Econ test 1

What is an inferior good

A good for which demand decreases as income rises

As a firm or individual keep increasing one input, while holding all other inputs constant, it will eventually result in smaller and smaller additions to output. this is called

Diminishing marginal returns

In order to receive gains from trade an individual or country should always produce

Goods for which they have a comparative advantage and trade for other goods

The rule for making a rational decision is: If the ___ of a potential action is greater than the ___ of the action, then a rational decision maker should take that action

Marginal benefit ; marginal cost

Comparative advantage is the ability of an individual, firm or country to

Produce a good or service at a lower opportunity cost than other producers

Absolute advantage is the ability of an individual, firm or country to

Produce more of a good or service than competitors using the same amount of resources

the law of demand

States that a decrease in the price of a good will cause an increase in the quantity demanded for that good

What does an economy achieve by producing goods and services at lowest cost

Technical efficiency

What does the cross-price elasticity of demand measure

The percentage change in quantity demanded of a good due to a percentage change in the price of another good

The burden of a tax is determined by

The responsiveness of buyers to price changes The slope of the supply curve The slope of the demand curve

When two goods are complements

The two goods are used together

When the actual market price is below the equilibrium price

There is a shortage

If the income elasticity of demand for a product is equal to -1.2, we know for sure that the product is

an inferior good

By specializing in production and trading, an individual, firm or country can

consume more than they can produce

What is the name given to the highest-valued alternative that must be given up in order to engage in any activity

opportunity cost

A market is at equilibrium when

quantity supplied equals quantity demanded

What does price elasticity of supply measure?

responsiveness of quantity supplied to a change in price

A situatation in which unlimiteded wants exceed the limited resources available to fulfill those wants is called

scarcity

Which of the following is a normative statement

the price of gas should be lower

Economics is

the study of the choices people make to attain their goals, given their scarce resources