Economics chp 1,2,3,4
how to get opportunity cost
= explicit cost + implicit cost
you observe the price of good rises and the quantity sold decreases. this is the result of a. decrease in demand b. increase in supply c. a decrease in supply d. increase in demand
increase price =decrease quanity.... c. a decrease in supply
good weather in central and south America increases the supply of coffee beans by 25%. this can be expected to cause ___ in the price of coffee due to a shift of the __curve. a. decrease, demand b. decrease, supply c. increase, supply d increase, demand
increase supply=decrease price=supply model b. decrease, supply
Which point is inefficient?
inside the ppf
what is A normative statement
is one that offers an opinion as to the way the world should be.
what is A positive statement
is one that seeks to describe the world as it is.
Macroeconomics
is the study of factors that affect the entire economy. Therefore, macroeconomists tend to create models to analyze how aggregate phenomena such as growth, inflation, and unemployment respond to policy decisions of governments and central banks, changes in aggregate spending or savings, and supply or demand shocks ex: )The government's decision on how much to spend on public projects ex2)The optimal interest rate for the Federal Reserve to target
Microeconomics is the study of
is the study of how prices and quantities are determined through interactions between buyers and sellers (individuals and firms) in individual markets. Therefore, microeconomists are more likely to create models to analyze the decisions of firms (such as pricing) and those of consumers (such as shopping choices), as well as how government policies affect those decisions ex: The effect of government regulation on a monopolist's production decisions
In what ways is the Circular flow diagram a simplification of reality? Identify at least two simplifying assumptions.
it doesn't include gov't roles & international trade
From the textbook: In 2014 the average American had an income of about $55,000 per year; the average Mexican earned about $17,000; the average Chinese earned about $13,000; and the average Nigerian earned about $6,000 per year. What explains these large differences in living standards?
it relates to the countries' productivity, where workers can produce a large quantity of goods and services per hour, most people enjoy a high standard of living
suppose people believe the price of gas will increase next week. this is most likely to cause a. next week's demand for gas to incr4ease b. todays demand in gas increase c. todays supply in gas increased d. today's demand for gas to increase
today's demand for gas to increase.
Normative/ positive? Doctors should encourage women aged 60 to 69 to be screened for breast cancer.
normative
Normative/ positive? The government should force doctors to encourage women aged 60 to 69 to be screened for breast cancer.
normative
All Americans should earn more than $25,000 per year. Normative/ positive?
normative norm has an opinion
The minimum wage should be raised to $15 per hour.Normative/ positive?
normative norm has an opinion
total cost definition
total amount spent for all hours of advertisement
what's the equation of net benefit
total benefit-total cost (similar to rev-expense=net income)
A hurricane hit Florida and destroyed half of the orange crop. we can expect the price of oranges in the upcoming year to increase due to a shift in the supply curve. t/f
true
Coal and natural gas are substitutes. If the price of natural gas falls, then the demand for coal will fall.
true
Economics is best defined as the study of how society manages its scarce resources. t/f
true
In economics there are positive statements and normative statements. The following is an example of a normative statement: "Students should be able to attend community college for free, just like public school (K - 12) is free." t/f
true
if the quantity demanded is greater than quantity supplied than the current market price is too low t/f
true
Which points are not feasible in the Production possibilities frontier and why
outside the ppf) non-feasible on the line) feasible, efficient outside the line) feasible, non-efficient
What is the purpose of the Circular flow diagram
to show relationship and flow of how money, goods, services play a role in the economy
what's the difference between marginal benefit and marginal cost?
(Marginal benefit) additional benefit (marginal costs) additional costs
What are the 3 part of Society
-individuals -firms(1+ provide good/services) -gov't
When the store hires two workers, they are able to serve 16 customers per hour. When the store hires three workers they are able to serve 24 customers per hour. Each customer spends an average of $2 in the store. What is the marginal benefit of hiring the third worker? Enter a whole number, with no dollar sign.
1 person= 8 cust/hr 2 people=16cust/hr ($32) 3 people=24 cust/hr ($48) from $32 --> $48, we've made a profit of $16 16
cell phone plans -John pays $60/month + unlimited texting -Jane pays $35/month + 10c/texts 1) What is John's marginal cost of sending a text? 2) What is Jane's marginal cost of sending a text?
1) $0-he has unlimited, probably will send the most texts. He has a higher marginal benefit because he bought unlimited unlike Jane 2) 10c/text
what are the 4 factors that cause a shift in the supply curve? and explain each in detail
1) cost pf production [increase in cost of production=costly for production= increase Prices=shifts left] ex) for a paper comp, prices of labor increases =it is too costly so they have to charge more on the stacks of paper, shifting the supply curve to the left 2) # of sellers increase comp that produces paper= increase supply 3) future expectations ex) expects winter to come soon = increase in Qs for winter clothes ex) after the holiday, stores expects consumer won't be buying holiday goods, so they lowered the price to rid of supply 4)technology increase technology = increase supply
in the law of demand, What are the 5 factors that leads to the shift in Demand Quantity, and give details about each?
1) income -normal goods [increase Income=increase QD in clothes] [decrease income=decrease QD in clothes] -inferior goods [increase income=decrease in the non-prefer brands & an increase in the prefer brands] [decrease income=decrease QD gas, increase QD for buses] 2) #of buyers increase in # of buyers=increase in QD and vice-versa 3) taste preferences [you heard people saying fish is bad for you so you buy less fish (decrease QD)] 4)expectations (things that might happen in the future) [expects gas prices to go up=increase QD now & buy more now] 5) change in Prices of related goods -complements [price of pb Increases = decrease in DQ of jelly] -substitutes [increase price of PB but the price of nutella is cheaper so = increase DQ of nutella)
1) what is Scarcity 2) What is scarce?
1) limited nature of society's resources 2) land, water, fossil fuels, minerals
T/F 1. all else the same, when the demand for a good or service rises, then equilibrium price will tend to also rise 2. when the supply of a good/services rises, then equilibrium price will also tend to rise
1. increase DEMAND= increase PRICE.. true we are asking about if demand increase -> to ___ in price -we are not asking about if change in price leads to __ in demand (law of demand) 2. increase supply =decrease price ... false
When a firm produces an additional unit of output the total benefit increases from $1,000 to $1,200 and the total cost rises from $700 to $880. The marginal benefit of producing this unit is $____ and the marginal cost of producing this unit is $___ . Enter whole numbers.
200 =(1200-1000) 180= (880-700)
For each of the given changes, indicate whether there is an increase in demand (shift to the right), a decrease in demand (shift to the left), or a movement along the demand curve. Assume we are talking about the market for coffee, a normal good. Buyers experience a 5% increase in income the price of coffee increases the price of a substitute good increases a greater percentage of the population prefers to drink coffee people expect coffee prices to fall next week there has been a decrease in the number of buyers
Buyers experience a 5% increase in income (increased D) the price of coffee increases (downward MOVEMENT ALONG D) the price of a substitute good increases (INCREASE IN D) a greater percentage of the population prefers to drink coffee (INCREASE IN D) people expect coffee prices to fall next week (DECREASE IN D) there has been a decrease in the number of buyers (DECREASE IN D)
On Friday night you could go to work and earn $40. Alternatively, you could go to the movies and this will cost you $20. What is the opportunity cost of attending the movies?
Explicit cost = $20 + Implicit cost = $40 --------------------- opportunity cost =$60
When the store hires two workers, they are able to serve 16 customers per hour. When the store hires three workers they are able to serve 30 customers per hour. Each customer spends an average of $4 in the store. What is the marginal benefit of hiring the third worker? Enter a whole number, with no dollar sign.
FROM PROBLEM: 2 worker) 16 customers/hr 3workers) 30 customers/hr each spends $4 ------------------------------------ a) 16*4=64 30*4=120 b)120-64= 56 answer: 56
if supply and demand both increase then equilibrium price will also increase. t/f
If both demand and supply increase, there will be an increase in the equilibrium output, but the effect on price cannot be determined. FALSE
what is the opportunity cost of attending college for two semesters?
Implicit: time, energy, loss of income Explicit: tuition, books and materials (not room, food, transportation bc you'll still pay for these even when you're not in school)
what does opportunity cost includes? and explain each
It's a combination of explicit cost and implicit cost *Explicit cost: (monetary cost) ex: person pays for coffee, pay wages *Implicit cost: (something you give up but don't explicitly pay for) ex: wait in line for 30 mins
The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises
Law of Supply
The amount of a good that sellers are willing and able to supply at a given price
Quantity Supplied
When a firm produces one more unit of output the total revenue increases from $832 to $956, and the total cost increases from $507 to $725. When this last unit of output was produced, what was the change in profit? Enter a whole number with no dollar sign. Enter a negative sign if appropriate.
Rev | Cost 1) 832 | 507 2) 956 | 725 ---------------------------- +124 | +218 Rev- cost 124-218 = -94 ans: -94
A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices. the lowest price for which sellers can profitably sell another unit of the good.
Supply Curve
A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices
Supply Schedule
Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods. T/F
T
a) In 1 hour alpha can produce 4 shirts or 12 bushels of corn. Hence if alpha uses 2 million hours each on production of corn and shirts then it can produce 4*2 million = 8 million shirts and 12*2 million = 24 million bushels of corn b) In 1 hour Beta can produce 2 shirts or 10 bushels of corn. Hence if Beta uses 2 million hours each on production of corn and shirts then it can produce 2*2 million = 4 million shirts and 10*2 million = 20 million bushels of corn c) Hence, Together they will produce 12 million shirts and 44 million bushels of corn
Two countries produce two goods and they each have 4 million hours of labor. Consider the table that shows the quantity produced per labor hour. If each country allocates 2 million hours of labor to each good then in total the two countries can together produce __ million shirts and ___ million brushels of corn.
define constant opportunity cost
Whatever must be given up to obtain some item but for everyone
for the supply curve, a) manufacturers told you that they can no longer produce the goods X, how does this affect the supply curve model? b) good news! they can now produce goods X in large amounts, how does this affect the supply curve model?
a) decrease in QS, shifts left b) increase in QS, shifts right
In the law of demand, a) when the price increases, what happens to the demanded quantity? b) when the price decreases, what happens to the demanded quantity? c) where do we move when prices change?
a) increase in Price= decrease in Quantity Demanded b) decrease price= increase in Quantity Demanded c) we move along the curve when changes in price
In the law of demand, a) if the price is the same but we need more rice, where does the graph shifts? b) if the price is the same but we need less rice, where does the graph shifts?
a) the quantity demanded shifts to the right b) the quantity demanded shifts to the left
for the supply curve, what will happen if there's an increase in cost of production? where does it move in the graph?
a) they will have to charge a higher price & will have to decrease QS maybe because they can no longer have the cost to produce it b) the supply curve will shift to the left ex: gold is rare, the supply for gold is limited and the prices are high
each point on the supply curve represents a. the lowest price for which sellers can profitably sell another unit of the good. b. the highest price buyers will pay for another unit of the good. c. the lowest price buyers will pay for another unit of the good. d. the highest price sellers can get from selling another unit of the good.
a. the lowest price for which sellers can profitably sell another unit of the good.
which of the following would cause an increase in the equilibrium price of a good? a.fewer firms are producing this good b. techn advance has increased labor productivity c. a new study claims consumptions of this good is bad for your health d. the cost of a key input used to produce this good has fallen
a.fewer firms are producing this good [tech increase = supply increase = decrease price] [increase COP= increase Price]
solve this problem
answer: As we can see PPF is a straight line and using straight line equation we get the following equation of PPF C = -(14/350)(W - 350) where C and W are in millions If C = 6 then W - 350 = -350*6/14 = -150 => W = 200 Hence They will able to produce 200 million bushels of wheat Suppose Country specialize in wheat then According to above PPF It will produce 350 million bushels of wheat and it has traded 100 million for 8 million Cars, Hence amount of wheat left = 350 million - 100 million = 250 million. Hence It will able to consume 250 million bushels of Wheat
for the supply curve, how does an increase in price alters the chart
increase in price, move along the supply curve (upward)
assume apples and oranges are substitutes for consumers. A winter freeze destroys half the orange crop. in the market for apples, we can expect a. increase in the supply of apple b. increase in the demand for apples c. a decrease in the supply of apples d. a decrease in the demand for apples
b. increase in the demand for apples
an increase in the demand for a good can be expected to cause ___ in the equilibrium price of the good and ___ in the equilibrium quantity of the goods bought and sold, all else is the same a. increase, decrease b. increase, increase c. decrease, decrease d. decrease, increase
b. increase, increase
Suppose you pay $40 per month for access to unlimited movie streaming. You typically watch 10 movies per month. What is the opportunity cost of watching a movie tonight? a) Group of answer choices$4, or the average cost of watching a movie b)both of these choices are correct c) the value of the time it will take to watch the movie
both
an increase in supply is represented by a. leftward shift of the supply curve b. a downward movement along the supply curve c. a rightward shift of the supply curve d. an upward movement along the supply curve
c. a rightward shift of the supply curve
the four variables below affect the amount of goods people choose to buy. Changes in all of these variables cause the demand curve to shift except. a. a change in the consumer income b. a change in consumer preferences c. a change in the price of the good d. changes in the prices of related goods
c. change in the price of the good
suppose the quantity demanded of a good is smaller than the quantity supplied of a good. we can expect: a. the supply of the good to increase b. the demand for the good to decrease c. the price of the good to decrease d. the price of the good to increase
c. the price of the good to decrease people demand less than what is supplied, comp needs to lowered the price
explains how people in the economy interact with each other is the _____
circular flow diagram
which of the following shifts the supply curve rightward a. the decrease in the price of the good b. a change in consumer preferences for the good c. increase in the population d decrease in the price of materials used to produce the good
d. decrease in the price of materials used to produce the good
during a recession in the economy firms lay off workers and the unemployment rate rises. During these times we can expect the demand for normal goods to __ and the demand for inferior goods to ___
decrease income = decrease NG , increase INFERIOR G
a decline in the price of good A causes the demand curve for good B to shift to the left. we can conclude goods A & B are: a.complement b.normal goods c.inferior goods d. substitutes
decrease price in A= decrease demand in B substitutes
A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices
demand curve
A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices
demand schedule
In deciding how to spend an hour of his time, John has identified four activities he can choose from. The opportunity cost of choosing activity A is defined as the benefit he would have received from all of the other activities.
false The opportunity cost refers to the cost pertaining to the next best alternative that is foregone. In the given case, John has four activities to choose from. This means he will get individual benefit from each of the activity. If he chooses activity A then he must be forgoing activity B, C, and D. So, The opportunity cost pertaining to the activity A is the benefit he would have received from the next best alternative activity chosen [this can be either B, C, or D]. Thus, The opportunity cost of activity A is not the combined benefit received from all other activities.
When a country experiences economic growth the production possibilities frontier will shift inwards towards the origin. t/f
false, economic growth= shifts outward
t/f trade is based on the absolute advantage
false, trade is based on the comparative advantage
two countries can each produce clothing and computers. If the two countries decide to specialized and exchange then all consumers, workers, and firms will benefit and experience gains from the trade
false. All consumers will benefit but all producers will not. Workers of the good which is imported now will get hurt.
many consumers consider goods x & y to be complements. if there is an increase in the price of good X in the market for good y there will be a shift in the supply curve to the left. t/f
false. rightward increase price in X > decrease demand in x > BUT still have the same amount of supply of X the decrease in demand for X = decrease in demand for milk but still the same supply amount for y.
What is revenue? for Circular flow diagram
firm sells/household buy
Who owns the factors of production for Circular flow diagram
household
who are the decision makers for Circular flow diagram
household & firms
an increase in the cost of producing a good/service will cause a leftward shift of the supply curve. t/f
increase COP= increase price, decrease supply true
the price of a normal good has increased. which of the following could have led to an increase in price? select all a. there was an increase in the number of firms selling this good b. there was an increase in the number of buyers in this market c. there was a decrease in the average income of buyers in the market d. the average cost of producing this good increased by 20%
increase Price<-- low supply, high demand high COP = increase price=decrease supply b,d b. there was an increase in the number of buyers in this market d. the average cost of producing this good increased by 20%
suppose firms decide to increase the wages they pay to workers. which of the following are correct? select all a. the quantity demanded of the goods sold by the firms is likely to increase b. the supply curve will shift to the right c. the prices of the goods sold by the firms are likely to increase d. as prices increases there is an upward movement along the demand curve
increase cop= increase price, decrease supply c. the prices of the goods sold by the firms are likely to increase d. as prices increases there is an upward movement along the demand curve
Identify the three factors of production for Circular flow diagram
land, labor, capital(buildings & machines)
define this: The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises
law of demand
The effect of a large government budget deficit on the economy's price level. Micro or macro?
macro
The effect of federal government spending on the national unemployment rate. Micro or macro?
macro
what do models do?
makes assumptions to simplify the problem
When people/firms make decisions, do they compare marginal benefit to marginal cost, or total benefit to total cost? Explain why.
marginal benefit > marginal cost because marginal shows differences while total shows total
What is the difference between a marginal benefit and a total benefit?
marginal benefit= change of benefit
What is the difference between a marginal cost and a total cost?
marginal cost= change of cost
A consumer's optimal choice when buying a flat-screen TV. Micro or macro?
micro
The effect of a cigarette tax on the quantity of cigarettes sold. Micro or macro?
micro
A firm's decision about the size of its new factory. Micro or macro?
mirco
What is an economic model?
models/graphs Economists build models so they can explain past events and predict future events.
explain the 3 production possibilities curve
points on the line= efficient points inside the line= inefficient points outside the line= unattainable
Breast cancer is the fifth most common cause of cancer death. Normative/ positive?
positive
Normative/ positive? For women aged 60 to 69, breast cancer screening significantly reduces breast cancer mortality.
positive
Raising the minimum wage increases the rate of unemployment. Normative/ positive?
positive
Raising the minimum wage reduces the number of employment opportunities for low skilled workers. Normative/ positive?
positive
a graph that shows combinations of two goods that can be produced with available factors of production and existing technology.
production possibilities frontier
The amount of a good that buyers are willing and able to purchase at a given price
quantity demanded
When a firm produces one more unit of output the total revenue increases from $805 to $1,015, and the total cost increases from $546 to $706. When this last unit of output was produced, what was the change in profit? Enter a whole number with no dollar sign. Enter a negative sign if appropriate.
rev $805 --+$210 rev-->$1,015 total cost $546--+$160 cost-->$706 change in profit=210-160=50 50
total benefit definition
revenue generated by all customers for all advertising hours
define Production possibilities frontier straight means bowed out means
shows the combination of output straight= linear, no trade bowed out= specialization
What do economists do?
study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another.
t/f? for both parties to gain from trade, the price at which they trade must lie between the two opportunity costs
t
Define comparative advantage
the ability to produce a good at a lower opportunity cost than another producer ex: the producer who gives up less of good Y to produce good X has the smaller opportunity cost of producing good X and have the comparative advantage in producing it.
Define absolute advantage
the ability to produce a good using fewer inputs than the other producer. whoever is more efficient in producing goods/services than the other person, who can make more goods/services with fewer inputs ex: Ruby only takes 10 mins to produce potatoes whileFrank takes 15 mins to produce potatoes.Ruby has the absolute advantage & lower cost of producing potatoes
For each of the given changes, indicate whether there is an increase in supply (shift to the right), a decrease in supply (shift to the left), or a movement along the supply curve. Assume we are talking about the market for blue jeans. the price of cotton (used to make blue jeans) increases a technological advance reduces the cost of producing blue jeans the price of blue jeans increases more businesses stock blue jeans on their shelves firms expect people to wear yoga pants more often
the price of cotton (used to make blue jeans) increases decrease in supply a technological advance reduces the cost of producing blue jeans increase in supply the price of blue jeans increases movement along the supply curve more businesses stock blue jeans on their shelves increase in supply firms expect people to wear yoga pants more often decrease in supply
What is economics
the study of how society manages its scarce resources
consider the supply curve for coffee. all else the same, an increase in the number of coffee production will cause a rightward shift of the supply curve/ t/f consider the supply curve for coffee, all else same. an increase in the price of coffee will cause a leftward shift of the supply curve
true false, because price is a movement along the line, not shift
In the Circular flow diagram, what are the three categories of income?
wages, rent, profit
Define opportunity cost
what you give up to get an item. It's a combination of explicit cost and implicit cost (ex: )time- what could you do with your time instead of studying? Going to the movie using that time is the opportunity cost $2 for a soda or save $2? the opportunity cost = $4
Before you started applying for college, a job recruiter offered you a full-time cashier position at a local retail store, earning an after-tax salary of $24,000 per year. However, you turn down this offer and attend your first year of college. The additional monetary cost of college to you, including tuition, supplies, and additional housing expenses, is $38,000. You decide to go to college, probably because_______
your opportunity cost in dollars of attending your first year of college is $24,000+$38,000=$62,000$24,000+$38,000=$62,000. Nevertheless, you decide to attend college, so the value of the benefits must exceed the cost.
What do economists do?
¤ Develop models to explain behavior/events
