Quiz 1

Question 1

What is economics about?

Answer 1

Scarcity of resources

Question 2

What do economists do?

Answer 2

Make assumptions

Question 3

Fundamental assumption

Answer 3

Individuals optimize

Question 4

Microeconomics

Answer 4

Individual consumers and businesses; what and how to produce? for whom?

Question 5

Macroeconomics

Answer 5

National economy

Question 6

Positive statements

Answer 6

describes the way things are and can be tested

Question 7

Normative statements

Answer 7

Describes the way things should be

Question 8

Efficiency

Answer 8

How society gets the most from its resources (size of the pie)

Question 9

Equity

Answer 9

How the benefits are split among society (size of each slice)

Question 10

Absolute advantage

Answer 10

The ability to produce every (both) goods more efficiently

Question 11

Opportunity cost

Answer 11

What must be given up to obtain another good

Question 12

Comparative advantage

Answer 12

The ability to produce a good at a lower opportunity cost than another producer. You cannot have a comparative advantage in all goods.

Question 13

Market

Answer 13

A group of buyers and sellers of a particular good or service

Question 14

Demand shift

Answer 14

increase: right shift
decrease: left shift

Question 15

Supply shift

Answer 15

increase: right shift
decrease: left shift

Question 16

Substitute good

Answer 16

An increase in the price of one increases the demand for the other

Question 17

Complement good

Answer 17

An increase in the price of one decreases the demand for the other

Question 17

Inelastic

Answer 17

Steeper supply or demand slope

Question 18

Elastic

Answer 18

Flatter supply or demand slope

Question 19

On whom does the tax burden fall?

Answer 19

The less elastic side

Question 20

Welfare economics

Answer 20

The study of how the allocation of resources affects economic well-being

Question 21

Pareto optimality

Answer 21

Conduct trade with only positive effects

Question 22

Consumer surplus

Answer 22

Willingness to pay - price (area above cost and below demand)

Question 23

Producer surplus

Answer 23

Willingness to sell - cost (area below cost and above supply)

Question 24

Where is total surplus maximized?

Answer 24

At market equilibrium

Question 25

In order for Adam Smith's Invisible Hand theory to work, what must be true?

Answer 25

Perfectly competitive market, with no externalities, all agents must have all the information

Question 26

What causes market failure?

Answer 26

Monopolies, externalities, information imbalance

Question 27

How does the supply curve change if the taxes are levied on the sellers?

Answer 27

The supply curve shifts up

Question 28

How does the demand curve change if the taxes are levied on the buyers?

Answer 28

The demand curve shifts downward

Question 29

How does the tax burden get distributed?

Answer 29

The tax burden is distributed to both buyers and sellers no matter who owes the government the money

Question 30

Export vs import country

Answer 30

If the world price is higher than the domestic price, the country is an exporter. Otherwise, they are an importer

Question 31

Export quantity

Answer 31

Domestic supply - domestic demand

Question 32

Import quantity

Answer 32

Domestic demand - domestic supply

Question 33

Tariff

Answer 33

Tax on imported goods produced abroad and sold domestically

Question 34

Who opposes free trade?

Answer 34

Domestic producers. They want less money to go to international producers.

Question 35

Reasons to regulate trade

Answer 35

Protect domestic jobs, safety from over-reliance, nurturing of new industries, safety from unfair competition, and bargaining advantage