Chapters 1 -5

Question 1

Production possibilities boundary

Answer 1

The boundary that shows the maximum amount of how much of something can be made vs another with a certain amount of resources

Question 2

Factors of production

Answer 2

Land
Labour
Capital

Question 3

Opportunity cost is the price of ___?

Answer 3

the next best option

Question 4

List the four key economic problems

Answer 4

What is produced and how
What is consumed and by whom
Why are resources sometimes idle
Is productive capacity growing

Question 5

Why are free markets self organizing

Answer 5

When individual consumers and producers peruse self interests, collective outcome is coordinated

Question 6

What are the three decision makers in any economy

Answer 6

Producers
Consumers
Government

Question 7

Two characteristics of production?

Answer 7

Specialization

Division of labour

Question 8

Globalization

Answer 8

The increased importance of international trade (loose definition)

Question 9

The three pure types of economic systems

Answer 9

Traditional
Command
Free market

Question 10

Governments intervene to___

Answer 10

Correct market failures
Provide public goods
Offset the effects of externalities

Question 11

Normative statement

Answer 11

Value judgment

- what ought to be (this should be this way)

Question 12

Positive statement

Answer 12

A statement of fact

Question 13

Theory’s Include

Answer 13

variables
assumptions
predictions

Question 14

Correlation vs Causation

Answer 14

Correlation: related movements

• Positive: x increases when y decreases
• Negative: inverse

Question 15

Real Income

Answer 15

The Buying power of income

Question 16

Quantity demanded and Price are___ related

Answer 16

Negatively

Question 17

Price change causes a shift ____ the demand curve

Answer 17

Along

Question 18

A change in variables other than income will cause the demand curve to

Answer 18

shift to a new position

Question 19

What factors determine the quantity demanded of a good

Answer 19

Consumer income 
Prices of related products 
consumer tastes 
population 
significant changes in weather

Question 20

Quantity supplied

Answer 20

the quantity that firms are willing to offer for sale

Question 21

Quantity supplied and price

Answer 21

positively related

Question 22

Variables that cause a shift in the demand curve

Answer 22

Prices of inputs 
number of suppliers 
taxes or subsidies 
Tech
Significant changes in weather
Prices of other products

Question 23

Market Equilibrium

Answer 23

Every buyer finds a seller and every seller finds a buyer

Question 24

Increase in supply and equilibrium

Answer 24

Increases quantity and decreases price

Question 25

Decrease in supply and equilibrium

Answer 25

Rise in price and fall in quantity

Question 26

Increase in demand and equilibrium

Answer 26

Increase in both price and quantity

Question 27

Decrease in demand and equilibrium

Answer 27

Decreases in price and in quantity

Question 28

Elastic demand

Answer 28

When demand is responsive to price

Question 29

Perfectly elastic vs Perfectly inelastic demand curves

Answer 29

PE: horizontal PIE: Vertical

Question 30

In the long run, demand is more___

Answer 30

elastic

Question 31

factors that affect elasticity of demand

Answer 31

availability of substitutes consumer budget Small fraction of budget: less elastic Large portion : more elsatic

Question 32

Unit elastic

Answer 32

Revenue is constant as the relative change in price has the same effect on quantity

Question 33

When is total expenditure at a maximum?

Answer 33

When demand elasticity is = 1

Question 34

What is excise tax?

Answer 34

the tax on the sale of a particular product

Question 35

Tax incidence

Answer 35

Who bares the cost of an excise tax?

Question 36

Explain tax incidence

Answer 36

the excise tax cost is distributed between consumers and producers based on price elasticity of demand

Question 37

Normal Goods

Answer 37

Income elasticity that is positive and less than 1 - necessity item Products for which the income elasticity is positive and larger than 1 - Luxury good

Question 38

Inferior goods

Answer 38

Income elasticity of demand less than 1

Question 39

Complement goods have cross elasticity ____ than 0

Answer 39

smaller

Question 40

Substitute goods have cross elasticity of demand ____ than 0

Answer 40

larger

Question 41

Price floor

Answer 41

Minimum permissible price that can be charged

Question 42

Price floor leads to excess___

Answer 42

supply (set above the eq)

Question 43

Price ceiling

Answer 43

Maximum price that can be charged

Question 44

Price ceiling causes excess___

Answer 44

demand

Question 45

price ceilings can lead to...

Answer 45

Black markets

Question 46

Economic surplus

Answer 46

the value gained by producers and consumers | area below the demand curve and above the supply curve

Question 47

Where is economic surplus maximized?

Answer 47

at the equilibrium point

Question 48

deadweight loss

Answer 48

the overall loss of surplus to society when prices are not set at equilibrium

Question 49

Economic Inefficiency

Answer 49

Government intervention and policies that cause deadweight loss

Question 50

Policy makers make____ statements

Answer 50

Normative

Question 51

The job of the economist is to make___ statements based on the policy's actual effect

Answer 51

positive