ETS Business Major Exit Exam
What is scarcity and choice? - ANS-- Human wants and needs are unlimited and resources to
satisfy them are limited
- Choices must be made between the possible alternatives
3 questions every economy must answer: - ANS-1. What to produce?
2. How to produce it?
3. For whom it is produced?
3 questions every economy must answer: What to produce? - ANS-Have to evaluate more than
just needs. Involves the wants and needs of individuals.
3 questions every economy must answer: How to produce it? - ANS-Center upon the methods
and resources (land, labor, capital, enterprise) used in the production process. Optimum way to
achieve the desired output utilizing these methods and resources.
3 questions every economy must answer: For whom it is produced for? - ANS-Issue of the
distribution of the output resulting from the application of the production methods and resources.
Market Imperfections/Market Failure occurs when ______. - ANS-Market equilibrium results in
too many or too few resources being used in the production of a good or service
- This can be caused by lack of competition, externalities, public goods
Market Imperfections: Lack of competition is bad because you ______. - ANS-Must have
competition among both producers and consumers for markets to function effectively
Market Imperfections: Externalities occurs when ______. - ANS-A cost or benefit is imposed on
people other than the consumers and producers of a product
- Ex. pollution from manufacturing negatively affects the community rather than either the buyer
or seller
Market Imperfections: What are Public Goods? - ANS-Goods that are collectively consumed by
everyone and there is no way to bar people who do not pay from consumption
- Ex. National defense
What is the Law of Demand? - ANS-An inverse relationship between the price of a good and
that quantity buyers are willing to purchase in a defined time period
What is the primary determinant of the quality demanded? - ANS-The price of the good -
changes in the price of a good result in movement of the equilibrium point along the demand
line
,What are the changes in demand? - ANS-Increase - (rightward shift) high equilibrium price and
quantity
Decrease - (leftward shift) lower equilibrium price and quantity
Law of Supply states that ______. - ANS-More of a particular good will be supplied as the price
of that good rises, while less will be purchased as its price declines
What are Non-Price Determinants? - ANS-Any factor other than price that will cause a demand
or a supply curve to shift right or left
Examples of factors:
- Number of sellers in a market
-Increases in technology that make suppliers more efficient
- Prices of raw materials
- Taxes of subsidies which increase or decrease the price of a product
- Changes in the expectations of producers
- Prices of other good the firm could produce
What happens when there is an increase in supply? - ANS-There is a rightward shift, and it
results in a lower equilibrium price and a higher equilibrium quantity
What happens when there is a decrease in supply? - ANS-There is a leftward shift, and it results
in a higher equilibrium price and a lower equilibrium quantity
When happens when there is an equal increase in supply and demand? - ANS-There is a
rightward shift, and an increase in equilibrium quantity and no change in equilibrium price
What happens when supply increases more than demand? - ANS-There is a rightward shift, and
lower equilibrium price and greater equilibrium quantity
What happens when demand increases more than supply? - ANS-There is a rightward shift, and
high price and greater equilibrium quantity
What happens when there is an equal decrease in supply and demand? - ANS-There is a
leftward shift, and a decrease in equilibrium quantity with no change in equilibrium price
What happens when supply decreases more than demand? - ANS-There is a leftward shift, and
higher equilibrium price and lower equilibrium quantity
What happens when demand decreases more than supply? - ANS-There is a leftward shift, and
a lower price and a lower equilibrium quantity
, Shortage (Supply and Demand) occurs when ______. - ANS-A price is established below the
equilibrium price and demand exceeds supply
- Can be fixed when the price is free to move
- The increase in price will slowly reduce the quantity demanded and increase the quantity
supplied
- Neither the supply or demand curves will move
Surplus (Supply and Demand) occurs when ______. - ANS-A price is established above the
equilibrium price and supply exceeds demand
- Can be fixed if the price is able to move
- The decrease in price will slowly increase the quantity demanded and decrease the quantity
supplied
- Neither supply or demand curves will move
What is a Price Ceiling (Supply and Demand)? - ANS-A price set below the equilibrium price
and results in a shortage with quantity demanded exceeding quantity supplied.
What is a Price Floor (Supply and Demand)? - ANS-A price set above the equilibrium price and
results in a surplus with quantity supplied exceeding quantity demanded.
Price Elasticity of Demand is the relationship between ______. - ANS-The changes in the price
of a product and the resulting changes in demand of that product
Elastic demand occurs when ______. - ANS-The percentage change in quantity demanded is
greater than the percentage change in price. Ex. commodity products
Inelastic demand occurs when ______. - ANS-The percentage change in quantity demanded is
less than the percentage change in price. Ex. health care
Income Elasticity of Demand is ______. - ANS-The ratio of the percentage change in the
quantity demanded to a given percentage change in income
Demand:Income
Cross-Price Elasticity of Demand is ______. - ANS-The ratio of the percentage change in the
quantity demanded of a good to a given percentage change in the price of another good
Demand: Price of other good
Price Elasticity of Supply is ______. - ANS-The ratio of the percentage change in the quantity
supplied of a product to the percentage change in its price
What is scarcity and choice? - ANS-- Human wants and needs are unlimited and resources to
satisfy them are limited
- Choices must be made between the possible alternatives
3 questions every economy must answer: - ANS-1. What to produce?
2. How to produce it?
3. For whom it is produced?
3 questions every economy must answer: What to produce? - ANS-Have to evaluate more than
just needs. Involves the wants and needs of individuals.
3 questions every economy must answer: How to produce it? - ANS-Center upon the methods
and resources (land, labor, capital, enterprise) used in the production process. Optimum way to
achieve the desired output utilizing these methods and resources.
3 questions every economy must answer: For whom it is produced for? - ANS-Issue of the
distribution of the output resulting from the application of the production methods and resources.
Market Imperfections/Market Failure occurs when ______. - ANS-Market equilibrium results in
too many or too few resources being used in the production of a good or service
- This can be caused by lack of competition, externalities, public goods
Market Imperfections: Lack of competition is bad because you ______. - ANS-Must have
competition among both producers and consumers for markets to function effectively
Market Imperfections: Externalities occurs when ______. - ANS-A cost or benefit is imposed on
people other than the consumers and producers of a product
- Ex. pollution from manufacturing negatively affects the community rather than either the buyer
or seller
Market Imperfections: What are Public Goods? - ANS-Goods that are collectively consumed by
everyone and there is no way to bar people who do not pay from consumption
- Ex. National defense
What is the Law of Demand? - ANS-An inverse relationship between the price of a good and
that quantity buyers are willing to purchase in a defined time period
What is the primary determinant of the quality demanded? - ANS-The price of the good -
changes in the price of a good result in movement of the equilibrium point along the demand
line
,What are the changes in demand? - ANS-Increase - (rightward shift) high equilibrium price and
quantity
Decrease - (leftward shift) lower equilibrium price and quantity
Law of Supply states that ______. - ANS-More of a particular good will be supplied as the price
of that good rises, while less will be purchased as its price declines
What are Non-Price Determinants? - ANS-Any factor other than price that will cause a demand
or a supply curve to shift right or left
Examples of factors:
- Number of sellers in a market
-Increases in technology that make suppliers more efficient
- Prices of raw materials
- Taxes of subsidies which increase or decrease the price of a product
- Changes in the expectations of producers
- Prices of other good the firm could produce
What happens when there is an increase in supply? - ANS-There is a rightward shift, and it
results in a lower equilibrium price and a higher equilibrium quantity
What happens when there is a decrease in supply? - ANS-There is a leftward shift, and it results
in a higher equilibrium price and a lower equilibrium quantity
When happens when there is an equal increase in supply and demand? - ANS-There is a
rightward shift, and an increase in equilibrium quantity and no change in equilibrium price
What happens when supply increases more than demand? - ANS-There is a rightward shift, and
lower equilibrium price and greater equilibrium quantity
What happens when demand increases more than supply? - ANS-There is a rightward shift, and
high price and greater equilibrium quantity
What happens when there is an equal decrease in supply and demand? - ANS-There is a
leftward shift, and a decrease in equilibrium quantity with no change in equilibrium price
What happens when supply decreases more than demand? - ANS-There is a leftward shift, and
higher equilibrium price and lower equilibrium quantity
What happens when demand decreases more than supply? - ANS-There is a leftward shift, and
a lower price and a lower equilibrium quantity
, Shortage (Supply and Demand) occurs when ______. - ANS-A price is established below the
equilibrium price and demand exceeds supply
- Can be fixed when the price is free to move
- The increase in price will slowly reduce the quantity demanded and increase the quantity
supplied
- Neither the supply or demand curves will move
Surplus (Supply and Demand) occurs when ______. - ANS-A price is established above the
equilibrium price and supply exceeds demand
- Can be fixed if the price is able to move
- The decrease in price will slowly increase the quantity demanded and decrease the quantity
supplied
- Neither supply or demand curves will move
What is a Price Ceiling (Supply and Demand)? - ANS-A price set below the equilibrium price
and results in a shortage with quantity demanded exceeding quantity supplied.
What is a Price Floor (Supply and Demand)? - ANS-A price set above the equilibrium price and
results in a surplus with quantity supplied exceeding quantity demanded.
Price Elasticity of Demand is the relationship between ______. - ANS-The changes in the price
of a product and the resulting changes in demand of that product
Elastic demand occurs when ______. - ANS-The percentage change in quantity demanded is
greater than the percentage change in price. Ex. commodity products
Inelastic demand occurs when ______. - ANS-The percentage change in quantity demanded is
less than the percentage change in price. Ex. health care
Income Elasticity of Demand is ______. - ANS-The ratio of the percentage change in the
quantity demanded to a given percentage change in income
Demand:Income
Cross-Price Elasticity of Demand is ______. - ANS-The ratio of the percentage change in the
quantity demanded of a good to a given percentage change in the price of another good
Demand: Price of other good
Price Elasticity of Supply is ______. - ANS-The ratio of the percentage change in the quantity
supplied of a product to the percentage change in its price
