Economics Final Exam Review

Law of Demand

inverse relationship (price up, demand down or price down, demand up)

Law of Supply

direct relationship (price up, demand up or price down, demand down)

Equilibrium Price

price at which buyer and seller are both happy

Law of Diminishing Marginal Utility

for each use of a product, the level of satisfaction/usefulness decreases

Shortage

product priced below equilibrium price

Surplus

product priced above equilibrium price

Profit

Revenue-Expenses (what gets people out of bed in the morning)

Scarcity

lack of a product = value

Opportunity Cost

what is sacrificed with a decision

Stock

a share in a company

Bond

an “I-owe-you” from the government

Mutual Fund

a group of stocks in one investment, which reduces risk

ROI

return on investment

Capital

fancy word for money

Free Enterprise

no government intervention

Normal Goods

demand goes up in a good economy (Oreos/the real deal)

Inferior Goods

demand goes up in a bad economy (Creme-Betweens/off-brand products)

The Federal Reserve

central bank that controls interest rates

Interest Rate

the amount of money a person pays for the privilege of borrowing money

Economics

the study of CHOICES with limited resources

Microeconomics

the study of INDIVIDUAL choices

Macroeconomics

the study of larger economics (nations)

Entrepreneur

risk-taker who seeks profit

GDP

Gross Domestic Product…total economic output of a nation

Recession

two consecutive quarters of negative economic growth

Human Capital

workers/workforce

401K

retirement plan that taxes on the back end

Roth IRA

retirement plan that taxes on the front end

“Live beneath your means”

Dave Ramsey advice on how to become wealthy

Mortgage

home loan

An increase in the price of a product will reduce the amount purchased because…

C. consumers will substitute other products for the one whose price has risen

Which of the following will not cause the demand for product K to change?

C. a change in the price of K (price does not shift demand, but it changes the quantity demanded)

Which of the following would not shift the demand curve for beef?

B. a reduction in the price of cattle feed (price change does not shift demand curve itself, but it moves along the demand curve)

If the price of K declines, the demand curve for the complementary project J will…

C. shift to the right

A firm’s supply curve is upsloping because

B. mass production economies are associated with larger levels of output

Refer to the above diagram. The equilibrium price and quantity in this market will be…

A. $1.00 and 200

Refer to the above diagram. A price of $20 in this market will result in:

E. a shortage of 100 units

Which of the above diagrams illustrates the effect of a decrease in incomes upon the market for secondhand clothing?

B. A only

9. Which of the above diagrams illustrates the effect of a governmental subsidy on the market for AIDS research

C. C only