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Eco 101 Principles of Microeconomics Intro to Econ Supply & Demand Elasticity Market Failure 100 100 100 100 200 200 200 200 300 300 300 300 400 400 400 400 500 500 500 500 What is scarcity? With limited resources and unlimited wants, this is the central economic problem. Row 1, Col 1 What is the law of demand? This law tells us that price is inversely related to quantity, holding all else constant. 1,2 What is be < 0? Since the demand curve always slopes down, we expect elasticity to have this property. 1,3 What is a negative externality or external cost? Pollution is a prime example of this type of market failure. 1,4 What is opportunity cost? This refers to the next best option not chosen. 2,1 What are inferiors goods? An increase in income will actually decrease the demand for these types of goods. 2,2 What is a DECLINE of 50%? When demand elasticity is -5, and 10% price increase causes this change in quantity demanded. 2,3 What is nonexclusivity? A good has this property when you cannot prevent non-payers from consuming it. 2,4 What is concave? The production possibilities curve takes this shape due to resources being unequally suiting to different uses. 3,1 What are complements? Peanut butter and jelly are prime examples of these types of goods. 3,2 What is lack of substitutes? or What is it’s a necessity? We expect gasoline demand to be inelastic for this reason. 3,3 What is the free rider problem? This problem occurs with public goods when people attempt to enjoy the benefits of such goods without paying for them. 3,4 What is a normative statement? “Taxes are too high,” is an example of this type of statement. 4,1 What is shift right? When the price of Coke rises, we expect the demand for Pepsi to do this. 4,2 What is a vertical line? A perfectly inelastic supply curve takes this shape. 4,3 What is underproduction of the good or service? Positive externalities are a market failure that results in this. 4,4 What is land? This factor of production refers to all types of natural resources. 5,1 What is quantity? With an increase in both supply and demand, we know this must increase in equilibrium. 5,2 What is inelastic? When a good is not easily stored, its supply has this characteristic. 5,3 What is nonexclusivity and nonrivalry? Flood control is considered a public good, because it has these two properties. 5,4