ECON questions

Explain these three key economic ideas: People are rational. People respond to incentives. Optimal decisions are made at the margin.

1)First, people are rational. This means that buyers and sellers use all available information to achieve their goals. 3) Third, optimal decisions are made at the margin. The terms marginal benefit and marginal cost refer to the additional benefits and costs of a decision. Economists reason that the best, or optimal, decision is to continue any activity up to the point where the marginal benefit (or MB) equals the marginal cost (MC). In symbols, we can write MB = MC.

when is a tax efficient?

A tax is efficient if it imposes a small excess burden relative to the tax revenue it raises.

what causes the demand curve to shift?

Changes in income, the prices of related goods, tastes, population and demographics, and expected future prices all cause the demand curve to shif

what causes the supply curve to shift?

Changes in the prices of inputs, technology, the prices of substitutes in production, expected future prices, and the number of firms

How will the goods and services be produced

Firms choose how to produce the goods and services they sell

3 reasons why inefficiencies occur in markets

First, it may take time for firms to achieve productive efficiency. Second, governments may reduce efficiency by interfering with voluntary exchanges in markets. Third, production of some goods may harm the environment when firms ignore the costs of environmental damage.

who are suppliers of the factors of production that are used by firms to produce goods and services

Households

Who will receive the good and services produced?

In the United States, who receives the goods and services produced depends largely on how income is distributed in the marketplace.

What is the result of a price ceiling? And why do some consumers tend to favor price ceilings and others tend to oppose it?

Price ceilings generate shortages. Consequently, consumers who obtain the product at a lower price win, but consumers who would like to purchase the product but are unable to lose

which amendments guarantee property rights?

The 5th and 14th amendments to the U.S. Constitution guarantee property rights.

Which of the following explains why there is an inverse relationship between the price of a product and the quantity of the product demanded?

The substitution effect

formula for percentage change (or growth rate)

Value in the second period - Value in the first period / Value in the first period X 1oo

25. What is the name given to the development of a new good or a new process for making a good?

a. an invention

26. What is the name given to the practical application of an invention?

b. an innovation

16. What is the purpose of an economic hypothesis?

b. to establish a causal relationship

Which of the following explains why the line shifts to the right?

c. There was a change in a third variable other than the price or quantity of pizza demanded.

34. Which of the following comprises the two key groups of participants in the circular flow of income?

households and firms

when will consumers pay all of an increase in a sales tax?

if the demand curve is a vertical line.

Who determines what goods and services will be produced?

the choices of consumers, firms and government determine what goods and services will be produced