Exam (elaborations)
Econ 1B03 - midterm 1 questions and answers
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Econ 1B03: Midterm 1 questions and answers
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1-44 of 44What is a Market Economy?
An economy where the three main questions are determined by
individuals and businesses that operate for a profit. The government does
no try to influence the market outcome
,What are capital markets?
refers to markets where firms raise money for investment by selling debt
(borrowing) or selling equities (claims to ownership), as well as the markets
where these debt and equity claims are subsequently traded
What are the advantages of a Market Economy?
1. Resources are allocated efficiently with respect to production
2. It fosters innovation
3. People are free to choose and the government does not have to
choose for them
What is allocative efficiency?
A society's resources are used to produce a mix of goods and services that
consumers actually want to buy
What is opportunity cost?
, by increasing production of one good, we give up the opportunity to
produce another. The loss we get is the opportunity cost
What are the three perspectives of economic behaviour?
Consumer, manager, government policymakers
What is comparative advantage?
the ability to produce a good at a lower opportunity cost than another
producer
What is the law of demand?
there is an inverse relationship between price and quantity demanded. as
price increases quantity demanded decreases and the other way around
What is diminishing returns?
, the more resources devoted to an activity, the less productive additional
resources become. The presence of this means our PPF will be bowed
rather than linear
What is a Centrally Planned Economy?
An economy where the government decides what is produced and directs
resources to meet those targets. They may decide how it is distributed to
consumers
What are the Three Main Economic Questions?
1. What goods and services will be produced
2. How will the goods and services be produced
3. Who will receive the goods and services produced
What causes a demand curve to shift inward?
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