Basic Concepts & Principles

Question 1

What does scarcity refer to?

Answer 1

Unlimited wants and limited resources

Question 2

Opportunity cost is defined as?

Answer 2

The cost of the next best alternative foregone

Question 3

What does ‘thinking at the margin’ mean?

Answer 3

Evaluating small, incremental changes

Question 4

Positive statements are described as?

Answer 4

Descriptive and testable by evidence

Question 5

Normative statements express what?

Answer 5

Opinions about what should be

Question 6

Which principle states that ‘People respond to incentives’?

Answer 6

Principle #4

Question 7

Why can trade make everyone better off?

Answer 7

It allows specialization based on comparative advantage

Question 8

Markets are a good way to organize economic activity because?

Answer 8

They allocate resources through the price mechanism

Question 9

The government can improve market outcomes when?

Answer 9

There are externalities or market power

Question 10

A country’s standard of living primarily depends on?

Answer 10

Its productivity

Question 11

The law of demand states that?

Answer 11

As price falls, quantity demanded increases

Question 12

A shift in the demand curve occurs when?

Answer 12

There is a change in income or tastes

Question 13

A movement along the demand curve results from?

Answer 13

Change in the price of the good

Question 14

The law of supply states that?

Answer 14

Price and quantity supplied move in the same direction

Question 15

Market equilibrium occurs when?

Answer 15

Quantity demanded equals quantity supplied

Question 16

A price ceiling set below equilibrium leads to?

Answer 16

A shortage

Question 17

A price floor set above equilibrium results in?

Answer 17

Surplus

Question 18

Tax incidence depends on?

Answer 18

Elasticity of supply and demand

Question 19

If both demand and supply increase, equilibrium quantity will?

Answer 19

Increase

Question 20

Elastic demand means?

Answer 20

Price changes lead to large quantity changes

Question 21

Price elasticity of demand measures?

Answer 21

The responsiveness of quantity demanded to a change in price

Question 22

If elasticity > 1, demand is?

Answer 22

Elastic

Question 23

If demand is elastic, a price increase will?

Answer 23

Decrease total revenue

Question 24

Cross-price elasticity measures?

Answer 24

Response of demand for one good to price changes of another

Question 25

Income elasticity of demand indicates?

Answer 25

How demand changes with income

Question 26

Consumer surplus is?

Answer 26

The difference between what buyers are willing to pay and actually pay

Question 27

Producer surplus is defined as?

Answer 27

The difference between the price received and minimum acceptable price

Question 28

Deadweight loss results from?

Answer 28

Government intervention like taxes

Question 29

Deadweight loss is larger when?

Answer 29

Elasticities are high

Question 30

The ability-to-pay principle suggests?

Answer 30

People with greater ability should pay more taxes

Question 31

An externality is?

Answer 31

An uncompensated impact on a bystander

Question 32

A positive externality example is?

Answer 32

Vaccination

Question 33

A public good is defined as?

Answer 33

Non-rival and non-excludable

Question 34

The free-rider problem arises because?

Answer 34

People can’t be excluded from using public goods

Question 35

The Coase Theorem states?

Answer 35

With well-defined property rights and low transaction costs, private bargaining can solve externalities

Question 36

Explicit costs are?

Answer 36

Out-of-pocket monetary payments

Question 37

Economic profit equals?

Answer 37

Total revenue – (explicit + implicit costs)

Question 38

Diminishing marginal product means?

Answer 38

Marginal output decreases as more input is added

Question 39

Fixed costs are?

Answer 39

Costs that do not change with production

Question 40

Marginal cost is?

Answer 40

The cost of producing one more unit

Question 41

A perfectly competitive firm’s demand curve is?

Answer 41

Horizontal

Question 42

A monopoly arises when?

Answer 42

There are few substitutes and one seller

Question 43

Monopolistic competition is characterized by?

Answer 43

Many firms selling differentiated products

Question 44

Oligopoly involves?

Answer 44

A few large sellers that dominate the market

Question 45

The short-run shutdown rule states that a firm should produce if?

Answer 45

Price > AVC

Question 46

The long-run supply curve in perfect competition is?

Answer 46

Horizontal at minimum ATC

Question 47

Economic growth is primarily driven by?

Answer 47

Productivity increases

Question 48

Physical capital refers to?

Answer 48

Equipment and structures used in production

Question 49

Human capital is defined as?

Answer 49

The knowledge and skills of workers

Question 50

The financial system’s main function is to?

Answer 50

Match savers with borrowers