Managerial Economics - Assignment Essays

question

Economic Perspective

answer

Economic way of thinking, has
several critical and closely interrelated features.

question

Economist Perspective in Economy

answer

View things from a unique perspective. Their perspective is more focused on supply and demand.

question

Accountant Perspective in Economy

answer

Their perspective is price is value, more focused on how much is the cost in able to make a product/service.

question

Scarcity

answer

The gap between limited resources and theoretically limitless wants.

question

Opportunity Cost

answer

Represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

question

Purposeful Behavior

answer

An assumption that individuals will always look for and pursue opportunities to increase utility.

question

Utility

answer

The pleasure, happiness or satisfaction obtained from consuming a good or availing a service.

question

Marginal Analysis

answer

Comparisons of marginal benefits and marginal
costs, usually for decision making.

question

Marginal

answer

Means "extra," "additional," or "a change in."

question

False. Benefit over cost.

answer

Cost over benefit. True or False?

question

Economic Principle

answer

A statement about economic
behavior or the economy that enables prediction of
the probable effects of certain actions.

question

1. Generalization
2. Other-Things-Equal Assumption
3. Graphical Expression

answer

Enumerate 3 Economic Principles

question

Generalization

answer

Relating to economic behavior or to the
economy itself.

question

Other-Things-Equal Assumption

answer

The assumption
that factors other than those being considered do
not change.

question

Graphical Expression

answer

Many economic models are
expressed graphically. Be sure to read the special
appendix at the end of this chapter as a review of
graphs.

question

Ceteris Paribus or Other-Things-Equal Assumption

answer

In constructing
their theories, economists use this.

question

1. Microeconomics
2. Macroeconomics

answer

Enumerate 2 Levels of Economics

question

Microeconomics

answer

It is the part of economics concerned
with individual units such as a person, a household, a
firm, or an industry.

question

Macroeconomics

answer

Examines either the economy as a whole
or its basic subdivisions or aggregates, such as the govern-
ment, household, and business sectors.

question

Aggregate

answer

It is a
collection of specific economic units treated as if they were
one unit.

question

True

answer

True or False: The micro-macro distinction does not mean that eco-
nomics is so highly compartmentalized that every topic
can be readily labeled as either micro or macro; many
topics and subdivisions of economics are rooted in both.

question

Positive Economics

answer

Focuses on facts and cause-and-effect
relationships. It includes description, theory development,
and theory testing (theoretical economics).

question

Normative Economics

answer

which incorporates value judgments
about what the economy should be like or what particular
policy actions should be recommended to achieve a desir-
able goal (policy economics).

question

positive economics

answer

factual statements - what is

question

normative economics

answer

value judgements - what ought to be

question

Economizing Problem

answer

The
need to make choices because economic wants exceed
economic means—will enhance your understanding of
economic models and the difference between microeco-
nomic and macroeconomic analysis.

question

1. Limited Income
2. Unlimited Wants

answer

Eumerate 2 Under Economizing Problems

question

Limited Income

answer

We all have a finite amount of income, even the wealthiest
among us.

question

Unlimited Wants

answer

For better or worse, most people have virtually unlimited
wants. We desire various goods and services that provide
utility.

question

Necessities

answer

For example, food, shelter, and clothing.

question

Luxuries

answer

For example, perfumes, yachts, and sports cars.

question

True

answer

True or False: Our wants extend over a wide range of products,
from necessities to luxuries. Some wants such as basic food, clothing, and shelter have
biological roots. Other wants, for example, specific kinds
of food, clothing, and shelter, arise from the conventions
and customs of society.

question

Budget Line or Constraint

answer

Is a schedule or a curve that shows various combinations of products/services that a consumer can purchase with a specific money income.

question

1. Attainable Combination
2. Unattainable Combination
3. Trade Off and Opportunity Costs

answer

Enumerate 3 Key Concepts in Understanding the Budget Line

question

Attainable Combination

answer

All the combinations inside the
budget line.

question

Unattainable Combination

answer

All combinations beyond the budget line.

question

Trade Off and Opportunity Costs

answer

Giving up the other to obtain more of the another.

question

Economic Resources

answer

Are the factors used in producing goods or providing services. In other words, they are the inputs that are used to create things or help you provide services.

question

Limited or Scarce Economic Resources

answer

Meaning all natural, human, and manufactured resources that
go into the production of goods and services.

question

1. Land
2. Labor
3. Capital or Capital Goods
4. Entrepreneurial Ability

answer

Enumerate 4 Categories of Economic Resources

question

Land

answer

Means much more to the economist than it
does to most people. To the economist, it includes all
natural resources ("gifts of nature") used in the produc-
tion process, such as arable land, forests, mineral and oil
deposits, and water resources.

question

Labor

answer

Consists of the physical and
mental talents of individuals used in producing goods
and services.

question

True

answer

True or False: The services of a logger, retail clerk, machinist, teacher, professional football player, and nuclear physicist all fall under the general heading "labor."

question

Capital or Capital Goods

answer

Includes all manufactured aids used in producing consumer
goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and
machinery.

question

Investment

answer

Economists refer to the purchase of capital
goods as?

question

Consumer Goods

answer

Satisfy wants directly.

question

Capital Goods

answer

Satisfy wants indirectly by aiding the production of consumer goods.

question

True

answer

True or False: "Capital" as used by economists refers not to money but to tools, machinery, and
other productive equipment. Because money produces
nothing, economists do not include it as an economic
resource. Money (or money capital or financial capital) is
simply a means for purchasing capital goods.

question

Entrepreneurial Ability

answer

It is the special
human resource, distinct from labor.

question

Entreprenuer

answer

1. takes the initiative in combining
the resources of land, labor, and capital to produce a
good or a service.
2. makes the strategic business
decisions that set the course of an enterprise.
3. is an innovator
4. is a risk bearer

question

Factors of Production or Inputs

answer

When land, labor, capital, and entrepreneurial ability
are combined to produce goods and services, what is it called?

question

1. Full Employment
2. Fixed Resources
3. Fixed Technology
4. Two Goods (Consumer and Capital Goods)

answer

Enumerate 4 Basic Assumption

question

Full Employment

answer

The economy is employing all its
available resources.

question

Fixed Resources

answer

The quantity and quality of the factors
of production are fixed.

question

Fixed Technology

answer

The state of technology (the methods
used to produce output) is constant.

question

Two Goods

answer

The economy is producing only ???: pizzas and industrial robots.

question

Consumer Goods

answer

Pizzas symbolize it, products that satisfy our wants
directly.

question

Capital Goods

answer

Industrial robots (for example, the kind used
to weld automobile frames) symbolize it,
products that satisfy our wants indirectly by making
possible more efficient production of consumer goods.

question

Production Possibilities Table

answer

Lists the different combinations of two products that can be produced with a specified set of resources, assuming full employment.

question

Production Possibilities Curves

answer

Is the graphical representation of Production Possibilities Table.

question

1. Shape of the Curve
2. Economic Rationale

answer

Enumerate 2 Key Concepts of Production Possibilities Table

question

Shape of the Curve

answer

The law of increasing oppor-
tunity costs is reflected in the shape of the production pos-
sibilities curve: The curve is bowed out from the origin of
the graph.

question

Economic Rationale

answer

for
the law of increasing opportunity costs is that economic
resources are not completely adaptable to alternative
uses.

question

Optimal Allocation

answer

Occurs where Marginal Benefit is equals to Marginal Costs.

question

1. Unemployment
2. Growth or Growing Economy
3. Future

answer

Enumerate 3 Factors Affecting Production

question

Unemployment

answer

A term referring to individuals who are employable and actively seeking a job but are unable to find a job.

question

1. Increases in Resources Supply
2. Improvement of Resources Quality
3. Advances in Technology

answer

Enumerate 3 Under Growing Economy

question

Increases in Resources Supply

answer

Although re-
source supplies are fixed at any specific moment, they
change over time.

question

Advances in Technology

answer

Brings both new and better goods and improved ways
of producing them.

question

Economics

answer

is the social science that examines how individu-
als, institutions, and society make optimal choices under
conditions of scarcity. Central to economics is the idea of
opportunity cost: the value of the good, service, or time for-
gone to obtain something else.

question

1. scarcity and choice
2. purposeful behavior
3. marginal analysis

answer

3 elements of economic perspective

question

international trade

answer

enables nations to obtain more goods
from their limited resources than their production possibili-
ties curve indicates.

question

graph

answer

is a visual representation of the relationship be-
tween two variables.

question

horizontal axis

answer

income

question

vertical axis

answer

consumption

question

direct or positive relationship

answer

two variables—in this case, consumption and
income—change in the same direction.

question

inverse or negative relationship

answer

the two variables change in opposite directions.

question

independent variable

answer

is the
cause or source; it is the variable that changes first.

question

dependent variable

answer

is the effect or outcome; it is the vari-
able that changes because of the change in the indepen-
dent variable.

question

slope of a straight line

answer

is the ratio of the vertical change (the
rise or drop) to the horizontal change (the run) between
any two points of the line.

question

vertical intercept

answer

is the point where the line meets
the vertical axis.

question

economic system

answer

a
particular set of institutional arrangements and a coordi-
nating mechanism—to respond to the economizing prob-
lem.

question

1. Command System
2. Market System

answer

Enumerate 2 Economic Systems

question

command system

answer

is also known as socialism or com-
munism. In that system, government owns most property
resources and economic decision making occurs through a
central economic plan.

question

market system

answer

or capitalism. The system is characterized by
the private ownership of resources and the use of markets
and prices to coordinate and direct economic activity.

question

market system

answer

permits consumers, resource suppliers, and businesses to pursue and further their self-interest

question

Market

answer

This is where sellers and buyers meet.

question

1. Private Property
2. Freedom of Enterprise and Choice
3. Self-Interest
4. Competition
5. Markets and Prices
6. Technology and Capital Goods
7. Specialization
8. Use of Money
9. Active, but Limited, Government

answer

Enumerate 9 Characteristics of Market System

question

private property

answer

coupled with the freedom to negotiate binding legal
contracts, enables individuals and businesses to obtain,
use, and dispose of property resources as they see fit.

question

self-interest

answer

is the motivating force
of the various economic units as they express their free
choices.

question

freedom of enterprise and choice

answer

Closely related to private ownership of property is ??? The market system
requires that various economic units make certain choices,
which are expressed and implemented in the economy's
markets

question

freedom of enterprise

answer

ensures that entrepreneurs
and private businesses are free to obtain and use
economic resources to produce their choice of goods
and services and to sell them in their chosen markets.

question

freedom of choice

answer

enables owners to employ or
dispose of their property and money as they see fit.

question

specialization

answer

is the use of resources of
an individual, firm, region, or nation to produce one or a few
goods or services rather than the entire range of goods and
services.

question

competition

answer

diffuses economic power and limits the actions of any single seller or buyer
forces industries to use the least costly production methods

question

1. makes use of differences in ability
2. fosters learning by doing
3. saves time

answer

3 specialization

question

consumer income and product prices

answer

it determine how output will be distributed in market economy

question

money

answer

medium of exchange

question

barter

answer

swapping goods
for goods, say, wheat for oranges.

question

consumer sovereignty

answer

is crucial in determin-
ing the types and quantities of goods produced.

question

product market

answer

the place where goods and
services produced by businesses are bought and sold.

question

resource market

answer

the place where resources or the
services of resource suppliers are bought and sold.

question

markets

answer

bring together buyers ("demanders") and sellers
("suppliers"), and they exist in many forms.

question

Demand

answer

Shows the quantities of a
product that will be purchased by
willing and able buyer at various
possible prices, other things being
equal.

question

Law of Demand

answer

Other things equal, as price falls,
the quantity demanded rises, and
as price rises, the quantity
demanded falls.

question

income effect

answer

indicates that a lower price increases the purchasing
power of a buyer's money income, enabling the
buyer to purchase more of the product than
before.

question

substitution effect

answer

suggests that at a lower price
buyers have the incentive to substitute what is now
a less expensive product for similar products that are
now relatively more expensive.

question

Demand Curve

answer

The inverse relationship
between price and quantity
demanded for any product
can be represented on a simple graph, in which, by
convention, we measure quantity demanded on the horizontal axis and p rice on the vertical axis.

question

change in demand

answer

is a shift of
the demand curve to the right (an increase in demand) or
to the left (a decrease in demand).

question

change in quantity demanded

answer

is a
movement from one point to another point—from one
price-quantity combination to another—on a fixed demand
schedule or demand curve.

question

1. Tastes
2. Number of Buyers
3. Income (Superior and Inferior Goods)
4. Price of Related Goods
(Substitute and Complementary Goods)
5. Unrelated Goods
6. Consumer Expectations

answer

Enumerate 6 Change in Demand

question

inferior goods

answer

Goods whose demand varies
inversely with money income

question

superior or normal goods

answer

Products whose demand
varies directly with money income

question

substitute good

answer

is one that can be used in place
of another good.

question

complementary good

answer

is one that is used together
with another good.

question

unrelated or independent goods

answer

The vast majority of goods are
not related to one another

question

Supply

answer

Shows the various amounts of a product that producers are willing and able to provide make available for sale at each of a series of possible prices during a specific period.

question

Law of Supply

answer

As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.

question

Supply Curve

answer

Is a graphical representation of the correlation between the price of a good or service and the quantity supplied for a given period.

question

1. Resource Prices
2. Technology
3. Taxes and Subsidies
4. Prices of Other Goods
5. Producer Expectation
6. Number of Sellers

answer

Enumerate 6 Changes in Supply or Supply Determinants

question

change in supply

answer

means a change in the schedule and a shift of the curve. An
increase in supply shifts the curve to the right; a decrease
in supply shifts it to the left. The cause of a change in
supply is a change in one or more of the determinants of
supply.

question

change in quantity supplied

answer

is a move-
ment from one point to another on a fixed supply curve.

question

Market Equilibrium

answer

Point where the graphs of supply and demand crosses.

question

Equilibrium Price

answer

Also known as market clearing price, is the price where the intentions of buyers and sellers match. It is the price where quantity demanded equals quantity supplied.

question

Equilibrium Quantity

answer

It is when there is no shortage or surplus of a product in the market. Supply and demand intersect, meaning the amount of an item that consumers want to buy is equal to the amount being supplied by its producers.

question

Rationing Function of Prices

answer

The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent.

question

1. Productive Efficiency
2. Allocative Efficiency

answer

Enumerate 2 Efficient Allocation

question

productive efficiency

answer

the production
of any particular good in the least costly way.

question

allocative efficiency

answer

the particular mix of goods and services most
highly valued by society (minimum-cost production
assumed).

question

scientific method

answer

like the physical and life sciences, as well as other social sciences, economics relies on the???

question

Laissez-faire

answer

let it be, keep government from interfering with the economy

question

law of increasing opportunity cost

answer

as the production of a particular good increases, the opportunity cost of producing an additional unit rises

question

creative destruction

answer

the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business

question

competitive markets

answer

create incentives for technological advance and capital accumulation, both of which contribute to increases in standards of living

question

invisible hand

answer

promote the public or social interest

question

1. efficiency
2. incentives
3. freedom

answer

3 merit reemphasis

question

efficiency

answer

The market system promotes the efficient
use of resources by guiding them into the production
of the goods and services most wanted by society.

question

incentives

answer

The market system encourages skill
acquisition, hard work, and innovation.

question

freedom

answer

The major noneconomic argument for the
market system is its emphasis on personal freedom.

question

economic profit

answer

indicates
that an industry is prosperous and promotes its expansion.

question

circular flow model

answer

illustrates the fl ows of resources
and products from households to businesses and from busi-
nesses to households, along with the corresponding mone-
tary fl ows.

1 of 141

question

Economic Perspective

answer

Economic way of thinking, has
several critical and closely interrelated features.

question

Economist Perspective in Economy

answer

View things from a unique perspective. Their perspective is more focused on supply and demand.

question

Accountant Perspective in Economy

answer

Their perspective is price is value, more focused on how much is the cost in able to make a product/service.

question

Scarcity

answer

The gap between limited resources and theoretically limitless wants.

question

Opportunity Cost

answer

Represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

question

Purposeful Behavior

answer

An assumption that individuals will always look for and pursue opportunities to increase utility.

question

Utility

answer

The pleasure, happiness or satisfaction obtained from consuming a good or availing a service.

question

Marginal Analysis

answer

Comparisons of marginal benefits and marginal
costs, usually for decision making.

question

Marginal

answer

Means "extra," "additional," or "a change in."

question

False. Benefit over cost.

answer

Cost over benefit. True or False?

question

Economic Principle

answer

A statement about economic
behavior or the economy that enables prediction of
the probable effects of certain actions.

question

1. Generalization
2. Other-Things-Equal Assumption
3. Graphical Expression

answer

Enumerate 3 Economic Principles

question

Generalization

answer

Relating to economic behavior or to the
economy itself.

question

Other-Things-Equal Assumption

answer

The assumption
that factors other than those being considered do
not change.

question

Graphical Expression

answer

Many economic models are
expressed graphically. Be sure to read the special
appendix at the end of this chapter as a review of
graphs.

question

Ceteris Paribus or Other-Things-Equal Assumption

answer

In constructing
their theories, economists use this.

question

1. Microeconomics
2. Macroeconomics

answer

Enumerate 2 Levels of Economics

question

Microeconomics

answer

It is the part of economics concerned
with individual units such as a person, a household, a
firm, or an industry.

question

Macroeconomics

answer

Examines either the economy as a whole
or its basic subdivisions or aggregates, such as the govern-
ment, household, and business sectors.

question

Aggregate

answer

It is a
collection of specific economic units treated as if they were
one unit.

question

True

answer

question

Positive Economics

answer

Focuses on facts and cause-and-effect
relationships. It includes description, theory development,
and theory testing (theoretical economics).

question

Normative Economics

answer

which incorporates value judgments
about what the economy should be like or what particular
policy actions should be recommended to achieve a desir-
able goal (policy economics).

question

positive economics

answer

factual statements - what is

question

normative economics

answer

value judgements - what ought to be

question

Economizing Problem

answer

The
need to make choices because economic wants exceed
economic means—will enhance your understanding of
economic models and the difference between microeco-
nomic and macroeconomic analysis.

question

1. Limited Income
2. Unlimited Wants

answer

Eumerate 2 Under Economizing Problems

question

Limited Income

answer

We all have a finite amount of income, even the wealthiest
among us.

question

Unlimited Wants

answer

For better or worse, most people have virtually unlimited
wants. We desire various goods and services that provide
utility.

question

Necessities

answer

For example, food, shelter, and clothing.

question

Luxuries

answer

For example, perfumes, yachts, and sports cars.

question

True

answer

question

Budget Line or Constraint

answer

Is a schedule or a curve that shows various combinations of products/services that a consumer can purchase with a specific money income.

question

1. Attainable Combination
2. Unattainable Combination
3. Trade Off and Opportunity Costs

answer

Enumerate 3 Key Concepts in Understanding the Budget Line

question

Attainable Combination

answer

All the combinations inside the
budget line.

question

Unattainable Combination

answer

All combinations beyond the budget line.

question

Trade Off and Opportunity Costs

answer

Giving up the other to obtain more of the another.

question

Economic Resources

answer

Are the factors used in producing goods or providing services. In other words, they are the inputs that are used to create things or help you provide services.

question

Limited or Scarce Economic Resources

answer

Meaning all natural, human, and manufactured resources that
go into the production of goods and services.

question

1. Land
2. Labor
3. Capital or Capital Goods
4. Entrepreneurial Ability

answer

Enumerate 4 Categories of Economic Resources

question

Land

answer

question

Labor

answer

Consists of the physical and
mental talents of individuals used in producing goods
and services.

question

True

answer

True or False: The services of a logger, retail clerk, machinist, teacher, professional football player, and nuclear physicist all fall under the general heading "labor."

question

Capital or Capital Goods

answer

Includes all manufactured aids used in producing consumer
goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and
machinery.

question

Investment

answer

Economists refer to the purchase of capital
goods as?

question

Consumer Goods

answer

Satisfy wants directly.

question

Capital Goods

answer

Satisfy wants indirectly by aiding the production of consumer goods.

question

True

answer

question

Entrepreneurial Ability

answer

It is the special
human resource, distinct from labor.

question

Entreprenuer

answer

question

Factors of Production or Inputs

answer

When land, labor, capital, and entrepreneurial ability
are combined to produce goods and services, what is it called?

question

1. Full Employment
2. Fixed Resources
3. Fixed Technology
4. Two Goods (Consumer and Capital Goods)

answer

Enumerate 4 Basic Assumption

question

Full Employment

answer

The economy is employing all its
available resources.

question

Fixed Resources

answer

The quantity and quality of the factors
of production are fixed.

question

Fixed Technology

answer

The state of technology (the methods
used to produce output) is constant.

question

Two Goods

answer

The economy is producing only ???: pizzas and industrial robots.

question

Consumer Goods

answer

Pizzas symbolize it, products that satisfy our wants
directly.

question

Capital Goods

answer

Industrial robots (for example, the kind used
to weld automobile frames) symbolize it,
products that satisfy our wants indirectly by making
possible more efficient production of consumer goods.

question

Production Possibilities Table

answer

Lists the different combinations of two products that can be produced with a specified set of resources, assuming full employment.

question

Production Possibilities Curves

answer

Is the graphical representation of Production Possibilities Table.

question

1. Shape of the Curve
2. Economic Rationale

answer

Enumerate 2 Key Concepts of Production Possibilities Table

question

Shape of the Curve

answer

The law of increasing oppor-
tunity costs is reflected in the shape of the production pos-
sibilities curve: The curve is bowed out from the origin of
the graph.

question

Economic Rationale

answer

for
the law of increasing opportunity costs is that economic
resources are not completely adaptable to alternative
uses.

question

Optimal Allocation

answer

Occurs where Marginal Benefit is equals to Marginal Costs.

question

1. Unemployment
2. Growth or Growing Economy
3. Future

answer

Enumerate 3 Factors Affecting Production

question

Unemployment

answer

A term referring to individuals who are employable and actively seeking a job but are unable to find a job.

question

1. Increases in Resources Supply
2. Improvement of Resources Quality
3. Advances in Technology

answer

Enumerate 3 Under Growing Economy

question

Increases in Resources Supply

answer

Although re-
source supplies are fixed at any specific moment, they
change over time.

question

Advances in Technology

answer

Brings both new and better goods and improved ways
of producing them.

question

Economics

answer

question

1. scarcity and choice
2. purposeful behavior
3. marginal analysis

answer

3 elements of economic perspective

question

international trade

answer

enables nations to obtain more goods
from their limited resources than their production possibili-
ties curve indicates.

question

graph

answer

is a visual representation of the relationship be-
tween two variables.

question

horizontal axis

answer

income

question

vertical axis

answer

consumption

question

direct or positive relationship

answer

two variables—in this case, consumption and
income—change in the same direction.

question

inverse or negative relationship

answer

the two variables change in opposite directions.

question

independent variable

answer

is the
cause or source; it is the variable that changes first.

question

dependent variable

answer

is the effect or outcome; it is the vari-
able that changes because of the change in the indepen-
dent variable.

question

slope of a straight line

answer

is the ratio of the vertical change (the
rise or drop) to the horizontal change (the run) between
any two points of the line.

question

vertical intercept

answer

is the point where the line meets
the vertical axis.

question

economic system

answer

a
particular set of institutional arrangements and a coordi-
nating mechanism—to respond to the economizing prob-
lem.

question

1. Command System
2. Market System

answer

Enumerate 2 Economic Systems

question

command system

answer

is also known as socialism or com-
munism. In that system, government owns most property
resources and economic decision making occurs through a
central economic plan.

question

market system

answer

or capitalism. The system is characterized by
the private ownership of resources and the use of markets
and prices to coordinate and direct economic activity.

question

market system

answer

permits consumers, resource suppliers, and businesses to pursue and further their self-interest

question

Market

answer

This is where sellers and buyers meet.

question

answer

Enumerate 9 Characteristics of Market System

question

private property

answer

coupled with the freedom to negotiate binding legal
contracts, enables individuals and businesses to obtain,
use, and dispose of property resources as they see fit.

question

self-interest

answer

is the motivating force
of the various economic units as they express their free
choices.

question

freedom of enterprise and choice

answer

Closely related to private ownership of property is ??? The market system
requires that various economic units make certain choices,
which are expressed and implemented in the economy's
markets

question

freedom of enterprise

answer

ensures that entrepreneurs
and private businesses are free to obtain and use
economic resources to produce their choice of goods
and services and to sell them in their chosen markets.

question

freedom of choice

answer

enables owners to employ or
dispose of their property and money as they see fit.

question

specialization

answer

is the use of resources of
an individual, firm, region, or nation to produce one or a few
goods or services rather than the entire range of goods and
services.

question

competition

answer

diffuses economic power and limits the actions of any single seller or buyer
forces industries to use the least costly production methods

question

1. makes use of differences in ability
2. fosters learning by doing
3. saves time

answer

3 specialization

question

consumer income and product prices

answer

it determine how output will be distributed in market economy

question

money

answer

medium of exchange

question

barter

answer

swapping goods
for goods, say, wheat for oranges.

question

consumer sovereignty

answer

is crucial in determin-
ing the types and quantities of goods produced.

question

product market

answer

the place where goods and
services produced by businesses are bought and sold.

question

resource market

answer

the place where resources or the
services of resource suppliers are bought and sold.

question

markets

answer

bring together buyers ("demanders") and sellers
("suppliers"), and they exist in many forms.

question

Demand

answer

Shows the quantities of a
product that will be purchased by
willing and able buyer at various
possible prices, other things being
equal.

question

Law of Demand

answer

Other things equal, as price falls,
the quantity demanded rises, and
as price rises, the quantity
demanded falls.

question

income effect

answer

indicates that a lower price increases the purchasing
power of a buyer's money income, enabling the
buyer to purchase more of the product than
before.

question

substitution effect

answer

suggests that at a lower price
buyers have the incentive to substitute what is now
a less expensive product for similar products that are
now relatively more expensive.

question

Demand Curve

answer

question

change in demand

answer

is a shift of
the demand curve to the right (an increase in demand) or
to the left (a decrease in demand).

question

change in quantity demanded

answer

is a
movement from one point to another point—from one
price-quantity combination to another—on a fixed demand
schedule or demand curve.

question

1. Tastes
2. Number of Buyers
3. Income (Superior and Inferior Goods)
4. Price of Related Goods
(Substitute and Complementary Goods)
5. Unrelated Goods
6. Consumer Expectations

answer

Enumerate 6 Change in Demand

question

inferior goods

answer

Goods whose demand varies
inversely with money income

question

superior or normal goods

answer

Products whose demand
varies directly with money income

question

substitute good

answer

is one that can be used in place
of another good.

question

complementary good

answer

is one that is used together
with another good.

question

unrelated or independent goods

answer

The vast majority of goods are
not related to one another

question

Supply

answer

Shows the various amounts of a product that producers are willing and able to provide make available for sale at each of a series of possible prices during a specific period.

question

Law of Supply

answer

As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.

question

Supply Curve

answer

Is a graphical representation of the correlation between the price of a good or service and the quantity supplied for a given period.

question

1. Resource Prices
2. Technology
3. Taxes and Subsidies
4. Prices of Other Goods
5. Producer Expectation
6. Number of Sellers

answer

Enumerate 6 Changes in Supply or Supply Determinants

question

change in supply

answer

question

change in quantity supplied

answer

is a move-
ment from one point to another on a fixed supply curve.

question

Market Equilibrium

answer

Point where the graphs of supply and demand crosses.

question

Equilibrium Price

answer

Also known as market clearing price, is the price where the intentions of buyers and sellers match. It is the price where quantity demanded equals quantity supplied.

question

Equilibrium Quantity

answer

question

Rationing Function of Prices

answer

The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent.

question

1. Productive Efficiency
2. Allocative Efficiency

answer

Enumerate 2 Efficient Allocation

question

productive efficiency

answer

the production
of any particular good in the least costly way.

question

allocative efficiency

answer

the particular mix of goods and services most
highly valued by society (minimum-cost production
assumed).

question

scientific method

answer

like the physical and life sciences, as well as other social sciences, economics relies on the???

question

Laissez-faire

answer

let it be, keep government from interfering with the economy

question

law of increasing opportunity cost

answer

as the production of a particular good increases, the opportunity cost of producing an additional unit rises

question

creative destruction

answer

the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business

question

competitive markets

answer

create incentives for technological advance and capital accumulation, both of which contribute to increases in standards of living

question

invisible hand

answer

promote the public or social interest

question

1. efficiency
2. incentives
3. freedom

answer

3 merit reemphasis

question

efficiency

answer

The market system promotes the efficient
use of resources by guiding them into the production
of the goods and services most wanted by society.

question

incentives

answer

The market system encourages skill
acquisition, hard work, and innovation.

question

freedom

answer

The major noneconomic argument for the
market system is its emphasis on personal freedom.

question

economic profit

answer

indicates
that an industry is prosperous and promotes its expansion.

question

circular flow model

answer

illustrates the fl ows of resources
and products from households to businesses and from busi-
nesses to households, along with the corresponding mone-
tary fl ows.

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