Questions and Answers
For economists, the word 'utility' means:
Economics may best be defined as the:
This statement indicates that: 'Other things equal, the lower the price of bananas, the greater the amount of bananas purchased.'
Macroeconomics can best be described as the:
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Microeconomics:
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The economizing problem is one of deciding how to make the best use of:
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The four factors of production are:
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The production possibilities curve illustrates the basic principle that:
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A point inside a production possibilities curve best illustrates:
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Opportunity cost is best defined as:
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Which of the following might shift a nation's production possibilities curve inward?
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An incentive is:
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Which type of statement is most likely to include the word 'should'?
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The price elasticity of demand is a measure of the:
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As monthly rain levels rise, golf course revenue falls because casual golfers prefer to stay dry. This is an example of:
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The simple circular flow model shows that:
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The term 'ceteris paribus' means:
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In deciding whether to study for an economics test or go to a movie, one is confronted by the idea(s) of:
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When a producer has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:
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The invisible hand refers to:
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In terms of the circular flow diagram, households make expenditures in the __________ market and receive income through the __________ market.
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A market:
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Economists use the term demand to refer to:
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The relationship between quantity supplied and price is ________ and the relationship between quantity demanded and price is _________.
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An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:
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Which would cause an increase in the demand for product A? (Hint: hot dog buns)
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The demand curve for a product might shift as the result of a change in:
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What are the two characteristics that differentiate private goods from public goods?
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The location of the supply curve of a product depends on:
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A government subsidy to the producers of a product:
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If a product is in surplus supply, its price:
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Black markets are associated with:
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Productive efficiency refers to:
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Allocative efficiency involves determining:
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Which of the following statements is correct?
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Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:
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Suppose that the price of product X rises by 25 percent and the quantity supplied of X increases by 10 percent. The coefficient of price elasticity of supply for good X is:
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The main determinant of elasticity of supply is the:
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If a 5 percent cut in the price of a product causes the quantity demanded to rise by 10 percent, the demand is:
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The price elasticity of supply measures how:
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The formula for price elasticity of demand is percentage change in:
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A quasi-public good is:
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When a market is in equilibrium:
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The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called:
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Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?
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At a price of $15 per unit, which of the following would exist?
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An effective price floor will:
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When externalities cause substantial spillover costs for third parties, a competitive market:
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Study Notes
Economic Concepts and Definitions
- Utility: Represents pleasure or satisfaction in economic terms.
- Economics: Defined as a social science focused on optimal choice-making under scarcity among individuals and institutions.
- Ceteris Paribus: Latin term meaning "other things equal," used to denote all other factors being held constant.
Principles of Demand and Supply
- Law of Demand: The quantity of a good purchased increases as its price decreases, assuming all other factors are constant.
- Opportunity Cost: The sacrifice made to produce one more unit of another product, expressed as the amount of one product given up.
Types of Economics
- Macroeconomics: Involves the study of the economy as a whole, analyzing large-scale economic factors.
- Microeconomics: Focuses on individual economic units and specific markets.
Production and Efficiency
- Factors of Production: Include land, labor, capital, and entrepreneurial ability.
- Production Possibilities Curve: Illustrates trade-offs between two goods; producing more of one good requires sacrificing another.
- Productive Efficiency: Achieved when using the least-cost production methods.
- Allocative Efficiency: Occurs when resources are distributed in a way that maximizes societal satisfaction.
Market Dynamics
- Price Elasticity of Demand: Measures how responsive the quantity demanded is to price changes.
- Price Elasticity of Supply: Indicates the responsiveness of quantity supplied to changes in price.
- Market Equilibrium: Achieved when quantity supplied equals quantity demanded, maximizing total surplus.
Externalities and Market Failures
- Negative Externalities: Occur when a product's production causes costs for third parties, often leading to overproduction.
- Quasi-Public Goods: Characterized by non-excludability but rivalry in consumption, prompting government intervention.
Characteristics of Goods
- Private Goods: Have rivalry and excludability, meaning consumption by one individual prevents consumption by another.
- Public Goods: Non-rival and non-excludable, available for everyone without depleting availability.
Demand and Supply Shifts
- Demand may shift due to changes in consumer preferences, incomes, or prices of related goods.
- Supply shifts can occur due to technological changes, resource prices, and market competitiveness.
Price Controls
- Price Floor: Minimum legal price, often leading to surpluses when set above equilibrium.
- Price Ceiling: Maximum legal price, potentially causing shortages when below equilibrium.
Economic Models and Theories
- Circular Flow Model: Demonstrates how households and businesses interact in both product and resource markets.
- Invisible Hand: Concept explaining how individual self-interest can lead to positive social outcomes.
Consumer Behavior
- Consumer Surplus: The difference between what consumers are willing to pay and what they actually pay.
- Incentives: Factors that influence individuals' decisions, changing trade-offs in economic choices.
Market Structures
- Competitive markets tend to allocate resources towards the goods with the greatest perceived value, sometimes leading to inefficiencies in the presence of externalities.
Government Intervention
- Policies like subsidies can impact supply, while taxes on production can decrease supply and increase product prices.
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Prepare for your Economics Macro Test with these flashcards! Each card presents essential concepts and definitions, helping you to understand the foundational aspects of economics, such as utility and the nature of the discipline. Test your knowledge and reinforce your understanding in a concise manner.