity supplied responds only slightly to changes in the price greater price elasticity of supply - CORRECT ANSWER the more easily sellers can change the quantity they produce in the long run, price elasticity of supply is - CORRECT ANSWER greater than in the short run when supply is elastic, an increase in demand - CORRECT ANSWER has a bigger impact on quantity than on price; wheat when supply is inelastic, an increase in demand - CORRECT ANSWER has a bigger impact on price than quantity; parking spots supply often becomes (more/less) elastic as quantity rises - CORRECT ANSWER less price ceiling - CORRECT ANSWER legal maximum on the price at which a good can be sold; rent-control laws price floor - CORRECT ANSWER legal minimum on the price at which a good can be sold; minimum wage a price ceiling above the equilibrium price - CORRECT ANSWER not binding and no effect on the market outcome
price ceiling below the equilibrium price - CORRECT ANSWER is binding and causes a shortage effects of a binding price ceiling - CORRECT ANSWER shortage arises and sellers must ration scarce goods among potential buyers price floor below equilibrium price - CORRECT ANSWER not binding - has no effect on the market outcome price floor above equilibrium price - CORRECT ANSWER binding and causes a surplus effects of a binding price floor - CORRECT ANSWER causes a surplus and undesirable rationing mechanisms- sellers who appeal to buyers' personal biases may be better able to sell their goods ___ are usually a good way to organize economic activity - CORRECT ANSWER markets tax incidence - CORRECT ANSWER the manner in which a burden of a tax is shared among participants in a market A tax on buyers will shift the - CORRECT ANSWER demand curve downward by the amount of the tax a tax on sellers will shift the - CORRECT ANSWER supply curve upward by the amount of the tax elastic supply, inelastic demand with tax - CORRECT ANSWER buyer pays more of the tax - easier for sellers to leave the market than buyers inelastic supply, elastic demand with tax - CORRECT ANSWER seller bears more of the tax - easier for buyers to leave the market than sellers luxury items - CORRECT ANSWER demand is elastic, supply is inelastic, tax burden falls largely on the suppliers
