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Understand basic economic concepts and apply them to business and policy decisions

60 important questions on Understand basic economic concepts and apply them to business and policy decisions

What a budget constraint shows?

A budget constraint shows the bundles of goods or service that a costumer can choose given her limited budget

What is the scientific methods?

The scientific methods is the name for the ongoing process that economists and other scientists use to 1. Develop models of the world and 2. Evaluate those models by testing the, with data

What a positive correlation implies?

A positive correlation implies that two variables tend to move in the same direction
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When a correlation does not imply causality?

When the variables have movements that are not related, we say that the variables have zero correlation

When a correlation does not imply causality?

1. Omitted variables
2. Reverse causality

What is an omitted variable?

An omitted variable is something that has been left out of a study that, if included, would explain why two variables that are in study are correlated

When occurs reverse causality?

Reverse causality occurs when we mix up the direction of cause and effect

What is a natural experiment?

A natural experiment is an empirical study in which some process has assigned subjects to control and treatment groups in a random or nearby random way

What a bar chart use?

A bar chart uses bars of different heights or lengths to indicate the properties of different groups

What a time series graph displays?

A time series graph displays data at different points of time

What's the principle of optimisation at the margin states?

The principle of optimisation at the margin states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off

Margin analysis has three steps:

1. Translate all cost and benefits into common units, like dollars per month
2. Calculate the marginal consequences of moving between alternatives
3. Apply the principle of optimisation at the margin by choosing the best alternative with the property that moving to it makes you better off and moving away from it makes you worse off

What's plots the demand curve?

The demande curve plots the quantity demanded at different prices. A demand curve plots the demand schedule

When two variables are negatively related?

Two variables are negatively related if the variables move in opposite directions

When the law of demand rise?

In almost all cases, the quantity demanded rises when the price falls

What is the willingness to pay?

The willingness to pay is the highest price that buyer is willing to pay for one xtra unit of a good

What is the market demand curve?

The market demand curve is the sum of the individual demand curves of all potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal

The demand curve shifts only...

The demand curve shift only when the quantity demanded changes at a given price

Movement along the demand curve

If a good's own price changes and its demand curve hasn't shifted, the own price change produces a movement along the demand curve

The shift for a inferior good (increase in income)

For an inferior good an increase in income shifts the demand curve to the left causing buyers to purchase less f the good

When two goods are substitutes?

Two goods are substitutes when a rise in the price of one leads to a rightward shift in the demand curve for the other

When two goods are complements?

Two goods are complements when a fall in the price of one leads to a rightward shift in the demand curve for the other

What is a supply schedule?

A supply schedule is a table that reports the quantity supplied at different prices, holding all else equal

What's the supply curve plots?

The supply curve plots the quantity supplied at different prices. A supply curve plots the supply schedule

When two variables are positively related?

Two variables are positively related if the variables move in the same direction

When the supply curve shift?

The supply curve shifts only when the quantity supplied changes at a given price

What's the competitive equilibrium quantity?

The competitive equilibrium quantity is the quantity that corresponds to the competitive equilibrium price

What's the competitive equilibrium price equates?

The competitive equilibrium price equates quantity supplied and quantity demanded

When a pecuniary externality occurs?

A pecuniary externality occurs when a market transaction affects other people only through market prices

What does it mean to internalize an externality?

When agents account for the full costs and benefits of their action, they are internalizing the externality.

What do free markets tend to do in the presence of negative and positive externalities?

1. When there are negative externalities present, free markets produce and consume too much.
2. When there are positive externalities present, free markets produce and consume too little.

What does a property right provide to an individual?

A property rights give someone ownership of a property or resources.

What does the Coase theorem states about the private bargaining?

The Coase theorem states that private bargaining will result in an efficient allocation of resources.

What are the transition costs?

The transaction costs are the cost of making an economic exchange.

What does command-and-control regulation do to influence production?

Command-and-control regulation either directly restricts the level of production or mandates the use of certain technologies.

What are the two main ways governments respond to externalities?

1. Command and control policies, in which the government directly regulates the allocation of resources.
2. Market-based policies, in which the government provides incentives for private allocation to internalize the externalities.

How does a market-based regulatory approach internalize externalities?

A market-based regulatory approach internalizes externalities by harnessing the power of market forces.

What is a Pigouvian or a corrective tax and what is its purpose?

A Piguovian tax or a corrective tax is a tax designed to induce agents who produce negative externalities to reduce quantity towards the socially optimal level.

What are corrective or Pigouvian subsidies and what is their purpose?

Corrective subsidies or Pigouvian subsidies are designed to introduce agents who produce positive externalities to increase quantity towards the socially optimal level.

When a budget deficit occurs?

A budget deficit occurs when tax revenues do not cover government spending.

When a budget surplus occurs?

A budget surplus occurs when tax revenues exceed government spending.

What are tax revenues or receipts?

Tax revenues, or receipts, are the money a government collects through a tax.


what is a payroll tax?

A payroll tax is a tax on the wage of workers.

What are the corporate income taxes?

The corporate income taxes are taxes paid by firms to the governments from their profits.

What are excise taxes?

Excise taxes are taxes paid when purchasing a specific good.

What are sales taxes and who pays them?

Sales taxes are paid by a buyer as a percentage of the sale price of an item.

What are the main types of federal tax receipts and their approximate shares?

1. Individual income taxes: largest portions
2. Payroll taxes (FICA): about a third of federal receipts
3. Corporate income taxes: about 10%
4.Other taxes (like excise, alcohol, tobacco, gasoline): about 9%

What are the four main factors that influence government taxation and spending decisions?

1. Raising revenues
2. Redistributing funds via transfer payments
3. Financing operations
4. Correcting market failures and externalities

When a transfer payment occurs?

A transfer payment occurs when the government gives part of its tax revenue to some individual or group.

What is a progressive tax system?

A progressive tax system involves higher tax rates on those earnings, higher incomes.

How is the average tax rate for a household calculated?

The average tax rate for a household is given by total taxes paid divided by total income.

What does the marginal tax rate refers to?

The marginal tax rate refers to how much of the last dollar earned is paid out in tax.

What is a proportional tax system?

In a proportional tax system, households pay the same percentage of their incomes in taxes regardless of their income level.


What is a regressive tax system?

A regressive tax system involves lower tax rates on those earning higher incomes.

What does tax incidence refers to?

Tax incidence refers to how the burden of taxation is distributed.

What is direct (command-and-control) regulation?

Direct regulation (command-and-control regulation) refers to direct actions by the government to control the amount of a certain activity.

What is price ceiling?

A price ceiling is a cap or maximum price on a market good.

What is a price floor?

A price floor is a lower limit below which the price cannot fall on the price of a market good.

What the equity-efficiency trade-off refers to?

The equity-efficiency trade-off refers to the balance between ensuring an equitable allocation of resources (equity) and increasing social surplus or total output (efficiency).

What is the consumer sovereignty?

Consumer sovereignty is the view that choices made by a consumer reflect his or her true preferences, and outsiders, including the government, should not interfere with these choices.

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economics and business

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