EconomicsEconomics

Final Exam ReviewFinal Exam Review

Use of fewer resources than an Use of fewer resources than an economy is capable of using.economy is capable of using.

UnderutilizationUnderutilization

Something essential for survival.Something essential for survival.

NeedNeed

Effort people devote to tasks for Effort people devote to tasks for which they are paid.which they are paid.

LaborLabor

The extra cost of adding one The extra cost of adding one unit.unit.

Marginal CostMarginal Cost

The most desirable alternative The most desirable alternative given up as the result of a decision.given up as the result of a decision.

Opportunity CostOpportunity Cost

Principle that limited amounts of Principle that limited amounts of goods and services are available to goods and services are available to

meet unlimited wants.meet unlimited wants.

ScarcityScarcity

The extra benefit of adding one The extra benefit of adding one unit.unit.

Marginal BenefitMarginal Benefit

All natural resources used to make All natural resources used to make goods and goods and services.services.

LandLand

When government sells and gives When government sells and gives control of a business to individual control of a business to individual

investors.investors.

PrivatizationPrivatization

Struggle among producers for the Struggle among producers for the dollars of consumers.dollars of consumers.

CompetitionCompetition

Power of consumers to decide what Power of consumers to decide what gets produced.gets produced.

Consumer SovereigntyConsumer Sovereignty

Doctrine that government generally Doctrine that government generally should not intervene in the should not intervene in the

marketplace.marketplace.

Laissez-FaireLaissez-Faire

Concentration of productive efforts Concentration of productive efforts on a limited number of activities.on a limited number of activities.

SpecializationSpecialization

Hope of reward or fear of penalty Hope of reward or fear of penalty that encourages a person to that encourages a person to

behave in a certain way.behave in a certain way.

IncentiveIncentive

Amount of money a business Amount of money a business receives in excess of its expenses.receives in excess of its expenses.

ProfitProfit

Organization that uses resources to Organization that uses resources to produce a product or service, which produce a product or service, which

it then sells.it then sells.

FirmFirm

Principle that people have the right Principle that people have the right to control their possessions and to control their possessions and

use them as they wish.use them as they wish.

Private Property RightsPrivate Property Rights

Government aid to the poor.Government aid to the poor.

WelfareWelfare

Goods and services provided for Goods and services provided for free or at greatly reduced prices.free or at greatly reduced prices.

In-Kind BenefitsIn-Kind Benefits

Principle that people may decide Principle that people may decide what agreements they want to what agreements they want to

enter into.enter into.

Free ContractFree Contract

Commitment to the value of work.Commitment to the value of work.

Work EthicWork Ethic

The principle that everyone has the The principle that everyone has the same legal rights.same legal rights.

Legal EqualityLegal Equality

Direct payments of money by the Direct payments of money by the government to the poor, disabled, government to the poor, disabled,

or retired people.or retired people.

Cash TransfersCash Transfers

Right of a government to take Right of a government to take private property for public use.private property for public use.

Eminent DomainEminent Domain

Two goods that are bought and Two goods that are bought and used together.used together.

ComplementsComplements

Table listing the quantity of a good Table listing the quantity of a good that all consumers will buy at that all consumers will buy at

various prices.various prices.

Market Demand ScheduleMarket Demand Schedule

Measure of how consumers Measure of how consumers respond to price changes.respond to price changes.

Elasticity of DemandElasticity of Demand

Goods that are used in place of one Goods that are used in place of one another.another.

SubstitutesSubstitutes

Entire amount of money a company Entire amount of money a company receives by selling goods or receives by selling goods or

services.services.

Total RevenueTotal Revenue

Change in consumption that results Change in consumption that results when a price increase causes real when a price increase causes real

income to decline.income to decline.

Income EffectIncome Effect

Consuming less of a good and Consuming less of a good and more of another as a reaction to a more of another as a reaction to a

price increase.price increase.

Substitution EffectSubstitution Effect

Not very sensitive to price changes.Not very sensitive to price changes.

InelasticInelastic

Graph of the quantity supplied of a Graph of the quantity supplied of a good at various prices.good at various prices.

Supply CurveSupply Curve

Amount of goods available.Amount of goods available.

SupplySupply

Government intervention in a Government intervention in a market that affects the production market that affects the production

of a good.of a good.

RegulationRegulation

Chart that lists how much of a good Chart that lists how much of a good a supplier will offer at various a supplier will offer at various

prices.prices.

Supply ScheduleSupply Schedule

Sum of fixed costs plus variable Sum of fixed costs plus variable costs.costs.

Total CostTotal Cost

Cost that rises or falls depending Cost that rises or falls depending on the quantity produced.on the quantity produced.

Variable CostVariable Cost

Tax on the production or sale of a Tax on the production or sale of a good.good.

Excise TaxExcise Tax

Government payment that supports Government payment that supports a business or market.a business or market.

SubsidySubsidy

The amount of goods a firm has on The amount of goods a firm has on hand.hand.

InventoryInventory

A product that is popular for a short A product that is popular for a short period of time.period of time.

FadFad

A sudden lack of availability of a A sudden lack of availability of a good.good.

Supply ShockSupply Shock

The point at which the demand for The point at which the demand for a product or service equals the a product or service equals the

supply.supply.

EquilibriumEquilibrium

Government allocation of goods Government allocation of goods and services.and services.

RationingRationing

When quantity demanded is greater When quantity demanded is greater than quantity supplied.than quantity supplied.

ShortageShortage

When the demand curve moves left When the demand curve moves left or right.or right.

Change in DemandChange in Demand

A price ceiling placed on the A price ceiling placed on the amount people pay for housing.amount people pay for housing.

Rent ControlRent Control

Illegal agreement among firms to Illegal agreement among firms to divide the market, set prices, or divide the market, set prices, or

limit production.limit production.

CollusionCollusion

Laws that encourage competition in Laws that encourage competition in the marketplace.the marketplace.

Antitrust LawsAntitrust Laws

Grouping consumers based on how Grouping consumers based on how much they will pay for a good.much they will pay for a good.

Price DiscriminationPrice Discrimination

Factor that makes it difficult for a Factor that makes it difficult for a new firm to enter a market.new firm to enter a market.

Barrier to EntryBarrier to Entry

Market structure in which many Market structure in which many companies sell products that are companies sell products that are

similar but not identical.similar but not identical.

Monopolistic CompetitionMonopolistic Competition

Selling a product below cost for a Selling a product below cost for a short period of time to drive short period of time to drive

competitors out of the market.competitors out of the market.

Predatory PricingPredatory Pricing

Product that is considered the Product that is considered the same no matter who produces or same no matter who produces or

sells it.sells it.

CommodityCommodity

Expenses new businesses must Expenses new businesses must pay before they can begin to pay before they can begin to

produce and sell goods.produce and sell goods.

Start-up CostsStart-up Costs

Business owned and managed by Business owned and managed by an individual.an individual.

Sole ProprietorshipSole Proprietorship

Legal obligation to pay debts.Legal obligation to pay debts.

LiabilityLiability

A certificate of ownership in a A certificate of ownership in a corporation.corporation.

StockStock

Corporate profits paid out to Corporate profits paid out to stockholders.stockholders.

DividendDividend

What is an example of a shortage?What is an example of a shortage?

A type of doll is not available because a A type of doll is not available because a limited number were made.limited number were made.

The government of a country must The government of a country must make a decision between make a decision between

increasing military spending and increasing military spending and subsidizing wheat farmers. This is subsidizing wheat farmers. This is

an example of:an example of:

A guns or butter issueA guns or butter issue

You bought 2 new CDs with the last You bought 2 new CDs with the last $30 in your checking account, and $30 in your checking account, and your next payday is Monday. What your next payday is Monday. What

is the opportunity cost of these is the opportunity cost of these CDs?CDs?

The night out with your friends that you The night out with your friends that you miss because you can’t afford it now.miss because you can’t afford it now.

Which of the following lists of Which of the following lists of factors of production would an factors of production would an economist categorize as land?economist categorize as land?

Iron ore, natural gas, fertile soil, waterIron ore, natural gas, fertile soil, water

A company that makes baseball A company that makes baseball caps is underutilizing its resources. caps is underutilizing its resources.

What does this mean?What does this mean?

The company is producing fewer caps The company is producing fewer caps than it could be.than it could be.

What is one of the most important What is one of the most important advantages of a free market?advantages of a free market?

It encourages growthIt encourages growth

What is the product market?What is the product market?

The market in which households purchase The market in which households purchase the goods and services that firms produce.the goods and services that firms produce.

In what kind of economy does the In what kind of economy does the government make all the government make all the

decisions?decisions?

Centrally PlannedCentrally Planned

Which of the following best Which of the following best describes the economy of the U.S.?describes the economy of the U.S.?

Mixed, but more like a free marketMixed, but more like a free market

Which of the following might be a Which of the following might be a positive aspect of centrally planned positive aspect of centrally planned

economies?economies?

Low unemployment due to guaranteed Low unemployment due to guaranteed jobs.jobs.

Which statement best describes the Which statement best describes the role of government in a free role of government in a free

enterprise system?enterprise system?

It regulates businesses when the public It regulates businesses when the public interest is involved.interest is involved.

Something is generally considered Something is generally considered to be a public good if:to be a public good if:

The total benefits to society are greater The total benefits to society are greater than the total financial costs.than the total financial costs.

Why has the federal government Why has the federal government passed laws requiring businesses passed laws requiring businesses to disclose product information to to disclose product information to

the public?the public?

To make buyers more knowledgeable and To make buyers more knowledgeable and safer.safer.

You will still be able to get a public You will still be able to get a public broadcasting channel even though broadcasting channel even though

you did not contribute to its you did not contribute to its fundraising campaign. This is an fundraising campaign. This is an

example of:example of:

A free-rider problemA free-rider problem

A market failure occurs when a free A market failure occurs when a free market is unable to:market is unable to:

Distribute resources efficientlyDistribute resources efficiently

If you create a demand schedule If you create a demand schedule for an individual and for a market for an individual and for a market for the same product, what will for the same product, what will

remain the same in both remain the same in both schedules?schedules?

Prices of the good or servicePrices of the good or service

Your demand for a good is inelastic Your demand for a good is inelastic if you consider the good to be:if you consider the good to be:

EssentialEssential

The substitution effect and the The substitution effect and the income effect describe:income effect describe:

Factors that influence consumer buying Factors that influence consumer buying choices.choices.

The price of cranberry juice The price of cranberry juice suddenly increases. As a result, suddenly increases. As a result,

Glenda begins drinking more grape Glenda begins drinking more grape juice, which is less expensive, but juice, which is less expensive, but tastes just as good to her. In this tastes just as good to her. In this case, Glenda’s elastic demand is case, Glenda’s elastic demand is

due to:due to: Availability of substitutesAvailability of substitutes

Due to an increase in her rent, Isa Due to an increase in her rent, Isa needs to cut back her spending on needs to cut back her spending on other items. Which of the following other items. Which of the following

types of goods will Isa consume types of goods will Isa consume less of?less of?

Normal GoodsNormal Goods

The price of home computers rises. The price of home computers rises. According to the law of supply, According to the law of supply,

manufacturers will respond to this manufacturers will respond to this price increase by:price increase by:

Increasing computer productionIncreasing computer production

Fixed costs would include:Fixed costs would include:

RentRent

If the supply of a good is inelastic, If the supply of a good is inelastic, producers will:producers will:

Not change quantity supplied much if Not change quantity supplied much if prices double.prices double.

A steel mill has fixed costs of $100 A steel mill has fixed costs of $100 per hour and variable costs of $50 per hour and variable costs of $50

per hour. What will happen to these per hour. What will happen to these costs if the mill closes?costs if the mill closes?

The variable costs will drop to The variable costs will drop to zero, but the fixed costs will stay zero, but the fixed costs will stay the same.the same.

Farmer Brown has ten dairy cows. Farmer Brown has ten dairy cows. Her feed costs go up, but milk Her feed costs go up, but milk

production stays the same. What production stays the same. What effect will this have on her supply? effect will this have on her supply?

None, although she will raise None, although she will raise prices to make up the lost prices to make up the lost revenue.revenue.

On which kinds of goods do On which kinds of goods do governments generally place governments generally place

price ceilings?price ceilings?

Those that are essential but too Those that are essential but too expensive for some consumers.expensive for some consumers.

How does the free market benefit How does the free market benefit from the profit incentive?from the profit incentive?

The profit incentive promotes The profit incentive promotes efficient resource allocation.efficient resource allocation.

Which traffic signal best Which traffic signal best represents the message that represents the message that providers of cable services providers of cable services

receive from declining customer receive from declining customer subscriptions?subscriptions?

Red lightRed light

In response to rising car traffic, In response to rising car traffic, demand for bicycles has increased. demand for bicycles has increased.

The new equilibrium point will The new equilibrium point will show:show:

More bicycles sold, but at a More bicycles sold, but at a higher price.higher price.

Which of the following is most likely Which of the following is most likely to lead directly to a black market?to lead directly to a black market?

RationingRationing

What kind of market runs most What kind of market runs most efficiently when one large firm efficiently when one large firm

supplies all of the output?supplies all of the output?

A natural monopolyA natural monopoly

In a perfectly competitive market, In a perfectly competitive market, output reaches a point where it:output reaches a point where it:

Is just enough to cover Is just enough to cover opportunity costsopportunity costs

What is one example of a What is one example of a monopoly that the U.S. government monopoly that the U.S. government

generally permits?generally permits?

Professional sports leaguesProfessional sports leagues

Which of the following is a product Which of the following is a product that is considered a commodity?that is considered a commodity?

Low-grade gasolineLow-grade gasoline

One form of nonprice competition One form of nonprice competition that firms engage in is:that firms engage in is:

AdvertisingAdvertising

If a general partnership fails, who is If a general partnership fails, who is responsible for its debts?responsible for its debts?

All of the partnersAll of the partners

The federal government watches The federal government watches mergers to ensure they do not mergers to ensure they do not

threaten:threaten:

CompetitionCompetition

Ellen started a catering business, Ellen started a catering business, but soon decided that it was too but soon decided that it was too stressful for her. She was able to stressful for her. She was able to close her business rather easily close her business rather easily

because it was a:because it was a:

Sole proprietorshipSole proprietorship

RunnerPro Company designs their RunnerPro Company designs their shoes in the United States but shoes in the United States but assembles them in Singapore. assembles them in Singapore.

RunnerPro is a:RunnerPro is a:

Multinational corporationMultinational corporation

Which of following is a Which of following is a disadvantage of a sole disadvantage of a sole

proprietorship?proprietorship?

Lack of permanenceLack of permanence