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