Economics Prelim Test 1

The Economic Problem

Delves into wants, resources, and scarcity, necessitating choice by individuals and society.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Production Possibility Frontier

A curve that shows the maximum attainable combinations of two products that can be produced with available resources.

Consumer Sovereignty

The idea that consumer preferences determine the production of goods and services.

Factors Influencing Individual Consumer Choice

Include income, price, price of substitutes, price of complements, preferences, and advertising.

Sources of Income

Compensation for resources including wages, rent, interest, profits, and social welfare payments.

Firm Goals

Objectives of a business such as profit maximization, growth maximization, market share increase, and satisficing.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded.

Economies of Scale

Cost advantages that firms obtain due to scale of operation, with cost per unit of output generally decreasing with increasing scale.

Circular Flow of Income

Describes how money flows through the economy between individuals, businesses, and governments.

Impact of Investment and Change

Refers to how investment and changes (technological, ethical) affect production methods, pricing, employment, and sustainability.

Relative Prices

Prices of goods and services in relation to each other, which reflect opportunity costs in different markets.

Business Production Decisions

Decisions firms make about what and how much to produce and the methods of production to use.

Law of Demand

As the price of a good decreases, the quantity demanded increases, and vice versa, all else being equal.