Econ102: Microeconomics Vocabulary Quiz!

Economics is the study of how people and society make choices to allocate their limited resources in order to satisfy their unlimited wants. It examines the production, distribution, and consumption of goods and services. By understanding economics, individuals and societies can make informed decisions about how to best utilize their resources to maximize their well-being.

The question is asking for something that can be used to produce goods or services to satisfy people's wants. The word "resources" refers to anything that can be used for this purpose, such as natural resources, human resources, or capital resources. The word "resource" is a singular form of the same concept. Both words are correct answers to the question.

Rewards for engaging in a particular behavior are called incentives. Incentives are offered to motivate individuals to perform a specific action or behavior. They can be in the form of monetary rewards, recognition, or other benefits that encourage individuals to continue or increase their engagement in the desired behavior.

Efficiency is the term used to describe the ability to get the most out of a resource and use it in the most productive way. It refers to the optimization of resources, time, and effort to achieve maximum output with minimum waste or loss. When a task or process is efficient, it means that it is performed with minimum input and maximum output, resulting in higher productivity and effectiveness. Efficiency is a key factor in various fields such as business, engineering, and economics, as it helps to improve performance, reduce costs, and achieve better results.

Market failures refer to situations where a free functioning market does not effectively allocate resources and results in an inefficient outcome. This can occur due to various reasons such as externalities, lack of competition, information asymmetry, and public goods. Market failure, on the other hand, is the specific instance or occurrence of a market not maximizing society's welfare. Therefore, both "Market failures" and "Market failure" are correct terms to describe this phenomenon.

The concept described in the question is known as the "invisible hand." According to Adam Smith, when individuals pursue their own self-interest in a free market economy, the overall result is the promotion of the best interest of society as a whole. This is because the competition and pursuit of profit leads to efficiency, innovation, and the satisfaction of consumer needs. The "invisible hand" refers to the unintended beneficial consequences that arise from individual actions in a market system, without any central coordination or control. Therefore, the correct answer is "Invisible hand doctrine."

The correct answer is "Land and labor". This answer is correct because it accurately identifies that resources available from nature (land) and human effort (labor) are both involved in the production process and contribute to the earning of rent and wages. The other options, "Land,labor" and "Land and labor", are incorrect as they either separate the terms with a comma or combine them without any punctuation.

Capital refers to factories, equipment, and goods that are used in the production of other goods. These assets are considered as capital because they are used to generate income and earn interest. By investing in capital, businesses can increase their productivity and efficiency, leading to higher profits. Capital is an essential factor of production and plays a crucial role in economic growth and development.

The Production Possibilities Frontier (PPF) is a curve that represents all the possible combinations of total output that could be produced with a given set of resources and technology. It shows the concept of opportunity cost and scarcity, as the curve illustrates the trade-offs that occur when resources are allocated to produce one good over another. When the PPF shifts outwards, it indicates economic growth, as more total output can be produced with the same resources and technology.

Absolute advantage refers to a situation where one agent can produce more of a good or service compared to another agent using the same amount of resources. In this context, the correct answer suggests that when one agent has the ability to produce more, it is an example of absolute advantage. This concept is often used in international trade to determine which country has a comparative advantage in producing certain goods or services.

Comparative advantage refers to the ability of one agent or country to produce a good or service at a lower opportunity cost compared to another agent or country. This means that they can produce a particular good or service more efficiently or with fewer resources. When one agent has a lower opportunity cost, it is beneficial for them to specialize in producing that good or service and trade with other agents who have a higher opportunity cost in producing it. By specializing according to their comparative advantage, agents can maximize their overall productivity and efficiency, leading to mutual gains from trade.

Trade must be voluntary and mutually beneficial because it involves the exchange of goods and services between two parties. Voluntary trade means that both parties willingly participate in the transaction without any force or coercion. Mutually beneficial trade implies that both parties gain something of value from the exchange. If trade is not voluntary, it can lead to exploitation or unfair practices. Similarly, if trade is not mutually beneficial, one party may benefit at the expense of the other, leading to an imbalance in the relationship. Therefore, for trade to be successful and sustainable, it must be based on voluntary participation and mutual benefit.

The Law of Demand states that as the price of a good increases, the quantity demanded by consumers will decrease, assuming all other factors remain constant. This is because consumers tend to buy less of a good when it becomes more expensive, as they seek to maximize their utility and make more economical choices. The inverse relationship between price and quantity demanded is a fundamental concept in economics and helps explain market behavior and consumer decision-making.

The income effect refers to the change in consumer's purchasing power due to a change in their income. In this scenario, as prices rise, the consumer's fixed income remains the same. Therefore, they can afford to purchase less because their income does not increase proportionally to the increase in prices. This decrease in purchasing power is known as the income effect.

The list demonstrates various factors that can shift the demand curve. These factors include income, tastes, prices of related goods, number of buyers, and expected price/expectations. Shocks to demand refer to sudden and unexpected changes in any of these factors that can significantly impact the demand for a product or service.

Supply refers to the quantity of a good that is made available for sale at different prices, and is represented by a curve known as the supply curve. The supply curve shows the relationship between the price of a good and the quantity that producers are willing and able to supply at that price. As the price of a good increases, producers are typically motivated to supply more of it, resulting in an upward sloping supply curve. Conversely, as the price decreases, producers may reduce their supply. Therefore, the correct answer is Supply.

The answer "Law of Supply" suggests that there is a direct relationship between the price of a good and the quantity supplied. According to the law of supply, as the price of a good increases, producers are willing to supply more of that good to the market. This is because higher prices incentivize producers to allocate more resources and invest in production, resulting in an increase in the quantity supplied. Conversely, if the price of a good decreases, producers may reduce their supply as it becomes less profitable.

When the quantity supplied is equal to the quantity demanded at a given price, it indicates a state of equilibrium. In this situation, there is no excess supply or shortage of goods in the market. The quantity supplied perfectly matches the quantity demanded, resulting in a balance between the buyers and sellers. This equilibrium point is where the market clears, and there is no pressure for the price to change.

When there is excess supply, it means that the quantity of a product being supplied is more than the quantity demanded by consumers at the current market price. This surplus creates an imbalance in the market, as there are more goods available than there are buyers. In order to clear this surplus, sellers will have to lower their prices to attract more buyers. This downward pressure on price is a natural response to the excess supply and helps to restore equilibrium in the market.

Excess demand occurs when the quantity demanded by consumers is greater than the quantity supplied by producers at the current market price. This leads to a shortage, as there is not enough supply to meet the high demand. In such a situation, consumers compete for the limited supply, which creates upward pressure on prices. As a result, prices are likely to increase until the market reaches equilibrium, where supply and demand are balanced.

When the price of a product changes only slightly, but the quantity demanded or supplied changes significantly, it is referred to as elastic elasticity. This means that the demand or supply is highly responsive to changes in price. In other words, a small change in price leads to a proportionately larger change in quantity. This indicates that the market is sensitive to price fluctuations, and consumers or producers are highly influenced by price changes.

Supply elasticity refers to the responsiveness of the quantity supplied to a change in price. Time horizon is an example of supply elasticity because it influences how quickly producers can adjust their production levels in response to changes in price. In the short run, producers may not be able to easily change their production levels, resulting in low supply elasticity. However, in the long run, producers have more flexibility to adjust their production processes and inputs, leading to higher supply elasticity. Therefore, time horizon is an example of a factor that affects the elasticity of supply.

Consumer surplus refers to the additional value or benefit that consumers receive from a good or service above the price they paid for it. As the price of a good or service increases, the consumer surplus decreases because consumers are getting less value or benefit compared to the price they are paying. Therefore, when the price (P) increases, the consumer surplus (CS) falls. This is because consumers are willing to pay less for the good or service as the price increases, leading to a decrease in the surplus they receive.

The cost of producing one more unit of a good is known as the marginal cost. The supply curve represents the relationship between the quantity of a good that producers are willing to supply and the price of that good. As the quantity of production increases, the marginal cost also increases. This is because producing additional units may require additional resources or incur higher costs. Therefore, the correct answer for this question is "Marginal Cost."

Producer Surplus (PS) refers to the additional value or profit that producers receive above and beyond the cost of producing a good or service. When the price of a product increases, it allows producers to charge more for their goods, resulting in higher revenue and a larger producer surplus. This is because producers can now sell their products at a higher price, which exceeds their production costs, leading to a greater profit margin. Therefore, as the price increases, the producer surplus also rises.

The equation CS + PS represents the benefit to society of trade. CS stands for consumer surplus, which is the difference between what consumers are willing to pay for a good and what they actually pay. PS stands for producer surplus, which is the difference between the price at which producers are willing to sell a good and the price they actually receive. Adding these two together gives us the total surplus, which measures the overall benefit that society gains from engaging in trade.

A price floor is a minimum price set by the government that must be above the equilibrium price (P*) in order to have an effect. When a price floor is binding, it means that the market price is forced to be at or above the price floor. This results in an increase in producer surplus (PS) as producers are able to sell their goods at a higher price. However, it also leads to a decrease in consumer surplus (CS) as consumers have to pay a higher price for the goods. Overall, there is a decrease in total surplus (TS) because the decrease in CS outweighs the increase in PS.

Dead weight loss refers to the economic inefficiency that occurs when mutually beneficial trades cannot take place. It represents the loss of potential gains from trade that would have occurred if the market was perfectly competitive and free from any distortions. Dead weight loss is caused by factors such as taxes, subsidies, price controls, and monopolies, which create barriers to trade and prevent the market from reaching its optimal equilibrium. This results in a loss of surplus for both producers and consumers, leading to a decrease in overall economic welfare.

A price ceiling is a maximum price allowed by law, which must be below the equilibrium price (P*) to be binding. When a price ceiling is implemented, it results in increased consumer surplus (CS) because consumers are able to purchase goods at a lower price. However, it also leads to decreased producer surplus (PS) as producers are forced to sell their goods at a lower price. Overall, the total surplus (TS) in the market is decreased due to the negative impact on producers.

Transaction costs refer to the expenses incurred during the process of creating and enforcing contracts. These costs include legal fees, negotiation expenses, and any other costs associated with drafting and enforcing contractual agreements. Transaction costs are an important consideration in business and economics as they can impact the efficiency and effectiveness of contract enforcement. By understanding and minimizing transaction costs, businesses can streamline their operations and improve their overall profitability.

Public goods are goods that are non-rival and non-excludable. Non-rival means that one person's consumption of the good does not diminish the availability of the good for others. Non-excludable means that it is difficult or impossible to exclude someone from using the good once it is provided. Public goods are typically provided by the government because there is no incentive for private firms to produce them. Examples of public goods include national defense, street lighting, and public parks.

A free rider refers to an individual or entity that does not contribute financially or otherwise to the funding or production of a public good, yet still benefits from it. Free riders take advantage of the efforts and contributions of others, essentially getting a "free ride" on the benefits provided by the public good. This behavior is often seen as unfair and can lead to an inefficient allocation of resources, as the burden of funding the public good falls on a smaller group of contributors.

Property rights refer to the legal rights and privileges that an owner has over their property or resources. These rights allow the owner to use, control, transfer, or dispose of their property as they see fit. It includes the right to exclude others from using the property without permission. Property rights are essential for a functioning market economy as they provide incentives for individuals to invest in and improve their property, leading to economic growth and prosperity. Without property rights, there would be uncertainty and disputes over the use and ownership of resources, hindering economic development.

A price ceiling is binding when there is a shortage because it sets a maximum price that can be charged for a good or service. When this maximum price is set below the equilibrium price, it creates an excess demand for the product, leading to a shortage. This occurs because the quantity demanded exceeds the quantity supplied at the artificially low price. As a result, consumers are unable to purchase the desired quantity of the product, creating a shortage in the market.

A price floor is binding when there is a surplus because it sets a minimum price that must be paid for a good or service. If the price floor is set above the equilibrium price, it creates a surplus as the quantity supplied exceeds the quantity demanded at that higher price. This surplus occurs because producers are incentivized to supply more goods or services at the higher price, but consumers are less willing to purchase them. As a result, there is an excess supply in the market, leading to a surplus.

Tax incidence refers to the way in which the burden of a tax is distributed among the various participants in a market. It determines who ultimately bears the economic cost of the tax, whether it is the consumers, producers, or a combination of both. The tax incidence can vary depending on the elasticity of demand and supply in the market, as well as the ability of participants to shift the tax burden onto others.

A large change in price resulting in a small change in quantity is an example of inelastic elasticity. This means that the demand for the product is not very responsive to changes in price. Even if the price increases significantly, the quantity demanded does not decrease proportionally. Inelastic elasticity often occurs for essential goods or products with limited substitutes, where consumers are willing to pay higher prices regardless of changes in quantity.

The term for behaving rationally, where individuals make choices that maximize their happiness, is called rational self-interest. This concept suggests that individuals act in a way that benefits themselves the most, taking into consideration their own desires and preferences. By making choices that optimize their own well-being and satisfaction, individuals are believed to act in a rational manner.

Ceteris Paribus is a Latin term that means "all other things being equal." It is used in economics and other social sciences to analyze the impact of a single variable while assuming that all other factors remain constant. This concept allows researchers to isolate the effects of a specific factor and understand its influence on the outcome of a situation. By holding other variables constant, it becomes possible to study the relationship between cause and effect more accurately.

Equity refers to the concept of distributing economic prosperity fairly among members of society. It involves ensuring that everyone has equal opportunities and access to resources, regardless of their background or circumstances. This can be achieved through policies and practices that aim to reduce inequalities and promote social justice.

Scarcity refers to a situation where there is a limited availability of resources or ingredients required to produce the goods and services that people desire. When the available resources are not enough to satisfy all the wants and needs of individuals, it leads to scarcity. Scarce, on the other hand, is an adjective that describes something as being in limited supply or rare. Both terms are related to the concept of scarcity, but scarcity specifically refers to the overall situation of insufficient resources to meet demands.

Production refers to any activity that involves the transformation of resources into goods or services that can be used or consumed. It encompasses the process of creating, manufacturing, or providing products that satisfy the needs and wants of individuals or organizations. This can include activities such as manufacturing, farming, mining, construction, and services like healthcare or education. By converting resources into usable products, production plays a vital role in the economy and contributes to the overall growth and development of a society.

Entrepreneurship involves risk-taking and management, which are essential for earning profits. Entrepreneurs identify opportunities and take calculated risks to start and grow their businesses. They also manage resources, make strategic decisions, and adapt to changing market conditions to maximize profits. By combining their innovative ideas, leadership skills, and ability to manage risks, entrepreneurs create value and generate profits. Therefore, the answer "Entrepreneurship" accurately represents the concept of risk-taking and management leading to profit.

Opportunity cost refers to the highest valued alternative that is forgone or sacrificed when making a choice. It represents the benefits or profits that could have been gained from the next best option that was not chosen. In other words, opportunity cost is the cost of choosing one option over another, and it helps in evaluating the value of the chosen activity or decision.

Quantity demanded refers to the amount of a good or service that buyers are willing and able to purchase at a specific price during a given period. It represents the consumer's willingness to buy a product at a certain price point. The quantity demanded is influenced by factors such as price, income, preferences, and the availability of substitutes. As the price of a good decreases, the quantity demanded typically increases, following the law of demand. Conversely, as the price increases, the quantity demanded tends to decrease.

The term "demand" refers to the quantities that buyers are willing to purchase at all prices. It represents the relationship between the price of a product and the quantity demanded by consumers. The demand curve is a graphical representation of this relationship, showing the quantity demanded at different price levels. As the price decreases, the quantity demanded usually increases, and vice versa. Therefore, the correct answer is "Demand."

The substitution effect refers to the tendency of consumers to switch to alternative goods when the price of one good increases. When the price of a particular good rises, consumers find it less affordable and therefore seek out substitute goods that are relatively lower-priced. This behavior is driven by the desire to maintain a similar level of satisfaction or utility while spending less money. The substitution effect is an important concept in economics as it helps explain how changes in prices can affect consumer behavior and market demand.

Quantity supplied refers to the amount of a good that producers are willing and able to sell at a given price. It represents the supply side of the market, where producers determine how much of a product to supply based on the price they can receive for it. As the price increases, producers are generally willing to supply more of the good, leading to an increase in quantity supplied. Conversely, as the price decreases, producers may be less willing to supply the good, resulting in a decrease in quantity supplied.

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A self-fulfilling prophecy occurs when a prediction or belief about the future influences a person's behavior in a way that causes the prediction to become true. In other words, when individuals act based on the belief that something will happen, their actions unintentionally contribute to making that belief a reality. This can happen because people's behavior is influenced by their expectations, leading them to take actions that align with those expectations, ultimately shaping the outcome to match the initial prediction.