#1
Which of the following is a basic principle of economics?
Scarcity
ExplanationResources are limited relative to wants and needs.
#2
What does the law of demand state?
As price increases, demand decreases
ExplanationConsumers buy less of a good when its price rises.
#3
What is the primary focus of microeconomics?
Individual consumers and businesses
ExplanationStudy of small economic units such as individuals and firms.
#4
What is the concept of 'opportunity cost'?
The cost of forgoing the next best alternative
ExplanationValue of the best alternative forgone when a choice is made.
#5
What is elasticity of demand?
The measure of how much the quantity demanded of a good responds to a change in price
ExplanationSensitivity of quantity demanded to changes in price.
#6
What is a monopoly?
A market structure with only one seller of a particular product
ExplanationSingle seller dominating the market.
#7
What is a price ceiling?
A government-imposed maximum price that can be charged for a good or service
ExplanationLegal maximum price set below equilibrium.
#8
What is the formula for calculating price elasticity of demand?
Percentage change in quantity demanded divided by percentage change in price
ExplanationFormula to measure responsiveness of quantity demanded to price change.
#9
What is the difference between 'normal goods' and 'inferior goods'?
Demand for normal goods increases with income, while demand for inferior goods decreases with income
ExplanationNormal goods are consumed more as income increases, while inferior goods are consumed less.
#10
What is the difference between a change in quantity demanded and a change in demand?
A change in quantity demanded is caused by a change in price, while a change in demand is caused by a change in factors other than price
ExplanationChange in quantity demanded: movement along the demand curve; Change in demand: shift of the entire curve.
#11
What is the law of diminishing marginal utility?
As a consumer consumes more of a good, the additional satisfaction gained from each additional unit of the good decreases
ExplanationExtra satisfaction decreases as more of a good is consumed.
#12
What is perfect competition?
A market structure with many firms selling identical products and no barriers to entry or exit
ExplanationMany firms selling undifferentiated products with easy market entry and exit.
#13
What is a production possibility frontier?
A graph that shows the maximum combination of goods and services that can be produced given current resources and technology
ExplanationGraph representing the maximum output possibilities.
#14
What is the difference between explicit costs and implicit costs?
Explicit costs are the costs of using resources for which a payment is made, while implicit costs are the costs of using resources for which no payment is made
ExplanationExplicit: monetary payments; Implicit: opportunity costs.