Economics Study Guide: Chapters 1–5

40 fill-in-the-blank flashcards covering key principles, formulas, and concepts from Chapters 1–5 of the economics study guide.

The __ Principle states that limited resources require choice.

Scarcity

According to the __ Principle, take an action only if its benefit is at least as great as its cost.

Cost-Benefit

__ cost is the value of the next best alternative that is forgone.

Opportunity

Economic Surplus equals minus .

Total Benefit − Total Cost

Marginal analysis compares marginal to marginal .

benefit; cost

People respond to (carrots) and (sticks).

benefits; costs

A decision pitfall is measuring instead of absolute values.

proportions

A decision pitfall is ignoring __ costs, which are not explicit.

implicit

A decision pitfall is taking __ costs into account even though they are unrecoverable.

sunk

The curve slopes downward because quantity demanded falls as price rises.

demand

The curve slopes upward because quantity supplied rises as price increases.

supply

Market occurs at the intersection of the supply and demand curves.

equilibrium

A change in price causes movement the demand curve, changing quantity demanded.

along

A change in price causes movement the supply curve, changing quantity supplied.

along

Preferences, income, related goods, expectations, and number of buyers are of demand.

shifters

Input prices, technology, number of sellers, and expectations are of supply.

shifters

When quantity supplied exceeds quantity demanded, a exists and price tends to fall.

surplus

When quantity demanded exceeds quantity supplied, a exists and price tends to rise.

shortage

The formula for price elasticity of demand is ε = (%ΔQd) / __.

%ΔP

Cross-price elasticity is ε = (%ΔQA) / ___.

%ΔP_B

Income elasticity is ε = (%ΔQd) / __.

%ΔI

If ε > 1, demand is and a price increase reduces total revenue.

elastic

If ε < 1, demand is and a price increase raises total revenue.

inelastic

If ε = 1, demand is and total revenue is unchanged when price changes.

unit elastic

More substitutes, a larger budget share, and more time make demand more .

elastic

A positive cross-price elasticity indicates two goods are .

substitutes

A negative cross-price elasticity indicates two goods are .

complements

A positive income elasticity indicates a good.

normal

A negative income elasticity indicates an good.

inferior

The rational spending rule requires (MUA / PA) = ( / P_B).

MU_B

is the satisfaction a consumer receives from consumption.

Utility

utility is the total satisfaction from all units consumed.

Total

utility is the additional satisfaction from consuming one more unit.

Marginal

According to the law of diminishing marginal utility, marginal utility as more of a good is consumed.

declines

surplus is the difference between willingness to pay and market price.

Consumer

Graphically, consumer surplus is the area under the curve and above the price line.

demand

Total revenue equals multiplied by quantity.

price

If demand is elastic, a price decrease will total revenue.

increase

If demand is inelastic, a price decrease will total revenue.

decrease

Economic surplus is maximized where marginal benefit equals marginal .

cost