Copy of Econ Quiz Review
Chapter 1:
Define:
Incentives:
Rewards or penalties that motivate behavior
Invisible Hand
The theory that even though there is no individual person in charge of a market, the market functions on its own without someone making all the decisions. selfish actions can benefit the economy. Sellers are trying to make money buyers are buying what they want.
The Great Economic Problem
How to arrange our limited resources to satisfy as many demands as possible
Opportunity Costs
The cost of
Marginal
A little bit more or less. One more or one less
What are examples of incentives?
Money, time, food, grades, success, sex, power, love, fame
Do they matter?
Yes, they enforce the market equilibrium
What is the great economic problem?
How to use our limited resources to satisfy as many demands as possible
What are trade-offs?
What you gain or lose from a trade.
What does it mean to think on the margin?
Thinking about the super small changes
\ Chapter 2:
Define:
Absolute Advantage
Being able to produce a good using less resources than someone else
Best in every way
Comparative Advantage
Producing goods for the least opportunity cost
May not produce as well but they aren’t giving up as much to produce
Production Possibilities Frontier
All of the combinations of goods that a country can produce with productivity and supply of inputs
What are the benefits of trade?
Increases productivity, creates value, allows specialization. Eencourages specialization and encourages scaling
When does trade make people better off?
When both parties benefit from the trade.
How does trade increase productivity?
Specialization: Making just one thing a million times is faster than learning and making a bunch of little things
How do trade, division of knowledge, and specialization all connect?
By utilizing trade more specialization can occur. They have a greater knowledge about their speciality.
Without trade, there is no….?
specialization
\ Chapter 3:
Define:
The demand curve
Function that shows how much is demanded at each price
The supply curve
Function that shows how much is supplied at each given price
Quantity demanded
The quantity that buyers buy at that price
Quantity supplied
The quantity that sellers sell at that price
What are demand-shifters?
Pippet: population, income, price of substitutes,price of complements, expectations, taste
What are supply-shifters?
New tech, taxes, changes in opportunity, entry or exit of producers, expectations
As price changes, how does quantity demanded change?
As price increase quantity demanded decreases
As price changes, how does quantity supplied change?
As price increases quantity supplied increases
If supply decreases, how does the curve shift?
To the left
If demand increases, how does the curve shift?
To the right
Why does the demand curve shift down and to the left?
The lower the price is the higher the demand is
Why does the supply curve shift up and to the right?
At a higher price sellers are willing to produce more
How does demand differ from quantity demanded?
Demand moves the curve as a whole, quantity demanded is a change in price
What determines the quantity supplied?
The price
\ Chapter 4:
Define:
Equilibrium:
Price at which the quality supply and the quantity demanded are the same.
Shortage
When the demand is higher than the quantity supplied
Surplus
When the quantity supplied is more than quantity demanded
Gains from trade
Consumer and producer surplus
Consumer surplus
The difference between the market price and what the consumer is willing to pay
Producer surplus
The difference between the market price and the price they are willing to sell at
How does price respond to surplus?
Price decreases
How does price respond to shortage?
Price increases
Buyers compete with…
buyers
Sellers compete with….
sellers
What do prices tell us? Why do they matter?
They indicate the demand and value of the product and how much a consumer wants it.
\ Chapter 5:
Define:
Price Floors
A defined minimum price required for goods or services above the equilibrium
Price Ceilings
The maximum price a product is allowed to be below the equilibrium causes shortage
Lost gains from trade
The loss of consumer and producer surplus
Deadweight loss
Pretty much the same as lost gains from trade
What you are missing out on if you are not at equilibrium, no surplus
What are potential impacts of price ceilings?
Bribes, lines, shortage, lower quality,
Potential impacts of price floors?
Surpluses, deadweight loss, misallocation of resources
Example of a price ceiling
Rent control
Example of a price floor
Minimum wage
\ Chapter 6:
Define:
Real
Adjusted for inflation
Nominal
Numbers not adjusted for inflation
Finished goods
Products that are ready to be sold to customers
Intermediate goods
A good used to make a different finished good
Consumer price index
The average change in prices paid by consumers for a bunch of different goods and services
GDP
Gross domestic product:value of finished goods and services produced in a country
GDP per capita
Gross domestic product divided by population
Business Fluctuations
The normal ups and downs in business, ie seasonal,
What is the national spending approach?
Consumptions + investments + gov spending +(exports minus imports)
What are the weaknesses of GDP?
Doesn’t count for underground economy, distribution of wealth, environmental damage, health, unpriced goods or services
What does GDP per capita show vs normal GDP? Why do we ever use GDP per capita?
Measures a standard of living. Easier to compare countries.
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