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35 Cards in this Set
- Front
- Back
What are the four factors of production (categories of resources)?
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Natural (land), Capital (machines), Labor (people), Entrepreneur (puts it all together).
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What is opportunity cost?
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What you gave up to get what you got.
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What is the law of increasing opportunity cost?
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As production increases, opportunity cost rises.
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Define the other-things-equal assumption. (all things are equal)
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The assumption that factors other than those being considered do not change.
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Macro vs. Micro Economics?
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Macro= big picture, Micro= specific.
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What does Diminishing Marginal Utility affect?
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Demand only. (not supply)
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Define scarcity.
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Unlimited wants, with limited resources.
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Describe the relationship between Marginal Cost and Marginal Benefit. When MC=MB, MC>MB, MC<MB.
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MC=MB: Efficient. MC>MB: No purchase. If the cost is greater than the benefit, you would not buy it. MC<MB: Deal. If the cost is less than the benefit, buy it. Bang for your buck.
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Resources are considered being efficiently allocated when...
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Marginal Cost = Marginal Benefit.
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The economic rationale for the law of increasing opportunity costs is...
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That economic resources are not completely adaptable to alternative uses.
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What is marginal analysis? (what does it involve)
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The comparisons of marginal benefits and marginal costs, usually for decision making.
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(fill in the blank) A market is an institution or mechanism ____
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that brings buyers and sellers into contact.
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Law of demand. (fill in the blank) All else equal, as price falls ____
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the quantity of demand rises. (and as price rises, demand falls)
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What does the demand curve show?
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The various amounts of a product that consumers are willing and able to purchase at each of a series of possible price.
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What does the supply curve show?
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various amounts of a product that producers are willing and able to make.
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What is the law of supply?
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As prices rise, quantity of supply rises. (and as prices fall, quantity of supply falls)
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Name two examples of the inverse relationship between price and demand.
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1. Human Nature: If price goes down, people will buy more. 2. Diminishing Marginal Returns (Utility): Not wanting more of something after you already have it.
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List 3 determinates of demand other than price and explain 1.
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1. Consumer taste 2. Number of buyers in the market 3. Consumer income: If a consumer's income goes up, they will have more demand for luxury items.
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What role do related goods have in the price of other goods?
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If price rises for a one good, the demand for it's substitute will increase (and vice vera). If price rises for a good, the demand for it's compliment will decrease.
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What is the difference between a substitute good and a complementary good?
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A substitute good is one that can be used in place of another good. A complementary good is one that is used together or in addition to another good.
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(name 2) What are some determinates of supply?
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Change in: resource prices, technology, taxes and subsidies, or price of other goods.
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How does income effect the demand for inferior, normal, and superior goods?
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A rise in income increases demand for superior and normal goods while decreasing demand for inferior goods. (vice versa for decrease in income)
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What is the reason for a rise in the supply curve?
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Increased marginal cost.
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(list 4) Characteristics of the market place system.
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1. Private property 2. Active but limited government 3. Competition 4. Specialization
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(write out) What test must an item pass to serve as money?
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It has to be widely accepted as exchange for goods and services.
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What does self-sufficiency breed?
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Inefficiency.
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(write out) What generally determines which goods and services will be produced for the market place?
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Those that can produce a continuous profit.
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(fill in the blank) Any product will be distributed to consumers on the basis of ____
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their ability and willingness to pay the market price.
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What do we mean by economic efficiency?
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Obtaining a particular output of product with the least input of scarce resources.
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What does "The Invisible Hand" by Adam Smith ensure?
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That when firms maximize their profits, they also help maximize society's output and income.
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What is the greatest source of national income?
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Wages and salaries.
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How is the majority of the nation's wages and salaries consumed?
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Personal consumption.
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Personal consumption when broken down is dominated by spending on...
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Services.
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List 3 roles of government in the economy and explain one of them.
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1. Maintaining competition 2. Redistributing income 3. Promoting stability: controlling unemployment and inflation.
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Define the equilibrium price.
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The price at which the quantity of suppliers are willing to supply equals the quantity of consumers are willing to buy.
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