econ midterm 12

What is a tradeoff?

The inevitable choices we must make due to limited resources, forcing us to forgo one option for another.

Define efficiency in economics.

Achieving maximum output from available resources, minimizing waste.

What does equity refer to in economic terms?

Fair and balanced distribution of resources and opportunities across society.

Opportunity cost is defined as __________.

The value of the next best alternative sacrificed when choosing a particular option.

What is an incentive?

A motivating factor (reward or punishment) that encourages a specific action.

What characterizes a market?

A platform where buyers and sellers interact to exchange goods and services.

Define market failure.

A situation where the market mechanism fails to efficiently allocate resources, leading to suboptimal outcomes.

A positive statement is a statement of __________.

Fact that can be tested and proven true or false.

What is a normal good?

A good for which demand increases as consumer income rises.

What describes the law of demand?

As the price of a good rises, the quantity demanded falls.

What is the law of supply?

The principle that, all else equal, as the price of a good increases, the quantity supplied increases.

Define market.

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

What is a market economy?

An economic system in which decisions about production and consumption are made by individual producers and consumers.

What is market power?

The ability of a single firm or a small group of firms to influence the market price.

What is a perfectly competitive market?

A market structure characterized by many buyers and sellers, identical products, perfect information, and ease of entry and exit.

Define price ceiling.

A legal maximum price for a good or service.

Define price floor.

A legal minimum price for a good or service.

What is a Production Possibilities Frontier (PPF)?

A graph showing the maximum combination of two goods that can be produced with a given set of resources.

What is a public good?

A good that is non-rivalrous and non-excludable, meaning one person's consumption does not diminish availability for others.

What does rational agent mean in economics?

An individual or entity that makes decisions based on logic and self-interest.

What is scarcity in economic terms?

The fundamental economic problem that arises because resources are limited and wants are unlimited.

What are substitutes?

Goods that can be used in place of one another; an increase in the price of one leads to an increase in demand for the other.

What is a tradeoff?

A situation in which choosing one option requires giving up another.

What happens to the demand curve for normal and inferior goods when income increases?

An increase in income will shift the demand curve to the right for normal goods, but to the left for inferior goods.

What is the law of supply?

The law of supply states that we should expect a positive relationship between the price producers are willing to accept to sell a good and the amount of the good that is supplied.

Does having an absolute advantage mean one should not trade?

No, having an absolute advantage does not mean one should not trade. Comparative advantage, which can differ despite having absolute advantages, provides the basis for mutually beneficial trade.