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ECON104:ch1-3
EXAM #1
| Question | Answer |
|---|---|
| Incentives | rewards and penalties that motivate behavior |
| Opportunity Cost | a choice is the value of the opportunities lost. |
| Strong institutions that support these incentives foster economic growth | Such institutions include property rights, political stability, honest government, a dependable legal system, and competitive and open markets. |
| Inflation | an increase in the general level of prices. Inflation comes about when there is a sustained increase in the supply of money. |
| Demand | represents the behavior of buyers. |
| Demand Curve | is a function that shows the quantity demanded at different prices. |
| Quantity Demanded | is the quantity that buyers are willing and able to purchase at a particular price. |
| Law of Demand | indicates an inverse relationship between price and quantity demanded. When price rises, all else equal, quantity demanded falls. When price falls, all else equal, quantity demanded rises. |
| Consumer Surplus | is the consumer’s gain from exchange, or the difference between the maximum price a consumer is willing to pay for a given quantity and the market price. |
| Important Demand Shifters | Income Population Price of Substitutes Price of Complements Expectations Tastes |
| Normal Good | a good for which demand increases (decreases) when income increases (decreases). |
| Inferior Good | is a good for which demand decreases(increases) when income increases (decreases) |
| Substitutes | Two goods are Substitutes if a decrease (increase) in the price of one good leads to a decrease (increase) in demand for the other good. |
| Complements | Two goods are Complements if a decrease (increase) in the price of one good leads to an increase (decrease) in the demand for the other. |
| Supply | represents the behavior of sellers. |
| Supply Curve | a function that shows the quantity supplied at different prices. |
| Quantity Supplied | is the quantity that producers are willing and able to sell at a particular price |
| Law of Supply | indicates a direct relationship between price and quantity supplied.When price rises, all else equal, quantity supplied rises.When price falls, all else equal, quantity supplied falls. |
| Producer Surplus | is the producer’s gain from exchange, or the difference between the market price and the minimum price at which producers would be willing to sell a given quantity. |
| Important Supply Shifters | Technological Innovations,Input Prices,Taxes and Subsidies,Expectations,Entry or Exit of Producers,Changes in Opportunity Costs |
| A technological innovation | makes sellers willing to supply a greater quantity at a given price, or the new technology allows producers to sell a given quantity at a lower price.A technological innovation lowers costs and increases supply. |
| A tax | on output makes sellers willing to supply a lesser quantity at a given price,or the tax forces producers to sell a given quantity at a higher price.A tax on output raises costs and decreases supply. |
| A subsidy | on production makes sellers willing to supply a greater quantity at a given price, or the subsidy allows producers to sell a given quantity at a lower price.A subsidy on production lowers costs and increases supply. |
| Entry into market | implies more sellers in the market increasing supply. |
| Exit out of market | implies fewer sellers in the market decreasing supply. |
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aevanch1
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