Econ

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Indifference Curve

A curve that shows the combinations of two products that generate the same amount of total utility or satisfaction.

supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Budget Line

A line showing the different combinations of two products that can be purchased with a given budget and at a known set of prices.

law of diminishing marginal utility

A principle in economics that states that the marginal utility associated with the consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period.

demand schedule

A tabular representation of the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant.

Law of Demand

An economic rule that states that buyers will demand more products when they can buy them at lower prices and fewer products when they must buy them at higher prices.

Given the option of being self-sufficient or trading with others, as long as a ______ advantage exists, there will be potential for trade to make both parties better off.

Comparative

The simple model of production assumes that the opportunity cost of production is______ .

Constant

The wealth, or additional well-being, created by trade, ______

Does not have to be monetary.

When resources are allocated in such a way that it is possible to increase the production of one good only by decreasing the production of another, then the allocation of resources is said to be ______ .

Efficient

According to the circular flow diagram, when a household receives a wage for supplying a firm with labor, the interaction occurs in the ______ market.

Factor

If the price is too ______ , producers will be eager to sell, but buyers will not be willing or able to buy.

High

In the circular flow model, ______ and ______ interact in the resource market and the product market.

Household; firms

In the circular flow model, ______ can obtain the income they need to buy the products they want to consume only by selling their resources.

Households

According to the circular flow, which two groups interact with each other in the product market?

Households and firms

In the real world, the opportunity cost of production ______ as production increases.

Increases

On a production possibilities frontier (PPF), if you are able to increase the production of both goods at the same time, then, initially, resources were allocated ______ .

Inefficiently

The following are other names for resources:

Inputs and factors of production

Specialization causes individuals and nations to rely on one another and increases the degree of ______ between them.

Interdependence

Suppose a farmer has 3 kinds of land for growing peaches; good, better, and best. As the farmer increases production, she will use the best land first, and costs will be low. At some point, she will run out of the best land and will have to start using the better land, and costs will be a little higher. This describes the:

Law of increasing opportunity cost

When the opportunity cost associated with increasing the production of one good or service in terms of another is constant at every level of production, then the production possibility frontier is:

Linear

If the price is too ______ , producers will not be eager to sell, but buyers will be willing and and able to buy.

Low

marginal utility per dollar (bang for buck)

Marginal utility/price

Focusing production entirely on one good or service leaves you susceptible to changes in the ______ .

Market

______ cost is most plainly visible when spending more money one things means that less money can be spent on another thing.

Opportunity

The budget condition is given by which of the following?

PA x QA + PB x QB

When people trade, producers can achieve something they can't without trade. Thus, only with trade is it ______

Possible to operate outside the production possibilities frontier.

Comparative advantage refers to the ability to ______ .

Produce a good or service at a lower opportunity cost than others

The circular flow model shows how households and firms interact in two key markets: the ______ market and the ______ market.

Resource; product

In the circular flow model, households can obtain the income they need to buy the products they want to consume only by selling their ______ , also known as factors of production.

Resources

The opportunity cost of producing a good or a service can be found by:

Solving for the cost of one good in terms of another.

When production is characterized by constant opportunity costs, the resulting production possibilities frontier will be a ______ line.

Straight

Economists measure utility with a unit called the util, which is _____ in nature.

Subjective

Util

Subjective measure of utility associated with consuming a good (happiness)

When consumer income increases but the price of each good does not change what happens to the budget line?

The budget line shifts right.

Equal Marginal Principle (for Utility Maximization)

The idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal

tastes and preferences

The perception of the desirability associated with consuming a good, service, or resource.

diminishing marginal productivity

The principle that if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant.

Utility Maximization

The process of obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers' preferences, incomes, and prices.

Utility

The satisfaction or happiness received from the consumption of goods and services.

Suppose you have $10 to buy either onions or breath mints. Onions cost $0.50 each, and breath mints cost $1.00. On a graph, onions are on the y-axis and breath mints are on the x-axis. If the price of onions increases while the price of breath mints and your budget stay the same, what happens to the budget line?

The vertical intercept shifts downward, closer to the origin.

Whether or not a good or service is traded depends largely on the terms of ______ .

Trade

demand curve

a graphic representation of a demand schedule

change in supply

a shift of the supply curve, which changes the quantity supplied at any given price

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

marginal utility

an additional amount of satisfaction

marginal utility

an additional amount of satisfaction or happiness

Law of Supply

an economic law stating that as the price of a good or service increases, the quantity supplied increases, and vice versa

comparative advantage refers to:

being the lowest relative opportunity cost produce of a good.

income effect

change in price has on purchasing power of income

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy is the:

circular flow model.

A producer has a(n) ______ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers.

comparative

diminishing marginal utility

decrease in additional satisfaction or usefulness as additional units of a product are acquired

shortage

excess demand

surplus

excess supply

taxes and subsides

governments fund themselves and is also used as a tool to reduce the amount of good and service used

inferior good

has a negative correlation between income and consumption

normal good

has a positive correlation between income and consumption

For two parties to be willing to trade, the terms of trade must be:

less than the buyer's opportunity cost but greater than the seller's opportunity cost.

buyers

market participants who seek to obtain goods, services, and resources

As long as there is a difference in ______ costs, there are comparative advantages, and there will be potential for trade to make both Arties better off.

opportunity

complements

pairs of goods for which a rise in the price of one good leads to a decrease in the demand for the other good

Combinations of production that fall inside the production possibilities frontier are ______ but not efficient.

possible

Consumers seek to maximize satisfaction based on:

preferences budget and the prices of the goods and services purchased.

In the circular flow model, ______ must buy resources in order to produce the output they will sell to households.

producers

According to the circular flow diagram, when a firm receives money for a good or service it sold to a household, the interaction occurs in the ______ market.

product

A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology is the:

production possibilities frontier

The production possibilities frontier, or curve, is a graphical representation of the ______ .

production possibilities schedule

The points on the production possibilities frontier show how we allocate our scarce ______ to the production of two different goods or services.

resources

quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

quantity supplied

the amount of a good that sellers are willing and able to sell at a given price

substitution effect

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

Even though the price per ounce of popcorn is much lower for the largest size at a movie theater not everyone buys the large bucket of popcorn because:

the extra utility from the extra popcorn is less than the extra cost to the buyer.

equal marginal principle

the idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal

market equilibrium

the point of intersection of demand and supply curves of a given commodity; at equilibrium the market is cleared of the commodity

Terms of trade refers to:

the price of one good or service in terms of another.

law of diminishing marginal utility

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

market demand

the sum of the individual demands of all consumers in the market

Total utility

the total amount of satisfaction obtained from consumption of a good or service

market supply

the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus

total utility

the total satisfaction one gets from consuming a product

Opportunity cost is:

the value of the opportunity that you give up when you choose one activity instead of another.

The pope of the production possibilities frontier equals the ______ of the production of one good or service in terms of the other.

trade-off and opportunity cost

The utility-maximizing bundle of goods and services occurs

where the indifference curve is tangent to the budget line


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