Micro Exam 1: Economics Concepts

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Economics is the study of how individuals and societies allocate __________ resources among many competing uses.

scarce

Due to the ____ of natural resources, we cannot have all the housing and all the forests we may want.

scarcity

Tomatoes represent a small subset of food, so tomatoes are

relatively more scarce than food in general

The effect of an extension in unemployment benefits on the unemployment rate in the country is referred to as

macroeconomics Signup and view all the answers

The effect of a tax credit for purchasing new energy-compliant appliances on the use of electricity is studied in

microeconomics Signup and view all the answers

The value of the next-best, forgone alternative is known as the

opportunity cost Signup and view all the answers

Because the world is characterized by scarcity, people must ___________ the resources at their disposal to many competing uses.

allocate Signup and view all the answers

Because resources are ______ they must be allocated between competing uses.

scarce Signup and view all the answers

When someone compares marginal benefits associated with an activity to its marginal costs, that person is making a ______________ decision.

marginal Signup and view all the answers

Economics is the study of how individuals and societies allocate:

scarce resources among many competing uses Signup and view all the answers

The more of a good or a service that is consumed in a given period of time, the lower the marginal ________ that is associated with each additional unit.

benefit Signup and view all the answers

Labor as a resource is defined as all and activity devoted to producing goods and services.

physical & mental Signup and view all the answers

Marginal Benefit is defined as

the additional benefit associated with one or more units of each activity Signup and view all the answers

The term "scarcity" describes the fact that people's _ wants cannot be completely satisfied with _ resources.

unlimited; limited Signup and view all the answers

When you decide after studying for three hours that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in:

marginal decision making Signup and view all the answers

Examines the entire economy of a state, a country, or even the world, so it examines total output, the price level, and other aggregate measures of the economy.

macroeconomics Signup and view all the answers

The additional cost associated with 1 more unit of an activity is the ____________ cost.

marginal Signup and view all the answers

____________ capital refers to the knowledge and skills that people acquire in order to increase productivity.

human Signup and view all the answers

Increasing marginal cost describes

the direct relationship between the marginal cost associated with the use of a good or service and the quantity produced Signup and view all the answers

The additional benefit associated with 1 more unit of an activity is ______________ benefit.

marginal Signup and view all the answers

Decreasing marginal benefit describes:

the inverse relationship between the marginal benefit associated with the use of a good or service and the quantity consumed Signup and view all the answers

An economy is better off when it stops producing output at the point where:

marginal benefit = marginal cost Signup and view all the answers

You are wasting resources that would be better spent elsewhere:

if you continue producing when marginal benefit is less than marginal cost Signup and view all the answers

An economy should continue producing a good or service so long as:

MB exceeds MC Signup and view all the answers

The earliest two fundamental steps in learning the economic way of thinking are understanding:

how people make choices & how resources and scarcity affect the costs & benefits of choices Signup and view all the answers

Every person's and every economy's standard of living relies on the effective use of:

resources Signup and view all the answers

As the amount of an activity increases, its marginal benefit:

decreases Signup and view all the answers

The more of a good or service that is produced in a given period of time, the higher the marginal ___________ that is associated with each additional unit.

cost Signup and view all the answers

A society's ability to produce needed goods and services is permanently reduced if:

uses resources too quickly Signup and view all the answers

The producer with the _______ relative opportunity cost has a comparative advantage and should specialize in the production of that good.

lower Signup and view all the answers

__________ is the result of low-cost producers focusing all their efforts on producing a single good or service.

specialization Signup and view all the answers

On a PPF with Good X on the horizontal axis and Good Y on the vertical axis, we can say that the slope of the PPF (in absolute value) equals the opportunity cost of producing Good X with respect to the production of Good Y. This is true because the slope:

describes the trade-off resulting from the production of Good X in terms of Good Y Signup and view all the answers

The quality of an ___________ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.

economic Signup and view all the answers

Because of differences in opportunity costs, individuals and businesses:

specialize in the production of the good for which they wield a comparative advantage Signup and view all the answers

Specialization in a particular good is based on ____________ advantage on the good.

comparative Signup and view all the answers

According to the circular-flow diagram, which two groups interact in the resources market?

households and firms Signup and view all the answers

________ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.

opportunity Signup and view all the answers

Households can obtain the income they need to purchase the products for consumption only by selling __________.

resources Signup and view all the answers

If the terms of trade are the same as your ______________ cost, you will receive no gains from the trade.

opportunity Signup and view all the answers

As long as there are differences in opportunity costs, there are _____________ advantages, and there will be potential for trade to make both parties better off.

comparative Signup and view all the answers

In the circular flow model, the two markets are:

factor market & product market Signup and view all the answers

According to the circular-flow diagram, when a household receives a wage for supplying a firm with labor, the interaction occurs in the _________ market.

resource Signup and view all the answers

Individuals and countries specialize because the opportunity cost of producing goods and services:

varies Signup and view all the answers

Whether a good or a service will be traded depends largely on the terms of _________.

trade Signup and view all the answers

In the circular flow model, firms can produce the output they sell to households only by buying _________ from households.

resources Signup and view all the answers

The law of ______ costs says that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the _ cost of each individual unit rises.

increasing; opportunity Signup and view all the answers

______________ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.

opportunity Signup and view all the answers

Terms of trade refers to

the price of one good or service in terms of another Signup and view all the answers

The terms of trade that are beneficial to both parties are prices that lie between both the parties' opportunity costs.

true Signup and view all the answers

In the circular flow model, _ must buy resources from _ in order to produce the output they will sell to households.

firms; households Signup and view all the answers

When a firm receives money for a good or service it sold to a household, the interaction occurs in the ________ market.

product Signup and view all the answers

Comparative advantage is the foundation for establishing the benefits of

trade Signup and view all the answers

For an entire economy, the PPF is going to be bowed out because:

some resources are better suited for producing some goods or services than others Signup and view all the answers

The _______ of the production possibilities frontier equals the trade-off of the production of one good or service in terms of the other.

slope Signup and view all the answers

A potential risk of specialization is:

susceptibility to market fluctuations Signup and view all the answers

___________ in trade causes individuals and nations to become interdependent.

Specialization Signup and view all the answers

In the real world, the opportunity cost of production ____________ as production increases.

increases Signup and view all the answers

Gains from trade can be measured by:

comparing the levels of consumption available before and after the trade Signup and view all the answers

A PPF that illustrates a 1-for-1 trade off between goods is drawn as:

a straight, downward-sloping line Signup and view all the answers

The harm in specializing is that:

if the demand for the good or service you produce decreases, its price and your income will decrease too. Signup and view all the answers

Specialization causes individuals and nations to rely on one another and:

increases the degree of interdependence among them Signup and view all the answers

Economists use the phrase __ _ to refer to the positive gain enjoyed by both buyers and sellers when they trade.

trade creates wealth Signup and view all the answers

The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another is the

gains from trade Signup and view all the answers

The simple model of production assumes that the opportunity cost of production is __________.

constant Signup and view all the answers

In a market:

buyers and sellers interact to trade goods, services, or resources Signup and view all the answers

A _________ refers to a group of buyers and sellers who exchange one specific good, service, or resource, not to a specific place.

market Signup and view all the answers

Examples of complements are:

Guitars & guitar strings, peanut butter & jelly Signup and view all the answers

An intangible product or action that consumers, firms, or governments wish to purchase is a

service Signup and view all the answers

A change in ________ occurs when a non-price determinant of demand changes.

demand Signup and view all the answers

The entire demand curve shifts to the right or left:

when there is a change in demand Signup and view all the answers

A _______ is a tangible product that consumers, firms, or governments wish to purchase.

good Signup and view all the answers

What are some non-price determinants of demand?

Tastes and preference, number of buyers, consumer expectations Signup and view all the answers

Markets, such as the New York Stock Exchange and your local retail store, are __________ markets.

formal Signup and view all the answers

The horizontal summation of individual demand curves:

gives the market demand curve Signup and view all the answers

Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services is a:

resource Signup and view all the answers

The three main reasons why demand curves are downward sloping are:

the substitution effect, the income effect, & diminishing marginal utility Signup and view all the answers

When we talk about the demand for sunglasses, we are referring to the:

quantity that consumers are willing and able to buy at a variety of different prices all else held constant Signup and view all the answers

The income effect and substitution effect, and diminishing marginal utility explain:

why the QD will fall when prices rise Signup and view all the answers

Two different ways in which we usually express info about the demand for a good, service, or resources are:

the demand schedule & the demand curve Signup and view all the answers

According to the Law of _______, price and quantity demanded are inversely related.

demand Signup and view all the answers

The demand curve focuses entirely on the:

effect of a change in price on the quantity of the product consumed and holds everything else constant. Signup and view all the answers

A good for which there is a direct relationship between the demand for the good and income is a _________ good.

normal Signup and view all the answers

Diminishing marginal utility describes the:

negative relationship between the quantity of a good, service, or resource and the marginal utility obtained from each additional unit consumed in a given period of time. Signup and view all the answers

The _ represents the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, in table form.

demand schedule Signup and view all the answers

The law of demand says that lower prices lead to a higher quantity demanded. As a result, the demand curve:

should slope down Signup and view all the answers

Products such as generic, store-branded dried noodles are considered:

inferior goods & normal goods Signup and view all the answers

Without individuals and households that are willing and able to buy a good, the ________ side of the market cannot exist.

demand Signup and view all the answers

Substitute goods:

are viewed as replacements for other goods Signup and view all the answers

The perceived desirability of consuming a good, service, or resource is referred to as the _______ and preference of the buyers.

taste Signup and view all the answers

Market demand is based on the:

overall preferences of everyone in the market Signup and view all the answers

For _____ goods, an increase in income decreases demand, and a decrease in income increases demand.

inferior Signup and view all the answers

Study Notes

Economics Fundamentals

Economics studies the allocation of scarce resources among competing uses.
Scarcity arises from limited natural resources versus unlimited human wants.
Tomatoes, as a specific food item, are relatively more scarce than food in general.

Economic Branches

Macroeconomics examines the economy as a whole, including total output and employment rates.
Microeconomics focuses on individual components, such as the impact of tax credits on consumer behavior.

Key Economic Concepts

Opportunity cost denotes the value of the next-best alternative forfeited when a choice is made.
Allocation of resources is necessary due to their scarcity.
Marginal decision making involves comparing marginal benefits and costs to make informed choices.

Production and Costs

As consumption increases, marginal benefits tend to decrease.
Each additional unit of a good produced typically incurs higher marginal costs.
The production possibilities frontier (PPF) demonstrates trade-offs and opportunity costs.

Specialization and Comparative Advantage

Comparative advantage occurs when a producer has a lower relative opportunity cost for a particular good.
Specialization enhances productivity and efficiency, potentially increasing interdependence among economies.
Gains from trade arise when terms of trade are favorable, allowing specialization according to comparative advantages.

Circular Flow Model

The circular flow model illustrates interactions between households and firms in factor and product markets.
Households sell resources to firms to earn income, while firms provide goods and services to households.

Demand Determinants

Demand is influenced by non-price determinants such as consumer preferences, number of buyers, and expectations.
The law of demand indicates that price and quantity demanded are inversely related.
A demand curve slopes downward, encapsulating the negative relationship between price and quantity demanded.

Types of Goods

Normal goods have a direct relationship with consumer income, while inferior goods decrease in demand as income rises.
Substitute goods can fulfill the same need or desire, often competing with one another in the market.

Market Dynamics

Market demand is the aggregate preference of consumers within a market.
Changes in demand occur due to non-price factors, leading to shifts in the demand curve rather than movement along it.

Utility and Consumption

Diminishing marginal utility reflects the decrease in additional satisfaction gained from consuming more units of a good.
The interplay of income effect, substitution effect, and diminishing marginal utility explains consumer behavior in response to price changes.

Economic Models

Economic models simplify complex realities to analyze relationships, such as opportunity costs illustrated through the PPF slope.
Effective models must accurately reflect real-world scenarios for practical use.

Resource Classification

Resources encompass all inputs used in production, categorized into labor (physical and mental), land, and capital.
Opportunity cost is prominently visible in budget constraints and trade-offs.

Key Characteristics of Markets

Markets consist of buyers and sellers exchanging goods, services, or resources, with both formal and informal examples existing.
Understanding demand schedules and curves aids in predicting consumer behavior under various conditions.

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Test your understanding of fundamental economics concepts related to resource allocation and scarcity with these flashcards. Each card presents key terms and definitions essential for grasping the principles of economics.

Micro Exam 1: Economics Concepts

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Questions and Answers

Economics is the study of how individuals and societies allocate __________ resources among many competing uses.

Due to the ____ of natural resources, we cannot have all the housing and all the forests we may want.

Tomatoes represent a small subset of food, so tomatoes are

The effect of an extension in unemployment benefits on the unemployment rate in the country is referred to as

The effect of a tax credit for purchasing new energy-compliant appliances on the use of electricity is studied in

The value of the next-best, forgone alternative is known as the

Because the world is characterized by scarcity, people must ___________ the resources at their disposal to many competing uses.

Because resources are ______ they must be allocated between competing uses.

When someone compares marginal benefits associated with an activity to its marginal costs, that person is making a ______________ decision.

Economics is the study of how individuals and societies allocate:

The more of a good or a service that is consumed in a given period of time, the lower the marginal ________ that is associated with each additional unit.

Labor as a resource is defined as all ____ and ____ activity devoted to producing goods and services.

Marginal Benefit is defined as

The term "scarcity" describes the fact that people's _______ wants cannot be completely satisfied with _______ resources.

When you decide after studying for three hours that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in:

Examines the entire economy of a state, a country, or even the world, so it examines total output, the price level, and other aggregate measures of the economy.

The additional cost associated with 1 more unit of an activity is the ____________ cost.

____________ capital refers to the knowledge and skills that people acquire in order to increase productivity.

Increasing marginal cost describes

The additional benefit associated with 1 more unit of an activity is ______________ benefit.

Decreasing marginal benefit describes:

An economy is better off when it stops producing output at the point where:

You are wasting resources that would be better spent elsewhere:

An economy should continue producing a good or service so long as:

The earliest two fundamental steps in learning the economic way of thinking are understanding:

Every person's and every economy's standard of living relies on the effective use of:

As the amount of an activity increases, its marginal benefit:

The more of a good or service that is produced in a given period of time, the higher the marginal ___________ that is associated with each additional unit.

A society's ability to produce needed goods and services is permanently reduced if:

The producer with the _______ relative opportunity cost has a comparative advantage and should specialize in the production of that good.

__________ is the result of low-cost producers focusing all their efforts on producing a single good or service.

On a PPF with Good X on the horizontal axis and Good Y on the vertical axis, we can say that the slope of the PPF (in absolute value) equals the opportunity cost of producing Good X with respect to the production of Good Y. This is true because the slope:

The quality of an ___________ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.

Because of differences in opportunity costs, individuals and businesses:

Specialization in a particular good is based on ____________ advantage on the good.

According to the circular-flow diagram, which two groups interact in the resources market?

________ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.

Households can obtain the income they need to purchase the products for consumption only by selling __________.

If the terms of trade are the same as your ______________ cost, you will receive no gains from the trade.

As long as there are differences in opportunity costs, there are _____________ advantages, and there will be potential for trade to make both parties better off.

In the circular flow model, the two markets are:

According to the circular-flow diagram, when a household receives a wage for supplying a firm with labor, the interaction occurs in the _________ market.

Individuals and countries specialize because the opportunity cost of producing goods and services:

Whether a good or a service will be traded depends largely on the terms of _________.

In the circular flow model, firms can produce the output they sell to households only by buying _________ from households.

The law of __________ costs says that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the _____ cost of each individual unit rises.

______________ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.

Terms of trade refers to

The terms of trade that are beneficial to both parties are prices that lie between both the parties' opportunity costs.

In the circular flow model, _______ must buy resources from _______ in order to produce the output they will sell to households.

When a firm receives money for a good or service it sold to a household, the interaction occurs in the ________ market.

Comparative advantage is the foundation for establishing the benefits of

For an entire economy, the PPF is going to be bowed out because:

The _______ of the production possibilities frontier equals the trade-off of the production of one good or service in terms of the other.

A potential risk of specialization is:

___________ in trade causes individuals and nations to become interdependent.

In the real world, the opportunity cost of production ____________ as production increases.

Gains from trade can be measured by:

A PPF that illustrates a 1-for-1 trade off between goods is drawn as:

The harm in specializing is that:

Specialization causes individuals and nations to rely on one another and:

Economists use the phrase __________ ________ _________ to refer to the positive gain enjoyed by both buyers and sellers when they trade.

The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another is the

The simple model of production assumes that the opportunity cost of production is __________.

In a market:

A _________ refers to a group of buyers and sellers who exchange one specific good, service, or resource, not to a specific place.

Examples of complements are:

An intangible product or action that consumers, firms, or governments wish to purchase is a

A change in ________ occurs when a non-price determinant of demand changes.

The entire demand curve shifts to the right or left:

A _______ is a tangible product that consumers, firms, or governments wish to purchase.

What are some non-price determinants of demand?

Markets, such as the New York Stock Exchange and your local retail store, are __________ markets.

The horizontal summation of individual demand curves:

Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services is a:

The three main reasons why demand curves are downward sloping are:

Labor as a resource is defined as all and activity devoted to producing goods and services.

The term "scarcity" describes the fact that people's _ wants cannot be completely satisfied with _ resources.

The law of ______ costs says that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the _ cost of each individual unit rises.

In the circular flow model, _ must buy resources from _ in order to produce the output they will sell to households.

Economists use the phrase __ _ to refer to the positive gain enjoyed by both buyers and sellers when they trade.

The _ represents the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, in table form.