Transcript Economics

Economics
Final Exam Review
Use of fewer resources than an
economy is capable of using.
Underutilization
Something essential for survival.
Need
Effort people devote to tasks for
which they are paid.
Labor
The extra cost of adding one
unit.
Marginal
Cost
The most desirable alternative
given up as the result of a decision.
Opportunity
Cost
Principle that limited amounts of
goods and services are available to
meet unlimited wants.
Scarcity
The extra benefit of adding one
unit.
Marginal
Benefit
All natural resources used to make
goods and services.
Land
When government sells and gives
control of a business to individual
investors.
Privatization
Struggle among producers for the
dollars of consumers.
Competition
Power of consumers to decide
what gets produced.
 Consumer
Sovereignty
Doctrine that government generally
should not intervene in the
marketplace.
 Laissez-Faire
Concentration of productive efforts
on a limited number of activities.
 Specialization
Hope of reward or fear of penalty
that encourages a person to
behave in a certain way.
 Incentive
Amount of money a business
receives in excess of its expenses.
 Profit
Organization that uses resources to
produce a product or service, which
it then sells.
 Firm
Principle that people have the right
to control their possessions and
use them as they wish.
 Private
Property Rights
Government aid to the poor.
 Welfare
Goods and services provided for
free or at greatly reduced prices.
 In-Kind
Benefits
Principle that people may decide
what agreements they want to
enter into.
 Free
Contract
Commitment to the value of work.
 Work
Ethic
The principle that everyone has the
same legal rights.
 Legal
Equality
Direct payments of money by the
government to the poor, disabled,
or retired people.
 Cash
Transfers
Right of a government to take
private property for public use.
 Eminent
Domain
Two goods that are bought and
used together.
 Complements
Table listing the quantity of a good
that all consumers will buy at
various prices.
 Market
Demand Schedule
Measure of how consumers
respond to price changes.
 Elasticity
of Demand
Goods that are used in place of
one another.
 Substitutes
Entire amount of money a company
receives by selling goods or
services.
 Total
Revenue
Change in consumption that results
when a price increase causes real
income to decline.
 Income
Effect
Consuming less of a good and
more of another as a reaction to a
price increase.
 Substitution
Effect
Not very sensitive to price changes.
 Inelastic
Graph of the quantity supplied of a
good at various prices.
 Supply
Curve
Amount of goods available.
 Supply
Government intervention in a
market that affects the production
of a good.
 Regulation
Chart that lists how much of a good
a supplier will offer at various
prices.
 Supply
Schedule
Sum of fixed costs plus variable
costs.
 Total
Cost
Cost that rises or falls depending
on the quantity produced.
 Variable
Cost
Tax on the production or sale of a
good.
 Excise
Tax
Government payment that supports
a business or market.
 Subsidy
The amount of goods a firm has on
hand.
 Inventory
A product that is popular for a short
period of time.
 Fad
A sudden lack of availability of a
good.
 Supply
Shock
The point at which the demand for
a product or service equals the
supply.
 Equilibrium
Government allocation of goods
and services.
 Rationing
When quantity demanded is
greater than quantity supplied.
 Shortage
When the demand curve moves left
or right.
 Change
in Demand
A price ceiling placed on the
amount people pay for housing.
 Rent
Control
Illegal agreement among firms to
divide the market, set prices, or
limit production.
 Collusion
Laws that encourage competition in
the marketplace.
 Antitrust
Laws
Grouping consumers based on how
much they will pay for a good.
 Price
Discrimination
Factor that makes it difficult for a
new firm to enter a market.
 Barrier
to Entry
Market structure in which many
companies sell products that are
similar but not identical.
 Monopolistic
Competition
Selling a product below cost for a
short period of time to drive
competitors out of the market.
 Predatory
Pricing
Product that is considered the
same no matter who produces or
sells it.
 Commodity
Expenses new businesses must
pay before they can begin to
produce and sell goods.
 Start-up
Costs
Business owned and managed by
an individual.
 Sole
Proprietorship
Legal obligation to pay debts.
 Liability
A certificate of ownership in a
corporation.
 Stock
Corporate profits paid out to
stockholders.
 Dividend
What is an example of a shortage?
 A type
of doll is not available because a
limited number were made.
The government of a country must
make a decision between
increasing military spending and
subsidizing wheat farmers. This is
an example of:
 A guns
or butter issue
You bought 2 new CDs with the last
$30 in your checking account, and
your next payday is Monday. What
is the opportunity cost of these
CDs?
 The
night out with your friends that you
miss because you can’t afford it now.
Which of the following lists of
factors of production would an
economist categorize as land?
 Iron
ore, natural gas, fertile soil, water
A company that makes baseball
caps is underutilizing its resources.
What does this mean?
 The
company is producing fewer caps
than it could be.
What is one of the most important
advantages of a free market?
 It
encourages growth
What is the product market?
 The
market in which households purchase
the goods and services that firms produce.
In what kind of economy does the
government make all the
decisions?
 Centrally
Planned
Which of the following best
describes the economy of the
U.S.?
 Mixed,
but more like a free market
Which of the following might be a
positive aspect of centrally planned
economies?
 Low
unemployment due to guaranteed
jobs.
Which statement best describes
the role of government in a free
enterprise system?
 It
regulates businesses when the public
interest is involved.
Something is generally considered
to be a public good if:
 The
total benefits to society are greater
than the total financial costs.
Why has the federal government
passed laws requiring businesses
to disclose product information to
the public?
 To
make buyers more knowledgeable and
safer.
You will still be able to get a public
broadcasting channel even though
you did not contribute to its
fundraising campaign. This is an
example of:
 A free-rider
problem
A market failure occurs when a free
market is unable to:
 Distribute
resources efficiently
If you create a demand schedule
for an individual and for a market
for the same product, what will
remain the same in both
schedules?
 Prices
of the good or service
Your demand for a good is inelastic
if you consider the good to be:
 Essential
The substitution effect and the
income effect describe:
 Factors
that influence consumer buying
choices.
The price of cranberry juice
suddenly increases. As a result,
Glenda begins drinking more grape
juice, which is less expensive, but
tastes just as good to her. In this
case, Glenda’s elastic demand is
due to:
 Availability
of substitutes
Due to an increase in her rent, Isa
needs to cut back her spending on
other items. Which of the following
types of goods will Isa consume
less of?
 Normal
Goods
The price of home computers rises.
According to the law of supply,
manufacturers will respond to this
price increase by:
 Increasing
computer production
Fixed costs would include:
Rent
If the supply of a good is inelastic,
producers will:
 Not
change quantity supplied much if
prices double.
A steel mill has fixed costs of $100
per hour and variable costs of $50
per hour. What will happen to these
costs if the mill closes?
 The
variable costs will drop to
zero, but the fixed costs will stay
the same.
Farmer Brown has ten dairy cows.
Her feed costs go up, but milk
production stays the same. What
effect will this have on her supply?
None,
although she will raise
prices to make up the lost
revenue.
On which kinds of goods do
governments generally place
price ceilings?
 Those
that are essential but too
expensive for some consumers.
How does the free market benefit
from the profit incentive?
The
profit incentive promotes
efficient resource allocation.
Which traffic signal best
represents the message that
providers of cable services
receive from declining customer
subscriptions?
Red
light
In response to rising car traffic,
demand for bicycles has increased.
The new equilibrium point will
show:
More
bicycles sold, but at a
higher price.
Which of the following is most likely
to lead directly to a black market?
Rationing
What kind of market runs most
efficiently when one large firm
supplies all of the output?
A natural
monopoly
In a perfectly competitive market,
output reaches a point where it:
 Is
just enough to cover
opportunity costs
What is one example of a
monopoly that the U.S. government
generally permits?
Professional
sports leagues
Which of the following is a product
that is considered a commodity?
Low-grade
gasoline
One form of nonprice competition
that firms engage in is:
Advertising
If a general partnership fails, who is
responsible for its debts?
All
of the partners
The federal government watches
mergers to ensure they do not
threaten:
Competition
Ellen started a catering business,
but soon decided that it was too
stressful for her. She was able to
close her business rather easily
because it was a:
Sole
proprietorship
RunnerPro Company designs their
shoes in the United States but
assembles them in Singapore.
RunnerPro is a:
Multinational
corporation
Which of following is a
disadvantage of a sole
proprietorship?
Lack
of permanence