econ midterms

What is the definition of economics?

The study of how individuals and societies allocate scarce resources to satisfy unlimited wants.

What is the difference between microeconomics and macroeconomics?

Microeconomics deals with individual and firm decisions regarding resource allocation, while macroeconomics focuses on the economy as a whole and larger economic factors.

What does the concept of scarcity refer to?

The condition that arises because resources are limited and cannot satisfy all human wants.

What is opportunity cost?

The next best alternative to forgo when making a decision.

What does the law of demand state?

As the price of a good rises, the quantity demanded falls, and as the price falls, the quantity demanded rises, ceteris paribus.

What is the law of supply?

As the price of a good rises, the quantity supplied rises, and as the price falls, the quantity supplied falls, ceteris paribus.

How is market equilibrium defined?

The point at which the quantity demanded equals the quantity supplied at a certain price.

What is price elasticity of demand (PED)?

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

What is marginal utility?

The additional satisfaction gained from consuming one more unit of a good or service.

What is the difference between fixed costs and variable costs?

Fixed costs do not vary with the level of output, while variable costs change with the level of output.

Define perfect competition.

A market structure characterized by many firms, identical products, no barriers to entry, and perfect information.

What is a monopoly?

A market structure where a single firm is the sole producer of a good or service with no close substitutes.

What is an externality?

A side effect of an economic activity that affects third parties, which can be positive or negative.

Explain the concept of consumer surplus.

The difference between what consumers are willing to pay and what they actually pay.

What is a price ceiling?

A government-imposed maximum price that can be charged for a good or service.

What does a budget constraint represent?

The limitation on the consumption choices of a consumer based on their income and the prices of goods.

What are economies of scale?

The cost advantages that firms experience as they increase the scale of production, leading to lower average costs.

What is the free rider problem?

When people benefit from a good without paying for it, typically associated with public goods.

What does marginal revenue product (MRP) refer to?

The additional revenue generated by employing one more unit of a factor of production, such as labor.

What implications does government intervention have on market failures?

Government intervention can correct inefficiencies in the market, such as taxes, subsidies, regulations, or providing public goods.

How do market forces and policy interventions interact in determining income distribution?

Market forces (supply and demand for labor) interact with policy interventions (such as minimum wage laws and education subsidies) to affect income inequality.