Economics Exam Preparation Quiz

The cost of using resources for one purpose measured by the value of the next best alternative use for those resources.

Represents the difference between the maximum amount a consumer is willing to pay for a good and the actual price they pay. It's a measure of how much a consumer benefits from purchasing a good.

Represents the difference between the price a producer receives for a good and the minimum price they are willing to accept. It's a measure of how much a producer benefits from selling a good.

The sum of consumer surplus and producer surplus. It represents the total benefit to society from trade in a market.

The study of how individuals and businesses make choices about how to allocate resources in a world of scarcity.

The costs of production that involve actual monetary outlays, like wages, rent, and materials.

The costs of production that do not involve actual monetary outlays, such as the opportunity cost of the owner's time or the use of owned capital.

The combination of explicit costs and implicit costs.

A good whose demand decreases as consumer income increases.

The process of determining an individual's demand for a specific good by altering the price of that good and observing changes in the quantity demanded.

A good whose demand increases as consumer income rises.

The law of demand states that as the price of a good increases, the quantity demanded of that good decreases, all other factors remaining constant.

The line that represents all possible combinations of two goods that a consumer can buy with their given income and prices.

The change in quantity demanded of a good due to a change in its relative price, holding all other factors constant.

A cost that has already been incurred and cannot be recovered.

The additional cost incurred by producing one more unit of a good.

The point at which each additional unit of labor produces less output than the previous unit.

When each additional unit of labor produces more output than the previous unit. The Marginal Product of Labor (MPL) is increasing.

When each additional unit of labor produces less output than the previous unit. The Marginal Product of Labor (MPL) is decreasing.

The cost of producing one additional unit of output.

The short-run is a period where at least one input is fixed. In this case, capital is fixed.

The point where the consumer's budget constraint is tangent to the highest possible indifference curve, indicating the most preferred combination of goods given their budget.

The change in consumption that happens due to a change in income, causing the consumer to move to a different indifference curve. This effect shows how changes in income affect the quantity of goods consumers buy.

The additional output produced by using one more unit of labor. It measures how much each worker contributes to production.

The rule that firms should produce at the point where marginal revenue (MR) equals marginal cost (MC). This point maximizes profits for the firm.

The point where the supply and demand curves intersect, representing the price and quantity where the amount produced equals the amount consumers are willing to buy.

A situation where the quantity demanded exceeds the quantity supplied at a given price. This happens when the price is set below the equilibrium price.

A situation where the quantity supplied exceeds the quantity demanded at a given price. This happens when the price is set above the equilibrium price.

Goods that are consumed together. The demand for one good is influenced by the price of the other. Example: Coffee and sugar.

A measure of how responsive demand is to changes in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

The cross-price elasticity of demand measures how the quantity demanded of one good changes in response to a change in the price of another good. For substitute goods, like Walkers crisps and Tayto crisps, an increase in the price of one good will lead to an increase in the demand for the other good. This means the cross-price elasticity of demand is positive.

Marginal utility is the additional satisfaction a consumer receives from consuming one more unit of a good. It can be calculated by subtracting the total utility obtained from consuming a certain quantity from the total utility obtained from consuming one unit less of the good.

The law of diminishing marginal utility states that as consumption of a good increases, the additional satisfaction (marginal utility) derived from each additional unit consumed decreases. In other words, the more you consume of something, the less extra satisfaction you get from each additional unit.

The equi-marginal principle suggests that a consumer maximizes their utility when the marginal utility per euro spent on each good is equal. In other words, a consumer should allocate their spending so that the last euro spent on each good provides the same amount of additional satisfaction.

L-shaped indifference curves represent perfect complements, which are goods that are consumed together in fixed proportions. For example, left and right shoes.

Linear downward-sloping indifference curves represent perfect substitutes, which are goods that are interchangeable and provide the same level of satisfaction to the consumer, regardless of the ratio in which they are consumed. For example, two brands of coffee.