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Questions and Answers
Which of the following is not a factor of production? (Select one)
Which of the following is not a factor of production? (Select one)
- A psychiatrist
- A bulldozer
- Six thousand acres of farmland
- $100,000 used to start a new business (correct)
Combinations of output that fall inside the production possibilities curve of an economy represent: (Select all that apply)
Combinations of output that fall inside the production possibilities curve of an economy represent: (Select all that apply)
- Goods that are attainable (correct)
- Efficiently produced goods
- Goods that are unattainable
- The inefficient use of resources (correct)
An entrepreneur: (Select all that apply)
An entrepreneur: (Select all that apply)
- Looks for the latest new products to copy
- Takes the risk of earning profits or suffering losses from owning an enterprise (correct)
- Innovates (correct)
- Makes strategic business decisions that set the course of an enterprise (correct)
- Is employed by a big company
The highest-valued alternative that is given up or sacrificed when choosing to produce or consume one good over another is referred to as ______________.
The highest-valued alternative that is given up or sacrificed when choosing to produce or consume one good over another is referred to as ______________.
In free markets, though prices will rise and fall, equilibrium ___ and ___ will always be achieved.
In free markets, though prices will rise and fall, equilibrium ___ and ___ will always be achieved.
The ____ of supply are any factors other than the product's ____ that have an effect on the supply of a good or service and cause the supply curve to shift.
The ____ of supply are any factors other than the product's ____ that have an effect on the supply of a good or service and cause the supply curve to shift.
A change in ___ refers to a movement along the demand curve in response to changes in the price of a good or service.
A change in ___ refers to a movement along the demand curve in response to changes in the price of a good or service.
What does a change in demand refer to?
What does a change in demand refer to?
Choose all of the following that will cause a change in supply rather than a change in quantity supplied: (Select all that apply)
Choose all of the following that will cause a change in supply rather than a change in quantity supplied: (Select all that apply)
The ability and willingness to sell specific quantities of a good at alternative prices in a given time period, ceteris paribus, is the definition of market ________.
The ability and willingness to sell specific quantities of a good at alternative prices in a given time period, ceteris paribus, is the definition of market ________.
What is created when a price ceiling is established?
What is created when a price ceiling is established?
What is the result of a price floor?
What is the result of a price floor?
What is the ONLY factor that shifts both supply and demand curves?
What is the ONLY factor that shifts both supply and demand curves?
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Study Notes
Factors of Production
- Defined as land, labor, capital, and entrepreneurship.
- Money does not qualify as a factor of production; rather, it facilitates transactions.
- Examples include a psychiatrist (labor), bulldozer (capital), and farmland (land).
Production Possibilities Curve
- Points inside the curve indicate attainable and inefficient use of resources.
Role of Entrepreneurs
- Innovates and takes risks associated with profits and losses.
- Makes strategic decisions for their enterprises.
Opportunity Cost
- Refers to the highest-valued alternative forgone when making choices in production or consumption.
Market Equilibrium
- Prices and quantity always reach equilibrium in free markets, despite fluctuations.
Supply Determinants
- Factors other than price that shift the supply curve.
- Includes costs, technology, number of suppliers, and state of nature.
Quantity Demanded
- A shift along the demand curve occurs due to price changes.
Change in Demand
- Refers to a shift of the entire demand curve, influenced by factors other than price.
Supply Changes
- Influenced by producer expectations, number of sellers, and technology; these factors result in shifts rather than movements along the supply curve.
Market Supply
- Defined as the ability and willingness to sell specific quantities of goods at various prices.
Shortages and Surpluses
- Shortage arises when quantity demanded exceeds quantity supplied.
- Price ceilings create shortages; price floors create surpluses.
Price Expectations
- A change in expected future price can shift both supply and demand curves.
Costs and Supply
- An increase in costs results in a left shift of supply; a decrease leads to a right shift.
Technology Impact on Supply
- Technological advances increase supply, while retreats reduce it.
Impact of Number of Suppliers
- An increase in suppliers shifts supply to the right; a decrease shifts it to the left.
State of Nature
- Good environmental conditions enhance supply; adverse conditions (like natural disasters) reduce it.
Prices of Related Goods
- An increase in the price of complements decreases supply; an increase in the price of substitutes decreases supply.
Expected Future Price
- If future prices are expected to rise, current supply decreases; if expected to fall, supply increases.
Factors of Demand: Income
- Normal goods see an increase in demand with increased income and a decrease with decreased income.
- Inferior goods have the opposite relationship with income changes.
Prices of Related Goods in Demand
- Substitutes: Increase in the price leads to increased demand; decrease leads to decreased demand.
- Complements: Increase in price results in decreased demand; decrease leads to increased demand.
Preferences and Demand
- Positive changes in consumer preferences result in increased demand; negative changes decrease demand.
Number of Demanders
- An increase in the number of buyers boosts demand; a decrease reduces demand.
Ease of Credit
- Easier credit availability increases demand; harder credit conditions decrease demand.
Expected Future Prices in Demand
- An increase in expected future prices boosts current demand; a decrease reduces it.
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