Exam q-s

Question 1

What is market economy?

Answer 1

economic system in which production and prices are determined by unrestricted competition between privately owned businesses

Question 2

What is market failure?

Answer 2

demand of goods and services doesnt match supply, disequilibrium happens

Question 3

Why do market failures happen?

Answer 3

lack of information, market control. whenever a disequilibrium happens in the supply and demand model.

Question 4

What are characteristics of perfect market?

Answer 4

well-informed buyers and sellers, there is an absence of monopolies, and each firm is a price-taker

Question 5

What is (possible) production frontier?

Answer 5

production possibility frontier (PPF) is a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture.

Question 6

What is efficient allocation (of capital or labour)?

Answer 6

resources are maximized and nothing is lost, optimal distribution of goods and services to consumers in an economy and an optimal distribution of financial capital

Question 7

What are (sustainable) sources of economic growth?

Answer 7

Natural resources - land, minerals, fuels, climate; their quantity and quality
Human resources - the supply of labour and the quality of labour.
Physical capital and technological factors - machines, factories, roads; their quantity and quality
Institutional factors - these may include the banking system, the legal system and important factors like a good health care system.

Question 8

What is comparative advantage (in trade)? (I create also here exercise)

Answer 8

Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.
Example with soil in paris

Question 9

What is relative advantage?

Answer 9

the degree to which a new product is superior to an existing one; a major determinant of the rate of adoption of a new product.

Question 10

What is absolute advantage in trade?

Answer 10

Absolute advantage is when a producer can provide a good or service in greater quantity for the same cost, or the same quantity at a lower cost, than its competitors.

Question 11

What says Bertil Ohlin’s and Eli Filip Heckcher theorem?

Answer 11

if two countries produce two goods and use two factors of production (say, labour and capital) to produce these goods, each will export the good that makes the most use of the factor that is most abundant.

Question 12

What influences supply?

Answer 12

price of goods, price of related goods, production conditions, future expectations, input costs, number of suppliers, and government policy

Question 13

What influences demand?

Answer 13

Seasonal changes, changes in taste/fashion, price, advertising, price of substitutes, price of complements.

Question 14

What is law of demand?

Answer 14

The law of demand states that the quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded.

Question 15

What are inferior goods?

Answer 15

An inferior good is an economic term that describes a good whose demand drops when people’s incomes rise.

Question 16

What are normal goods?

Answer 16

Normal goods are consumer products such as food and clothing that exhibit a direct relationship between demand and income. As a consumer’s income rises, the demand for normal goods also increases.

Question 17

What are complementary goods?

Answer 17

a product or service that adds value to another. In other words, they are two goods that the consumer uses together.

Question 18

What are substitute goods?

Answer 18

product or service that a consumer sees as the same or similar to another product.

Question 19

How do price ceilings influence market?

Answer 19

Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.

Question 20

Why do governments use price ceilings?

Answer 20

Governments use price ceilings ostensibly to protect consumers from conditions that could make commodities prohibitively expensive.

Question 21

What are price floors?

Answer 21

A price floor is an established lower boundary on the price of a commodity in the market. Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity.

Question 22

How can government control prices?

Answer 22

The government largely has two options, to either impose price ceilings or price floors.

Question 23

What is quota rent?

Answer 23

Quota rent is the additional revenue earned by those who are allowed to import goods. The amount of the rent is the difference between the world market price at which the importer bought the goods and the domestic price at which the importer sells the goods.

Question 24

What is price elasticity? Probably I will make exercise on that.

Answer 24

Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price. Inelastic goods are for example food or gasoline, elastic goods are jewelry or expensive cars.

Question 25

What is consumer surplus?

Answer 25

A consumer surplus happens when the price that consumers pay for a product or service is less than the price they’re willing to pay. It’s a measure of the additional benefit that consumers receive because they’re paying less for something than what they were willing to pay.