Microeconomics
Is gasoline an elastic or inelastic good?
Inelastic (People need it for transportation so they buy it even if the price rises)
What are the two types of price controls?
Price ceilings & price floors
True/False: The smartphone industry is considered an oligopoly
True
What does behavioral economics mainly challenge about traditional economic theory?
It challenges the assumption that people are always rational, showing decisions are influenced by psychological and emotional factors.
What does GDP stand for?
Gross Domestic Product
What measures how much the quantity demanded of a product changes when its price changes?
Price Elasticity of Demand (PED)
Price _____ are used by countries with high inflation, such as Venezuela, which has imposed price controls on essential consumer goods like food, medicine, and toilet paper.
The _____ matrix refers to a table that contains the options that are available to players of a game
Payoff
What cognitive bias explains why people prefer “80% fat-free” over “20% fat,” even though both describe the same product?
The framing effect, where choices depend on how information is presented rather than on the facts themselves.
What is the law of supply?
As the price of a good increases, the quantity supplied increases.
Value is driven by relative ______ and the additional _____ a good provides
scarcity, satisfaction
An _____ refers to when the production or consumption of a specific good or service impacts a third party that is not directly related to the production or consumption of that good or service
What is the strategy that always provides the best outcome for a player, no matter what the other players do?
Dominant strategy
Why are consumers more likely to respond to a 10-cent charge for plastic bags than a 10-cent discount for bringing their own bag?
Because of loss aversion—people feel the pain of a loss more strongly than the pleasure of an equivalent gain.
The economy of the Weimar Republic in Germany (1921) is an example of _______
What is known as the satisfaction or happiness people get from consuming a good or service?
Utility
What government intervention increases consumption of goods with positive externalities by lowering costs?
Subsidies
In an ______, a few firms dominate the market, creating ________ where each firm's decisions affect the others
Oligopoly, interdependence
What behavioral bias causes people to overestimate the danger of flying after hearing about a plane crash, despite statistics showing air travel is safe?
Availability bias, where people judge risk based on how easily examples come to mind.
What is "crowding out" in economics?
When increased government spending leads to a reduction in private sector investment
Describe the Law of Diminishing Marginal Utility in one sentence
As consumption of a good increases, the additional satisfaction (marginal utility) derived from each unit decreases
Describe the Tragedy of the Commons in one sentence
The idea that common goods that everyone has access to are often misused and exploited
Describe what collusion is in one sentence
Firms work together to set prices and limit competition, often leading to higher profits
Turning subway stairs into a piano increased their use without restricting choice. What behavioral economics concept does this illustrate, and why?
Nudge theory—it alters behavior by changing the choice environment while preserving freedom of choice.
What is "stagflation"?
A situation where the economy experiences high inflation and high unemployment simultaneously