Honors Econ Quiz: 2

Labor

Human effort directed toward producing goods and services

Capital

Any human-made resource that is used to make other goods and services

Oligopoly

Market structure dominated by a few large firms, with barriers to enter and few substitutes

Monopoly

Market dominated by a single seller

Supply

The amount of goods and services that producers are able willing to sell at various prices during a specific time period 

Demand

The desire, willingness, and ability to buy a good or service

Incentives

The hope of reward or fear of penalty that encourages a person to behave in a certain way

Scarcity

The principle that limited amounts of goods and services are available to meet unlimited wants

Trade-offs

The act of giving up one desirable option in order to gain another, resulting from scarcity and requiring a choice between alternatives 

Opportunity Cost

The value of the next-best alternative when a decision is made; it’s what is given up

Invisible hand

Term that describes the self-regulating nature of the marketplace according to Adam Smith.

Perfect competition

Theoretical market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products and have freedom of entry and exit

Product possibilities frontier

Curve that shows the maximum possible output of two goods that an economy can produce

Entrepreneurship

Process of identifying opportunities, taking risks, and creating a new venture to bring a product or service to market for profitor social good 

Diminishing marginal utility 

When marginal utility becomes smaller as a person consumes more units of a product.

Coase Theorem

A concept, developed by Ronald Coase, that deals with externalities. Thinking of problems in terms of conflicting property rights.

Equity-efficiency trade-off

When maximizing the productive efficiency of the market leads to less equitable wealth distribution

Ceteris Paribus

A Latin phrase that means “all other things held constant”

Demand Curve

Downward-sloping line that graphically shows the quantities demanded at each possible price 

Equilibrium 

The price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy 

Law of demand

The concept that people are normally willing to buy less of a product if the price is high and more of it if the price is low 

Law of supply

The principle that suppliers will normally offer more for sale at higher prices and less at lower prices

Price ceiling

Maximum price that can be charged for goods and services, set by the government

Price floor

Minimum price that can be charged for goods and services, set by the government

Shortage 

Situation in which quantity demanded is greater than quantity supplied

Supply curve

Upward-sloping line that graphically shows the quantities demanded at each possible price 

Surplus

Situation in which quantity supplied is greater than quantity demanded; also when the government collects more in revenue than it spends.

Elasticity

How responsive one economic variable is to change in another, most commonly how quantity demanded or supplied changes in response to a price change

Normal good

A good that consumers demand more of when their income increases

Inferior good

A good that consumers demand less when their incomes increase

Extrenality

When a cost or benefit is caused by one economic factor, but not suffered or enjoyed by that same economic factor

Complements

Two goods that are bought and used together

Price elasticity of demand

The extent to which a change in price causes a change in quantity demanded

Aggregation

The process of combining individual economic units and their activities into a single, representative measure

Free-rider problem

People who benefit from a goods or service without paying full price or even anything

Corrective tax v. Corrective subsidy 

A corrective tax is a tax on activities that create a negative externality (like pollution), while a corrective subsidy is a payment for activities that create a positive externality (like vaccination)