Econ. Unit One
Substitute goods
An increase in price of one good causes an increase in demand for the other good
One effect of the government imposed seat belt law in the US has been
An increase in the number of accidents
Compliment goods
An increase of price of one good causes a fall of demand for the other good
Lead is an important in the production of crystal. If the price of lead decreases, then we would expect the supply of.. A. Crystal to be unaffected B. Crystal to decrease C. Crystal to increase D. Lead to decrease
C
Any point on a country's production possibilities frontier represents a combination of two goods that an economy
Can produce using all available resources and technology
Two goods are substitutes when a decrease in the price of one good
Decreases the demand for the other good
Economists use the word equality to describe a situation in which
Each member of society has the same income
Total output in an economy increases when each person specializes because
Each person spends more time producing in which he or she has a comparative advantage
What kind of trade do economists generally support?
Free international trade
Rational people respond to ______?
Incentives
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good
Increases as more of the good is produced
Marginal changes
Incremental adjustments to an existing plan
When supply and demand both increase, equilibrium price...
May increase, decrease, or remain unchanged.
Inferior goods
Negatively related to income. More income, buy less of this good. Ex. Ramen, fast food, etc.
If Francis experiences a decrease in his income, then we would expect Francis's demand for
Normal goods to decrease
Producer surplus
P-C The amount a seller is paid for a good minus the sellers cost
The adage "there is no such thing as free lunch," means
People face tradeoffs
Rational people
People who systematically and purposefully do the best they can to achieve their objectives. Example: someone getting 1 beer at a time vs. getting 10 beers at once
Normal good
Positively related to income. More income, buy more of this product. Ex. Pizza, going out, etc.
The overriding reason as to why households and societies face many decisions is that
Resources are scarce
Scarcity
Society has limited resources and therefore cannot produce all the goods and services people wish to have
Efficiency means that
Society is getting the maximum benefits from its scarce resources
Incentive
Something that induces a person to act
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer
Absolute advantage
The ability to produce a good using fewer inputs (hours) than another producer
A rational decision maker takes action if and only if
The marginal benefit of the action exceeds the marginal cost of the item
When computing the opportunity cost of attending a concert you should include
The price you pay for the ticket and the value of your time
Economics
The study of how society manages its scarce resources
For most students, the largest single cost of an item is
The wages given up to attend school
Tradeoff
To achieve greater equality, could redistribute income from wealthy to poor, but this reduces incentive to work and produce, shrinks the size of the economic "pie."
Economists typically measure efficiency using
Total surplus
The opportunity cost of an item is
What you give up to get that item
Opportunity cost
Whatever must be given up to obtain something else
Efficiency
When a society gets the most it can from its scarce resources
Equality
When prosperity is distributed uniformly among society's members
The law of demand states that, other things equal,
When the price of a good falls, the quantity demanded of the good rises
When supply and demand both increase, equilibrium price
may increase, decrease or remain unchanged.
