Economics Test Two

Question 1

What are goods?

Answer 1

An Item; useful or satisfies

Question 2

What are services?

Answer 2

Something you pay someone else to do. EX) Mowers

Question 3

What are resources?

Answer 3

Land, Labor, Capital, and Entrepreneurship

Question 4

What is scarcity?

Answer 4

Unlimited wants and needs with limited resources

Question 5

What are Economic Systems?

Answer 5

The method used by a society to produce and distribute goods and services

Question 6

Who answers the economic questions for a Traditional Economy?

Answer 6

Economic questions are answered by habits and customs.
EX) Eskimos and The Amish

Question 7

Who answers the economic questions for a Command Economy?

Answer 7

The government answers the economic questions for a Command Economy.
EX) Communist Countries (Vietnam, North Korea, Etc.)

Question 8

What are the advantages to a Command Economy?

Answer 8

Government is able to act quickly in emergencies and provides for all people equally.

Question 9

What are the disadvantages to a Command Economy?

Answer 9

Government can be inefficient and no incentive to work hard

Question 10

Who answers the economic questions for a Free Market Economy?

Answer 10

Individual buyers and sellers answer the economic questions for a Free Market Economy.
EX) U.S, Western Europe, Japan

Question 11

Influences on Free Market Economy?

Answer 11

Supply and Demand, Self-interest (free market economy is like free enterprise or capitalism).

Question 12

Give an example of a Mixed Economy?

Answer 12

The U.S is a free market economy with elements of a command economy. This is to prevent things like monopolies.

Question 13

What are the features of the American free market economy?

Answer 13

1. Economic Freedom
2. Competition
3. Private Property
4. Self-Interest
5. Voluntary Exchange
6. Profit Motive

Question 14

What are the features of the American command economy?

Answer 14

1. Gov. regulates some business practices EX) wages, labor hours, and safety practices
2. Gov. limits certain choices EX) can’t buy/produce weed
3. Gov. provides aid to those in need EX) medicare, medicaid, and welfare

Question 15

What is the invisible hand principle?

Answer 15

-people are selfish
-human demand is greed, greed is the invisible hand

Question 16

What is the Lassez Faire?

Answer 16

Government should not intervene in economy activities.

Question 17

Adam Smith’s two main points?

Answer 17

-Market competition acts like an “invisible hand” so that self-interest behavior can work to benefit of all society

-Individual self-interest and competition ensures that resources are used in ways that promote economic growth and national prosperity

Question 18

What is demand? D

Answer 18

Demand is the different quantities of goods that consumers are WILLING and ABLE to buy at different prices.

Question 19

What is the law of demand? QD

Answer 19

The INVERSE relationship between price and quantity demanded.

Question 20

Why does the Law of Demand occur?

Answer 20

because of three separate behavior patterns that overlap. (the substitution effect, the income effect, and the law of diminishing marginal utility)

Question 21

What is the Substitution Effect?

Answer 21

if the price goes up for a product, consumer buy less of that product and more of another substitute product. (the want)

Question 22

What is the Income Effect?

Answer 22

if the price goes down for a product, the purchasing power increases for consumers; allowing them to purchase more. (being able)

Question 23

What is the Law of Diminishing Marginal Utility?

Answer 23

as you consume anything, the additional satisfaction that you receive will eventually decrease. (eating chickfila over and over again)

Question 24

What doesn’t shift the demand curve?

Answer 24

PRICE

Question 25

What are the five shifters of demand?

Answer 25

1. Tastes and Preferences
2. Numbers of Consumers
3. Future Expectations
4. Price of Related Good
5. Income

Question 26

Price of related goods?

Answer 26

1. Substitutes are good used in place of another
2. Complements are two goods that are bought and used together

Question 27

How does Income affect demand?

Answer 27

The income of consumers change the demand, but how depends on the type of good. (Normal and Inferior Goods)