Macroeconomics
The law of demand states that, all else equal,
As price increases, quantity demanded decreases
The law of supply states that, all else equal,
As price increases, quantity supplied increases
1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 Suppose the minimum wage was $5/hr in 1979 and automatically adjusted for inflation. How much would the minimum wage be in 2000?
$10/hr
1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 Suppose a manager made $40,000 in 1920. How much would this be in year 2000 dollars?
$400,000
Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes 2 sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is the GDP here?
$80
1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 A movie released in 1930 had a $10 million box office, a movie release in 1980 had a $50 million box office, and a movie release in 2000 had a $60 million box office. Which one has the bigger box office?
The 1930 movie did better
Which of the following does NOT add to the US GDP?
The federal government sends a Social Security check to an elderly resident of Bowling Green.
One salesperson is paid by the hour. Another is paid a commission on each sale. Which one has the stronger incentive to sell more merchandise?
The one paid on commission
inferior good
a good that consumers demand less of when their incomes increase
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
market failure
a situation in which a market left on its own fails to allocate resources efficiently
marginal change
a small incremental adjustment to a plan of action
circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
supply & demand
demand ⬆️ price ⬆️ q ⬆️ supply ⬆️ price ⬇️ q ⬆️
normal & inferior goods
income ⬆️: demand for normal goods ⬆️ demand for inferior goods ⬇️ income ⬇️: demand for normal goods ⬇️ demand for inferior goods ⬆️
inflation
increase in the overall level of prices in the economy
input prices
input prices ⬆️ supply ⬇️ input prices ⬇️ supply ⬆️
Natural resources per worker
inputs into production that are provided by nature, such as land, rivers, and mineral deposits
federal reserve
institution that sets the nation's monetary policy
Economics is the study of how societies ___ their ___ resources.
manage, scarce
market economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
incentive
something that induces a person to act
substitutes or complements
substitute price ⬆️ demand ⬆️ substitute price ⬇️ demand ⬇️ complement price ⬆️ demand ⬇️ complement price ⬇️ demand ⬆️
technology
supply ⬆️ future price ⬆️ supply ⬇️ future price ⬇️ supply ⬆️ # of sellers ⬆️ supply ⬆️ # of sellers ⬇️ supply ⬇️
disruption
supply ⬇️
The discovery of a large new reserve of crude oil will shift the ___ curve for gasoline, leading to a ___ equilibrium price.
supply, lower
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
property rights
the ability of an individual to own and exercise control over scarce resources
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
absolute advantage
the ability to produce a good using fewer inputs than another producer
opportunity cost
whatever must be given up to obtain some item
recession
when GDP shrinks
underground economy
when you pay someone, but it's not recorded
business cycle
Fluctuations in economic activity, such as employment and production
future price
future price ⬆️ demand ⬆️ future price ⬇️ demand ⬇️ # of buyers ⬆️ demand ⬆️ # of buyers ⬇️ demand ⬇️
good news & bad news
good news: demand ⬆️ bad news: demand ⬇️
imports
goods produced abroad and sold domestically
exports
goods produced domestically and sold abroad
capital goods
goods that make other goods
Equality
the property of distributing economic prosperity uniformly among the members of society
Efficiency
the property of society getting the most it can from its scarce resources
Productivity
the quantity of goods and services produced from each unit of labor input
Physical capital per worker
the stock of equipment and structures that are used to produce goods and services
microeconomics
the study of how households and firms make decisions and how they interact in markets
10 principles
1. People face trade-offs 2. The cost of something is what you give up to get it 3. Rational people think at the margin 4. People respond to incentives 5. Trade can make everyone better off 6. Markets are usually a good way to organize economic activity 7. Governments can sometimes improve market outcomes 8. A country's standard of living depends on its ability to produce goods and services 9. Prices rise when the government prints too much money 10. Society faces a short-run trade-off between inflation and unemployment
If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to the GDP as ___ hamburgers.
15
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Recall that when they were not trading, each brother spent half of his effort on each good. Now, suppose that they decide to specialize in producing only one good and agree to trade 90 pounds of cheese for 270 pints of yogurt. What would the gains from trade be for Sam?
30 pounds of cheese and 30 pints of yogurt
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Recall that when they were not trading, each brother spent half of his effort on each good. Now, suppose that they decide to specialize in producing only one good and agree to trade 90 pounds of cheese for 270 pints of yogurt. What would the gains from trade be for Dean?
60 pounds of cheese and 30 pints of yogurt
Identify which component of the US GDP the following transaction belongs in: The state government purchases some new police cars for their state police.
Government purchases
Technological knowledge
Best way to produce goods and services
If the demand for computers increased and the supply remained the same, what would happen to the equilibrium price and quantity?
Both price and quantity would increase
Which of the following is a role of households in the circular-flow diagram?
Buy and consume goods and services
What is the only creature known to naturally exchange one good for another?
Humans
Identify which component of the US GDP the following transaction belongs in: A Kentucky family purchases movie tickets at a local theater.
Consumption
Which component of the US GDP is the largest?
Consumption
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. If the brothers decide to trade, which one should specialize in cheese?
Dean
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Which brother has the absolute advantage in cheese and which one has the absolute advantage in yogurt?
Dean has the absolute advantage in cheese; Sam has the absolute advantage in yogurt.
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Which brother has the comparative advantage in cheese, and which one has the comparative advantage in yogurt?
Dean has the comparative advantage in cheese; Sam has the comparative advantage in yogurt.
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. When not trading, each brother spent half their effort on producing one good and half their effort on producing the other good. How much of each good did each brother produce?
Dean produced 150 pounds of cheese and 240 pints of yogurt; Sam produced 60 pounds of cheese and 300 pints of yogurt.
What effect would a decrease in the price of SUVs have on the market for cars?
Decrease demand
What effect would the government increasing the legal driving age from 16 to 18 have on the market for cars?
Decrease demand
What effect would a war in the Middle East have on the market for oil?
Decrease supply
Central planning is superior to free markets as a method for economic growth.
False
In the long run, there is a trade-off between inflation and unemployment.
False
Normal people face trade-offs, but someone that's very rich like Bill Gates doesn't.
False
Rational people do not make decisions at the margin.
False
What effect would consumers on Tuesday expecting an increase in the price of gas on Friday have on the market for gas on Tuesday?
Increase demand
What effect would a new technology to extract oil from shale have on the market for oil?
Increase supply
What effect would a new, more efficient drilling technology have on the market for oil?
Increase supply
What happens when the government prints too much money?
Inflation
Which of the following are problems in measuring the CPI?
Introduction of new goods
Identify which component of the US GDP the following transaction belongs in: An American car company expands their factory in Detroit.
Investment
How many people does it take to make a computer mouse?
Millions
Roy is deciding between two movies to download. Both movies are $4.99. However, Movie A takes up 6 "slots" on his device while Movie B takes up 3. Which of the following statements is most accurate?
Movie A has a higher opportunity cost than Movie B
Identify which component of the US GDP the following transaction belongs in: A British restaurant purchases fish from an American fishing company.
Net Exports
How many individuals are there in the world who can, completely on his/her own, produce a computer mouse from raw materials?
None
A point inside the production possibilities frontier is
Possible but not efficient
If the supply of wheat increases and demand remained the same, what would happen to the equilibrium price and quantity for wheat?
Price would decrease, quantity would increase
Suppose that a drought destroys a large portion of the US corn crop. What would happen to the price and quantity of movie popcorn?
Price would increase, quantity would decrease
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?
Prices and quantities both rise
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. If these brothers decide to trade, which one should specialize in yogurt?
Sam
1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 A classic 1950 sci-fi film got a $90 million dollar box office. Studio execs tried to turn it into a TV series in 1970, but it never aired and they decided to turn the pilot episode into a movie, which made $20 million. Eventually, the classic was remade in 2000 with a bigger budget, high-tech computerized special effects, and edgy writing. It was almost universally disliked by critics, but it did make $400 million. Which one had the bigger box office?
The 2000 remake
Honda operates a car factory in Ohio. Nike operates a shoe factory in Thailand. Which one belongs in the US GDP and which one belongs in the US GNP?
The Honda factory in Ohio belongs in the US GDP; the Nike factory in Thailand belongs in the US GNP.
Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?
The demand curve shifts to the right
Governments can sometimes improve market outcomes.
True
In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. True or False: These brothers can benefit by trading with each other.
True
Trade can make everyone involved better off.
True
positive statements
claims that attempt to describe the world as it is
normative statements
claims that attempt to prescribe how the world should be
externality
the impact of one person's actions on the well-being of a bystander
Human capital per worker
the knowledge and skills that workers acquire through education, training, and experience
Scarcity
the limited nature of society's resources
