Economics Opportunity Cost and Trade Quiz
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Questions and Answers

What does the term 'opportunity cost' refer to in economics?

  • The value of the best alternative forgone when a choice is made. (correct)
  • The difference between the price you pay and the original price of a good
  • The sum of all costs, including direct and indirect expenses, for a given activity
  • The total monetary price paid for a good or service.

Why do individuals engage in trade?

  • Because it is mandated by the state as a mean of resource redistribution.
  • To maximize their monetary wealth and resources.
  • Due to their different abilities and interests, resulting in mutual benefits. (correct)
  • Because everyone has equal abilities and interests when creating goods.

Which of the following best exemplifies an opportunity cost?

  • The price of a ticket to a concert.
  • The cost of gas for a road trip.
  • The cost of maintenance of your car.
  • The lost wages from not working while attending a concert. (correct)

Why is the study of economics beneficial, according to the provided content?

<p>It helps individuals become better decision-makers by understanding trade-offs. (D)</p> Signup and view all the answers

What is the key requirement for trade to be mutually beneficial, according to the text?

<p>That it is voluntary, so the benefits outweigh the costs for both parties. (C)</p> Signup and view all the answers

What is indicated to be an often overlooked cost of attending college?

<p>The potential income forgone while attending college. (D)</p> Signup and view all the answers

How should economic analysis be approached?

<p>By relying on both observation and theoretical models to explain economic phenomena. (D)</p> Signup and view all the answers

If a person chooses to spend the afternoon volunteering instead of working, what is their opportunity cost?

<p>The money they would have earned if they had worked. (B)</p> Signup and view all the answers

What does an upward-sloping supply curve for a product like gasoline indicate?

<p>As the price of gasoline increases, the quantity supplied increases. (A)</p> Signup and view all the answers

How is the market supply curve derived from individual supply curves?

<p>By adding the quantities supplied at each price from all individual curves. (D)</p> Signup and view all the answers

Which scenario would cause a shift in the market supply curve for gasoline?

<p>A decrease in the price of crude oil. (C)</p> Signup and view all the answers

What does it mean for a market to be in equilibrium?

<p>The point where the quantity supplied equals the quantity demanded. (B)</p> Signup and view all the answers

According to the content, what is NOT a factor that could shift the supply curve?

<p>A change in consumer income. (A)</p> Signup and view all the answers

What happens to the market supply of gasoline when new sellers (suppliers) enter the market?

<p>The quantity supplied increases. (A)</p> Signup and view all the answers

At market equilibrium, which of the following is true?

<p>No market participants have any reason to alter their behavior. (A)</p> Signup and view all the answers

What does the intersection of supply and demand curves indicate?

<p>A point where the market is in equilibrium. (C)</p> Signup and view all the answers

What is a key characteristic of positive economics?

<p>It does not incorporate value opinions on economic outcomes. (C)</p> Signup and view all the answers

Which of the following best describes normative economics?

<p>It uses economic analysis combined with value judgments. (A)</p> Signup and view all the answers

Why is Pareto efficiency a limited criterion for determining the best economic outcome?

<p>It does not evaluate how output is distributed. (A)</p> Signup and view all the answers

In the example of increasing the minimum wage, what role does positive economics play?

<p>Providing estimations of how different groups are affected. (B)</p> Signup and view all the answers

An economy of 10 people producing $100 worth of goods is Pareto efficient when:

<p>All of the above. (D)</p> Signup and view all the answers

Which of the following scenarios is NOT considered Pareto efficient?

<p>An economy where some of its output is wasted. (D)</p> Signup and view all the answers

What is a limitation of cost-benefit analysis according to the text?

<p>It does not always lead to a single optimal outcome. (B)</p> Signup and view all the answers

What type of statement is the following: 'The minimum wage should be increased.'?

<p>A normative statement. (B)</p> Signup and view all the answers

What does the height of the market demand curve at a given point represent?

<p>The marginal buyer's willingness to pay (A)</p> Signup and view all the answers

What does the area below the demand curve and above the market price measure?

<p>Total consumer surplus (B)</p> Signup and view all the answers

What does the height of the supply curve at each quantity supplied measure?

<p>The willingness to supply of the marginal seller (C)</p> Signup and view all the answers

What is the term for the difference between market price and the marginal seller's opportunity cost?

<p>Producer surplus (A)</p> Signup and view all the answers

In a competitive market equilibrium, resources are allocated such that:

<p>The available supply goes to buyers valuing the good most highly. (C)</p> Signup and view all the answers

What happens to the price elasticity of demand when moving down a linear demand curve?

<p>It decreases continuously. (D)</p> Signup and view all the answers

What do markets communicate to potential demanders about supplying goods?

<p>The opportunity cost of supplying the good. (B)</p> Signup and view all the answers

If two supply curves intersect at the same point, which curve is more elastic?

<p>The flatter curve. (C)</p> Signup and view all the answers

What does the competitive market equilibrium ensure about the benefits buyers and sellers receive?

<p>It maximizes the collective benefits from exchange. (B)</p> Signup and view all the answers

What does a perfectly inelastic supply curve indicate?

<p>Quantity supplied cannot change regardless of price changes. (A)</p> Signup and view all the answers

Who does competitive market ensure is providing the good?

<p>Those with the lowest costs of supplying. (A)</p> Signup and view all the answers

When a firm has a short time horizon, what is most likely to happen to their ability to increase production?

<p>Firms face challenges increasing production due to capacity constraints. (B)</p> Signup and view all the answers

What does a constant slope ($\frac{\Delta P}{\Delta Q}$ = e) on a linear demand curve imply about the ratio $\frac{\Delta Q}{\Delta P}$?

<p>The ratio $\frac{\Delta Q}{\Delta P}$ remains constant along the curve. (A)</p> Signup and view all the answers

What is the primary reason for an upward-sloping supply curve?

<p>Increased profitability with higher prices (C)</p> Signup and view all the answers

According to Figure 4, how many gallons of gasoline would Shelly's supply at a price of $6.00?

<p>110 gallons (D)</p> Signup and view all the answers

If the cost of labor increases for gasoline stations, what is the most likely impact on the gasoline supply curve?

<p>Shift to the left (A)</p> Signup and view all the answers

Based on Figure 5, what is the total market supply of gasoline when the price is $4.00?

<p>221 gallons (D)</p> Signup and view all the answers

What does market equilibrium signify in the context of supply and demand?

<p>A market clearing price where quantity demanded equals quantity supplied (D)</p> Signup and view all the answers

If a technological advancement allows a gasoline station to provide more gasoline at every price, how does this affect its supply curve?

<p>The curve shifts to the right (D)</p> Signup and view all the answers

In the hypothetical example provided, what is the market equilibrium price for gasoline?

<p>$2.50 (D)</p> Signup and view all the answers

According to Figure 4, if the price of gasoline falls from $4.00 to $3.00, what is the change in quantity supplied by Shelly's?

<p>10 gallons less (C)</p> Signup and view all the answers

If the real estate costs for the land on which a gasoline station is located increases, what would be the most likely impact on the supply of gasoline?

<p>Decrease in supply at all prices leading to a leftward shift (B)</p> Signup and view all the answers

What does Figure 5 show about how the market supply is derived?

<p>It is derived by summing individual supplies (D)</p> Signup and view all the answers

What factor would NOT cause a shift in the gasoline supply curve?

<p>A change in consumer preference (B)</p> Signup and view all the answers

Using Figure 5, at what price point does Shelly's quantity supplied equal 115?

<p>$6.50 (A)</p> Signup and view all the answers

If the price of gasoline increases, what happens to the quantity of gasoline supplied?

<p>It increases (B)</p> Signup and view all the answers

According to Figure 5, if the price of gasoline is $2.50, how much gasoline is supplied by Luther's?

<p>110 gallons (A)</p> Signup and view all the answers

What can be inferred from the fact that the supply and demand curves intersect at only one point?

<p>There is only one possible equilibrium price and quantity (D)</p> Signup and view all the answers

Flashcards

Opportunity Cost

The value of what you give up to get something else. It's not always the same as the price you pay.

Gains from Trade

The process of individuals specializing in what they do best and trading with others to improve everyone's well-being.

Economic Models

Simplified representations of complex economic phenomena, used to explain and predict economic behavior.

Economic Theory

The study of how individuals and societies make choices under scarcity, using models and theories.

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Positive economics

Statements that focus on what is in the economy, using data and analysis to explain economic phenomena.

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Normative economics

Statements that focus on what should be in the economy, incorporating value judgments and ethical considerations.

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Pareto efficiency

A state where it's impossible to make someone better off without making someone else worse off. In simpler terms, resources are allocated in a way that maximizes overall welfare.

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Cost-benefit analysis

The process of analyzing and comparing the costs and benefits of different economic choices.

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Inefficiency

A situation where resources are not being used to their full potential, leading to wasted opportunities and inefficiency.

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Win-win situation

A situation where everyone benefits from a change, with no one experiencing any loss.

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Redistribution

The act of redistributing resources or wealth, often aiming to address inequality.

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Normative judgment

The process of making decisions based on personal values and beliefs, which may not be purely based on economic analysis.

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Supply Curve: Upward Sloping

The positive relationship between price and the quantity supplied by a single firm is illustrated by an upward-sloping supply curve.

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Market Supply Curve

The market supply curve is obtained by adding the quantities supplied at each price by all firms in the market.

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Market Supply Curve: Holding Other Factors Constant

The quantity supplied at each price, assuming all other factors remain constant.

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Shifts in Supply Curve: Causes

Changes in factors like input prices, technology, government regulations, or the number of sellers can shift the supply curve.

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Input Prices: Supply Shift

Prices sellers pay for materials, labor, or other resources used to produce a product.

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Technology: Supply Shift

Advances in technology can make production more efficient and potentially increase the supply of a good.

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Market Equilibrium

The point where the forces of supply and demand balance, resulting in a stable price and quantity.

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Market Equilibrium: Intersection

The combination of price and quantity where the market supply curve and the market demand curve intersect.

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Price Elasticity of Supply

The responsiveness of quantity supplied to changes in price, measured as the percentage change in quantity supplied divided by the percentage change in price.

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Perfectly Inelastic Supply

A supply curve that shows no change in quantity supplied, regardless of the price change. This means the producer cannot increase production in response to higher prices.

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Unit Elastic Supply

Changes in quantity supplied that are directly proportional to changes in price. This means the percentage change in quantity supplied equals the percentage change in price.

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Elastic Supply

A supply curve that shows a large change in quantity supplied in response to small changes in price. This means the producer can easily increase production in response to higher prices.

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Price Elasticity of Demand

The responsiveness of quantity demanded to changes in price, measured as the percentage change in quantity demanded divided by the percentage change in price.

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Marginal Benefit

The extra benefit received from consuming one more unit of a good or service. It's represented by how much a buyer is willing to pay for an additional unit.

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Marginal Buyer

The buyer who, at a given price, is just about to stop buying a good. Their willingness to pay represents the height of the demand curve at that point.

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Consumer Surplus

The difference between the price a buyer is willing to pay for a good and the actual market price. It represents the benefit the buyer receives from participating in the market.

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Marginal Seller

The seller who, at a given price, is just about to stop selling a good. Their willingness to sell represents the height of the supply curve at that point.

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Producer Surplus

The difference between the market price and the minimum price a seller is willing to accept for a good. It represents the benefit the seller receives from participating in the market.

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Competitive Market Equilibrium

The state where economic forces are balanced, and resources are allocated in the most efficient way possible. This leads to the highest levels of consumer and producer surplus.

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Supply Curve

The relationship between the price of a good and the quantity that suppliers are willing and able to offer for sale at that price.

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Demand Curve

The relationship between the price of a good and the quantity that consumers are willing and able to purchase at that price.

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Equilibrium Price

The price at which the quantity supplied and the quantity demanded are equal in a market.

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Equilibrium Quantity

The quantity of a good that is bought and sold at the equilibrium price.

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Decrease in Input Costs

A factor that can cause the supply curve to shift to the right.

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Increase in Input Costs

A factor that can cause the supply curve to shift to the left.

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Input Costs

The cost of producing a good, including factors like labor, rent, and utilities.

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Buyer Satisfaction

The situation where buyers can purchase the desired amount of a good at the market price.

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Seller Satisfaction

The situation where sellers can sell the desired amount of a good at the market price.

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Quantity Supplied

The amount of a good that producers are willing and able to offer for sale at different prices.

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Quantity Demanded

The amount of a good that consumers are willing and able to purchase at different prices.

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Increase in Supply

A situation where the supply curve shifts to the right, indicating that more goods are being offered for sale at all prices.

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Decrease in Supply

A situation where the supply curve shifts to the left, indicating that fewer goods are being offered for sale at all prices.

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Changes in Quantity Supplied

The act of producers changing their output of a good in response to changes in market price.

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Study Notes

Introduction

  • Economics studies how societies transform resources into goods and services
  • Economic analysis is based on assumptions about human behavior
  • Microeconomics analyzes individual choices while macroeconomics considers overall economic performance

Fundamental Economic Concepts

  • Scarcity: Limited resources, unlimited wants
  • Trade-offs: Choosing one option means giving up another
  • Opportunity cost: The value of the best alternative foregone
  • Rationality: Individuals make choices by comparing benefits and opportunity costs

Microeconomics

  • Markets: Groups of buyers and sellers for a specific good or service
  • Demand: Quantity of a good or service that consumers are willing and able to buy at various prices
  • Shifts in demand: Changes in consumer preferences, income, prices of related goods, expectations , number of buyers
  • Supply: Quantity of a good or service that producers are willing and able to sell at various prices
  • Shifts in supply: Changes in input prices, technology, number of sellers, and expectations
  • Market equilibrium: The point where supply and demand intersect, determining price and quantity
  • Perfectly competitive markets: Many buyers and sellers, identical products, free entry/exit, no individual influence on price
  • Imperfect competition: Monopolies, oligopolies, and monopolistic competition, where firms have some market power

Macroeconomics

  • Macroeconomic issues cover overall economic performance
  • Factors that determine long run economic growth and living standards, include output, living standards, employment, and inflation
  • Economic growth and living standards: Output per person shows how well the economy does over time
  • Unemployment: The percentage of the labor force that is actively seeking jobs, but cannot find them
  • Inflation: A general increase in prices causing reduced purchasing power
  • International trade: Trade between countries affecting total output, specialization, and benefits
  • Macroeconomic indicators: Gross Domestic Product (GDP), the rate of inflation, and the unemployment rate

Economics Meets Ecology

  • Externalities: Unintended effects of economic activities on others
  • Negative externalities: Activities impose costs (e.g., pollution)
  • Positive externalities: Activities create benefits (e.g., bee pollination)
  • Common property: Resources without clear ownership, subject to overuse
  • Public goods: Goods that are both non-rivalrous and non-excludable (e.g., national defense)
  • Public bads: Non-excludable and rivalrous costs (e.g., pollution)
  • Sustainability: The ability of the environment and economic systems to continue indefinitely without damaging the future

Basic Policy Responses

  • Government intervention: Managing market failures through regulation and taxes; e.g., establishing minimum wage, rent regulations
  • Price controls: Setting maximum or minimum prices
  • Taxes: Government leverages to raise funds for public expenditure, to correct market failures

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Economics Resource Guide 2024-2025 PDF

Description

Test your understanding of fundamental economic concepts such as opportunity cost, trade, and market supply. This quiz will challenge you with questions that explore why individuals engage in trade, how supply curves work, and what factors influence market equilibrium. Perfect for anyone studying introductory economics.

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