Principles of Economics Quiz

The idea that resources are limited, meaning we can't have everything we want.

The value of the next best alternative that is given up when making a choice.

The process of individuals and businesses making choices to maximize their satisfaction or profit, given constraints.

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

The interaction of buyers and sellers in a market, creating a system of prices and quantities.

Individuals seeking to get the most satisfaction possible from their limited budget.

Businesses aiming to create the highest possible profit from their production and sales.

A system where individuals and firms exchange goods and services for money, driven by scarcity and opportunity costs.

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

The higher the price, the more firms are able and willing to produce and sell.

Factors that affect the quantity of a good or service that producers are willing to supply, other than price.

A decrease in production costs leads to an increase in output at any given price.

A shift in the entire supply curve, caused by changes in factors other than price.

A movement along the supply curve, caused by a change in the price of the good.

When the quantity supplied increases at every price, causing the supply curve to shift to the right.

When the quantity supplied decreases at every price, causing the supply curve to shift to the left.

A change in the quantity demanded of a good due to a change in its price, while all other factors affecting demand remain constant. This movement happens along the existing demand curve.

A change in the quantity demanded of a good due to a change in a factor other than its price, such as income, tastes, or the price of related goods. This results in a shift of the entire demand curve.

An increase in the quantity demanded of a good at every price level. This shifts the demand curve to the right.

A decrease in the quantity demanded of a good at every price level. This shifts the demand curve to the left.

Factors that influence the quantity demanded of a good besides the price, such as income, tastes, the price of related goods, and expectations.

Describes how the quantity demanded of a good changes in response to changes in income, usually when income rises, demand also rises. This is common with normal goods.

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

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

A good is considered inelastic when its demand or supply changes less than proportionally in response to a change in price.

A good is considered elastic when its demand or supply changes more than proportionally in response to a change in price.

The responsiveness of the demand for a good to changes in the price of another good (a substitute or complement). Calculated as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good.

A good is considered a substitute when a price increase in one good leads to an increase in demand for the other good.

A good is considered a complement when a price increase in one good leads to a decrease in demand for the other good.

The change in demand for a good due to changes in income levels. Calculated as the percentage change in quantity demanded divided by the percentage change in income.

A list containing specific quantities of goods or services.

A theory explaining how consumers decide how to spend their money to get the most satisfaction from their limited budget.

The idea that people have limited resources (money or time) and must prioritize their needs and wants.

The process of consumers choosing the most preferred market basket based on their preferences and budget constraint.

A representation of the trade-offs consumers face when allocating time between different activities.

A curve that shows all combinations of goods that provide a consumer with the same level of satisfaction.

Shows how much satisfaction a consumer gets from different combinations of goods.

A market basket that gives a consumer a higher level of satisfaction lies above the indifference curve.

The indifference curve is bowed inward, which shows that a consumer is willing to give up more of one good to get an additional unit of the other good when they already have a lot of the first good.

It reflects the tradeoffs a consumer is willing to make between different goods, while keeping their overall satisfaction constant.

The marginal rate of substitution is the rate at which a consumer is willing to trade one good for another, remaining at the same level of satisfaction.

The marginal rate of substitution diminishes as the consumer consumes more of one good, meaning they are willing to trade less of the other good for an additional unit of the first good.

The indifference curve is a useful tool for understanding consumer preferences and how they make choices.