Basic Concepts

Question 1

Positive Economics

Answer 1

Describes the way things are

Question 2

Normative Economics

Answer 2

Addresses the way things should be

Question 3

Economics

Answer 3

The study of how to allocate scarce resources among competing ends

Question 4

Resources

Answer 4

Are inputs or factors of production

Question 5

Labor

Answer 5

The physical and mental effort of people

Question 6

Human Capital

Answer 6

Knowledge and skills acquired through training and experience

Question 7

Entreprenuership

Answer 7

The ability to identify opportunities and organize production, and the willingness to accept risk in the pursuit of rewards

Question 8

Natural Resources/Land

Answer 8

Either term can refer to any productive resource existing in nature, including wild plants, mineral deposits, wind, and water

Question 9

Capital

Answer 9

Manufactured goods that can be used in the production process, including tools, equipment, buildings, and machinery

Question 10

Opportunity Cost

Answer 10

The value of the best alternative sacrificed as compared to what actually takes place

Question 11

Production-Possibilities Frontier/Curve (PPF/PPC)

Answer 11

Illustrates the choices an economy faces and the opportunity cost of making one good rather than the other

Question 12

Efficiency

Answer 12

Means that the economy is using all of resources productively

Question 13

Slope

Answer 13

Rise over run

Question 14

Absolute Value

Answer 14

The value after removing the negative sign, indicates the average opportunity cost of the horizontal axes between those two points

Question 15

Division of Labor

Answer 15

Permits people to develop expertise in the tasks that they concentrate on

Question 16

Absolute Advantage

Answer 16

An individual has this in the production of a good when it can produce that good using fewer resources per unit of output than another individual

Question 17

Comparative Advantage

Answer 17

An individual has this in the production of a good when it can produce that good at a lower opportunity cost than another individual

Question 18

Allocative Efficiency

Answer 18

Requires that national output reflect the needs and wants of consumers (Marginal Cost = Marginal Value)

Question 19

Marginal Cost

Answer 19

The cost of producing one more unit

Question 20

Marginal Value

Answer 20

The value of one more unit

Question 21

Technical Efficiency

Answer 21

When an economy is seeking how much of each input to use in the production process ((MPK/r) = (MPL/w))

Question 22

Wage

Answer 22

Price of labor

Question 23

Rental Rate

Answer 23

Price of capital

Question 24

Marginal Product of Labor (MPL)

Answer 24

The additional output produced by one more unit of labor

Question 25

Marginal Product of Capital (MPK)

Answer 25

The additional output produced by one more unit of capital

Question 26

Distributive Efficiency

Answer 26

Requires that those who place the highest relative value on goods receive them

Question 27

Marginal Utility (MU)

Answer 27

The additional utility from the last unit (Max Utility = (MU1/P2) = (MU2/P1))

Question 28

Marginal Rate of Substitution (MRS)

Answer 28

Condition for distributive efficiency is that MRS must be equal for every individual (MRS = MU2/MU1)

Question 29

Communism

Answer 29

A system designed to minimize imbalance in wealth via the collective ownership of property (Wealth is equally distributed among the people)

Question 30

Socialism

Answer 30

Shares with communism the goal of fair distribution and the pitfall of inadequate incentives (Wages are determined by negotiations between unions and managers)

Question 31

Capitalism

Answer 31

Private individuals control the factors of production and operate them in the pursuit of profit

Question 32

Demand Curve

Answer 32

Displays the relationship between price and the quantity demanded of a good within a given period

Question 33

Demand Schedule

Answer 33

Lists Prices and Quantities at given intervals

Question 34

Law of Diminishing Marginal Utility

Answer 34

The decreasing satisfaction gained from additional units of a good consumed in a given period

Question 35

Law of Demand

Answer 35

As the price of goods rises, so does the quantity demanded and vice versa

Question 36

Supply Curve

Answer 36

Shows the relationship between price and quantity supplied

Question 37

Supply Schedule

Answer 37

Lists Price and Quantities at given intervals

Question 38

Law of Supply

Answer 38

As price increases, quantity decreases and vice versa

Question 39

Marginal Cost

Answer 39

The additional cost of producing another unit

Question 40

Equilibrium Point

Answer 40

The intersection between the Supply and Demand curves

Question 41

Surplus

Answer 41

Producers selling too much of a good than is demanded

Question 42

Shortage

Answer 42

Producers selling to little of a good than is demanded

Question 43

Determinants of Demand

Answer 43

- Tastes/Preferences - Substitute Goods - Complements - Income for Normal Goods - Income for Inferior Goods - Number of Buyers - Expectations of Future Income - Expectations of Future Prices - Expectations of Future Shortages - Taxes and Subsidies - Regulations

Question 44

Determinants of Supply

Answer 44

- Input Costs - Technology - Expectations of Prices - Number of Sellers - Substitutes in Production - Joint Product Prices - Subsidies - Regulations

Question 45

Normal Good

Answer 45

A good a consumer buys when there income increases

Question 46

Inferior Good

Answer 46

A good that the consumer buys when there income decreases

Question 47

Consumption Smoothing

Answer 47

Spending more because you know you will receive more money in the future

Question 48

Price Ceiling

Answer 48

An artificial cap on the price of a good

Question 49

Queuing Cost

Answer 49

The time a consumer loses waiting for a good

Question 50

Price Floor

Answer 50

An artificially imposed minimum price

Question 51

Minimum Wage

Answer 51

Price floor on the price of labor