Macroeconomics Unit 1
Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of additional hours the tailor shop is open as shown in the table to the right. He would have to hire a worker for those hours at a wage rate of $18 per hour. What is Julius's marginal cost if he decides to stay open for three hours instead of two hours?
$18
The Stogie Shop, a cigar store in the mall, sells hand−rolled cigars for $10.00 and machine−made cigars for $2.50 each. What is the opportunity cost of buying a hand−rolled cigar?
4 machine made cigars
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $200,000 next year playing for a minor league baseball team, $700,000 next year playing for a European professional football team, or $0 returning to college for another year. The opportunity cost of the student-athlete returning to college next year is
700,000
In your economics class, you scored a 66 on the first quiz, a 83 on the second quiz, and an 71 on the third quiz. Your average quiz grade is__ On the fourth quiz, you cored an 78. Did the fourth quiz raise your everage?
73.3/yes
is the study of the choices people make to attain their goals, given their scarce resources.
Economics
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
Consider the following economic agents: a. the government b. consumers c. producers Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?
Government, Consumers and Producers
Microeconomics is most likely to include the study of
Household choices
Which of the following is a microeconomic question?
How does Fiat decide on the price of the 500 Pop model?
Which of the following is a microeconomic question?
How will Apple decide on a selling price for the iPad?
Which of the following is a positive economic statement?
If the price of gasoline rises, a smaller quantity of it will be bought.
Suppose Apple is currently selling 2,000,000 iPods per year. However, managers at Apple are considering whether to increase production by 200,000 iPods. One manager explains that after increasing production by this amount, total profit would be $100 million. Given this information, should Apple increase production by 200,000 iPods?
Information about the additional revenue earned and the additional cost incurred from producing 200,000 additional iPods is required to answer this question.
Which of the following is not a step economists follow when developing an economic model?
Make value judgments to be proven or disproven.
Suppose a t−shirt manufacturer currently sells 5,000 t−shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t−shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t−shirts." Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t−shirts?
Marginal Cost
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 500 cigars?
Marginal cost
Which of the following contributes to the efficiency of markets?
Markets promote competition and voluntary exchange.
Which of the following statements is correct?
Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient.
Productive efficiency occurs when a good or service (such as the distribution of tickets) is produced at the lowest possible cost. Is this an efficient way to distribute the tickets?
No
Today, which of the following countries has a centrally planned economy?
North Korea
Which of the following is motivated by an equity concern?
Some U.S. colleges have cut back on merit scholarships since these programs siphon money from need−based programs, thus harming lower−income students with greater financial need.
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away 1,000 tickets to the football game against your school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department's office at 10 a.m. the following Monday.
The cost of people blocking traffic in and around the department's office building. The activities that cannot be done (such as earning money at work) when one is standing in line. The cost of travel to the department's office.
Which of the following statements about the idea that people are rational is correct?
The idea assumes that consumers and firms use all available information as they act to achieve their goals.
Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. Part 2 What is the opportunity cost of spending more money to find a cure for heart disease?
The reduction in funding for research to cure other diseases.
Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1 hour, he can mow 3 lawns or trim 6 bushes. Part 2
Tom's PPF is a straight line. Part 3 Tom's PPF intersects the graph's axis for mowing lawns at 12 and intersects the graph's axis for trimming bushes at 24. (Enter your responses as whole numbers.) Part 4 Tom's opportunity cost of mowing lawns in terms of trimming bushes is 22 trimmed bushes per mowed lawn. (Enter your response rounded to two decimal places.)
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
Which of the following is a macroeconomic question?
What determines the minimum wage?
Trade−offs force society to make choices when answering what three fundamentalquestions?
What goods and services to produce; how will these goods and services be produced; and who receives them?
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?
What to produce?
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Productive efficiency means that
a good or service is produced at the lowest possible cost.
The term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
If a firm is productively and allocatively efficient, it earns _____ if it is not it
a profit/suffers a loss
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
What does the term "marginal" mean in economics?
an additional or extra
Economic models
are simplified versions of reality
Productive efficiency is achieved when firms produce goods and services
at the lowest cost
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing.
A market is a group of _____ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
How are economic resources allocated in a market economy?
by the decisions of households and firms interacting in markets
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a _______ economy in which the government decides how economic resources will be allocated. Or society can have a _______economy in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned/market
The basis for trade
comparative advantage
The new production possibilities frontier will indicate that with the technological advance, more
consumption goods
the governement seeks to protect intellectual property rights by granting
copyrights and patents
Consumers, firms, and government
decide(s) what goods and services will be produced.
Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extended periods of paid family leave from work and, consequently, the birthrate per woman increases. If so, then this could best be characterized as an example of people responding to
economic incentives
is someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.
entrepreneur
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
What do economists mean by the word "marginal"?
extra or additional
In economic terminology, the inputs used to make goods and services are referred to as
factors of production.
Economists assume that the only reason people take the actions they do is in response to economic incentives.
false
Centrally planned economies allocate resources based on decisions by_____ while market economies answer these questions through decisions made by ______
government/households and firms
Suppose an increasing number of school districts across the country find themselves with too few teachers at a time of rising enrollments and calls for improved outcomes in terms of student performance. A market-based remedy for this emerging mismatch between the availability of teachers and school districts' needs would likely emphasize Part 2
higher compensation to elicit both a larger quantity of teacher services and a greater reliance by districts on non-traditional instruction methods.
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
What goods and services will be produced, how the goods and services will be produced, and who will receive the goods and services are determined:
in centrally planned economies by the government. in market economies by the decisions of households and firms interacting in markets.
In the circular-flow diagram showing how a market system works
income flows to firms through product markets.
Suppose the economy whose PPF is shown on the right experiences economic growth. 1.) Use the 3-point curved line drawing tool to show how growth affects the trade-offs the country faces between producing ships and food. 2.) Use the point drawing tool to draw and label a point on the new PPF that shows the economy producing more of both goods. Label this point 'B'. Carefully follow the instructions above and only draw the required objects. Part 2 Which of the following may have caused the shift you have drawn? (Check all that apply.)
increase in stock, tech and force
`On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs.
The revenue received from the sale of an additional unit of a product
is a marginal benefit to the firm
The cost incurred from the production of an additional unit of a product
is a marginal cost to the firm
Positive analysis
is concerned with what is
Economics is a social science because
it considers human behavior—particularly decision-making behavior. it applies the scientific method to the study of the interactions among individuals. it is based on studying the actions of individuals.
The decision about what goods and services will be produced in a centrally planned economy is made by
lawmakers in the government deciding on what will be produced.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
When Dr. Goldfinger decides on the companies in which he will invest, a ________ issue is being addressed.
microeconomic
Examining the most efficient way to reduce air pollution is most likely an issue in
microeconomics
A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to_________ while the latter ensures it of
minimize production costs/ample revenues
economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
mixed
This is
not an equitable way to distribute the tickets because some students who really want them may be unable to go and get them.
When economists develop models designed to explain the choices people make, they generally assume that
people are rational
Economics is about, , which measures the costs and benefits of different courses of action
positive analysis
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could.
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of production—labor, capital, natural resources, and entrepreneurial ability.
The study of economics arises due to
scarcity
Consider a production possibilities frontier (PPFLOADING...) that shows the trade-off between the production of cotton (on the y-axis) and the production of soybeans (on the x-axis). Part 2 What effect would improved fertilizers have on the initial production possibilities frontier? Part 3 If fertilizers improve, then the PPF will
shift out along both axes. This will indicate that more of both goods can be produced.
Suppose an economy has a typical bowed PPF with ships on the y-axis and food on the x-axis. Further suppose that the economy is currently at point A, which lies on the PPF, directly in the middle between the x- and y-axis. Now, suppose that the economy experiences economic growth. Show how growth affects the trade-offs the country faces between producing ships and food and indicate a point on the new PPF that shows the economy producing more of both goods. Part 2 As a result of growth, the country's PPF will
shift out along both axes.
Consider the production possibilities frontier that shows the trade-off between the production of cotton (on the y-axis) and the production of soybeans (on the x-axis). Part 2 Suppose that genetic modification makes soybeans resistant to insects, allowing yields to increase. Part 3 If a genetic modification makes soybeans resistant to insects, then the PPF will Part 4
shift out along the soybean axis, indicating mroe soybeans can be produced
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Suppose a technological advance occurs that affects the production of consumption goods but not capital goods. If a technological advance occurs that affects the production of consumption goods but not capital goods, then the production possibilities frontier will
shift outward along the consumption goods axis.
A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes. Part 2 Given the changes to Medicare, if the marginal benefit of offering an additional bed is $2,000 and the marginal cost is $1,000 per bed, then the corporation
should offer additional beds
Economic models are:
simplified versions of reality designed to analyze "what is" to explain human decision making in any context.
Which of the following are examples of intellectual property?
software, ideas for new products, books and films
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption.
Macroeconomics examines:
the economy as a whole, such as how rapidly the economy grows.
Equity is
the fair distribution of economic benefits.
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
Opportunity cost is defined as
the highest valued alternative that must be given up to engage in an activity.
Economists believe that an activity should be continued up to the point where
the marginal benefit from the activity is equal to the marginal cost.
In a free market, the actions people take are largely determined by
the motivation of financial reward.
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the policies are consistent with economic incentives.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
A number of political leaders have expressed concern about the nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that
the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
Which of the following generates allocative efficiency in a market economy?
voluntary exchange between buyers and sellers
Normative analysis is concerned with
what out to be
A free market exists
when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.
How should policymakers determine the amount of money that should be allocated for research curing heart disease? They should base their decision on Part 5
whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.
