Basic Terms
What is the term that describes the difference between unlimited wants and limited resources?
scarcity
What type of tax structure establishes the same tax rate for all incomes?
flat tax
What type of market failure describes pollution?
negative externality
According to the law of demand, what happens to quantity demanded when price rises?
Demand decreases
What term describes the general rise in prices?
inflation
What are the three factors of production?
land, labor, and capital
What type of tax structure does the United States have?
progressive
What situationd describes the depletion of common resources?
Tradegy of the Commons
According to the law of supply, what happens to quantity supplied when price rises?
quantity supplied rises
What is the name of the nation's central bank? It can raise or lower interest rates, dictate the reserve requirement and buy or sell bonds.
Federal Reserve
What is the term that describes the most preferred possible alternative?
opportunity cost
What term describes the ability to produce more with the same resources?
absolute advantage
What type of market structure has many producers, differentiated products and few barriers to entry?
The shoe industry would be an example.
monopolistic competition
Imagine a technological innovation reduces the cost of producing high-quality steel. What happens to the supply of steel?
the supply of steel increases
What economic school of thought promotes cutting taxes and raising government spending during economic downturns?
Keynesian economics
When economizing, what do you do?
Weigh the difference between costs and benefits
What economic policy do quotas, tariffs and embargoes fall under?
protectionism
What type of market structures has few producers, similiar products and high barriers to entry?
The airline and auto industry are examples.
Oligopoly
What term describes supply and demand when perfectly balanced?
equilibrium price
According to Monetarism, what causes recessions?
changes in money supply
What economic viewpoint is based on facts and relies on the objective view of economic phenomena?
positive economics
What does it mean to say that David has comparative advantage over Will for weeding people's gardens?
David's opportunity cost is lower than Will's
What two characteristics do all public goods have in common?
nonexcludable and nonrival
What term describes the responsiveness of a price change?
elasticity
What are the four components of GDP?
Household Consumption, Business Investment, Government Spending, and Net Exports