Test 1 Micro

shift in supply is defined as a change in

The supply curve because of a change in a determinant of supply.

The market supply increase?

The supply of organs doesn't change with the imposition of a zero price ceiling.

Market Mechanism

The use of prices and sales to signal desired outputs. Having the market allocate natural and human (labor) resources.

The Latin phrase ceteris paribus refers to holding other variables constant.

True

In a market economy, the people who receive the goods and services that are produced are those who

Are able and willing to pay the highest price.

What does it mean if we say that there is a "relationship" between two variables?

As one variable changes so does the other.

Which of the following is not held constant along a given demand curve for a good?

Price of the good itself

If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then

Price will increase until it reaches the equilibrium price.

Which of the following happens if a market surplus exists?

Producers reduce the level of output and reduce price.

Factors of Production

Resources used as inputs to produce goods and services. We can generalize all inputs of production so they fall into 4 categories. Those inputs are Land, Labor, Capital, and Entrepreneurship

Our book defines the optimal mix of output as the production combination society most desires with existing...

Resources, technology, and social values.

In regards to the supply curve, the graph models that a change in the price of a good or service does what to supply?

Results in a change in quantity supplied.

An increase in the price of one good can cause the demand for another good to increase if the goods are substitutes.

T

Every time we use scarce resources in one way, we give up the opportunity to use them in other ways.

T

Factor mobility increases productivity by helping to reallocate factors of production in a dynamic economy.

T

If the economy is inside the production possibilities curve, then more output can be produced using existing resources.

T

Sometimes, people buy tickets to events and then resell them at a higher price! This activity is likely to happen when the price for those tickets is set below the equilibrium price by the seller.

T

The Latin phrase ceteris paribus refers to holding other variables constant.

T

The basic goals of total utility maximization, total profit maximization, and total welfare maximization explain most market activity.

T

The essential feature of the market mechanism is the price signal.

T

The law of supply and the law of demand both rely on the concept of opportunity cost.

T

To calculate the slope of a line, find the vertical distance between two points and divide it by the horizontal distance between the same two points.

T

When a curve shifts, the underlying relationship between the two variables has changed.

T

Ceteris Paribus

The assumption of nothing else change. In modeling, this means that you model the impact of one influencing variable on something and assume everything else stays the same. While we know this doesn't occur in the real world, this assumption is useful for understanding the individual impact of one thing on another, absent other influences.

Individual consumers supply ____ and purchase ____.

factors of production; final goods and services

Which panel shows the changes in the market for cigarettes when:1) the government increases subsidies for the production of tobacco(Google subsidy if you don't know what that is.) and 2) at the same time smoking becomes less cool because the government removes the age restriction?

(Supply Increases and Demand Decreases)

What is life?

the condition that distinguishes animals and plants from inorganic matter, including the capacity for growth, reproduction, functional activity, and continual change preceding death.

Factor Market - Any place where factors of production (land, labor, capital, entrepreneurship) are bought and sold. Markets for producers to buy what they need to produce! These purchases are investments in the producers ability to produce more of something. Without the factors of production, no production is possible because these are the inputs. Product Market - Any place where finished goods and services (products) are bought and sold. Unlike the factor market, which provides goods and services for producers, the product market is where producers sell their products to consumers. Supply -The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus. Supply is represented in this class with the supply curve. This is why when we say supply changes the entire curve is shifting. We will say the "quantity of supply changes" when we are talking about moving along a particular supply curve.Obviously, you or a market can't produce more than the factors of productions (land, labor, capital, entrepreneurship) allow. Additionally, the supply in a market will only exist if potential producers want to produce that amount. Remember that there are opportunity costs for everything. So, for example, a producer or business owner can choose to open a factory making cars or medical supplies. The producer is more likely to invest in producing what will provide the highest return with the lowest risk. Demand - The willingness and ability to buy specific quantities of a good or service at alternative prices in a given period, ceteris paribus. Demand is represented in this class with the demand curve. This is why when we say demand changes the entire curve is shifting. We will say the "quantity of demand changes" when we are talking about moving along a particular demand curve. Obviously, you or consumers in a market can't buy more than their incomes allow. Additionally, consumers have the choice not to buy even if they have the necessary funds. Again, since opportunity costs always exist we are not going to waste the opportunity to purchase other things with our limited income by buying goods/services we value less. If we had an infinite income (or just a very large income) the opportunity costs are relatively less significant or nonexistent, as purchasing something doesn't pose the same limitations on your ability to purchase other things. Law of Demand - The quantity of a good or service demanded in a given time period decreases as its price falls, ceteris paribus. The law of demand is shown with our demand curves as demand slopes down when we plot price on the y-axis and quantity on the x-axis. So, at the lowest price shown on our y-axis we see the most quantity demanded on our x-axis. At the highest price shown on our y-axis we see the lowest quantity demanded on our x-axis. We model demand in this way: what happens to the quantity being demanded at various hypothetical prices given all the other determinants of demand don't change. (All the other determinants of demand don't change = demand in relation to price ceteris paribus) Market Demand - The total demand for a good or service within a given market. It is made up of all the demand curves of all consumers participating within that market. Law of Supply - The quantity of a good or service supplied in a given time period increases as its price increases. The law of demand is shown with our supply curves as supply slopes down when we plot price on the y-axis and quantity on the x-axis. So, at the lowest price shown on our y-axis we see the lowest quantity supplied on our x-axis. At the highest price shown on our y-axis we see the highest quantity supplied on our x-axis. We model supply in this way: what happens to the quantity being supplied at various hypothetical prices given all the other determinants of supply don't change. (All the other determinants of supply don't change = supply in relation to price ceteris paribus) Market Supply - The total supply for a good or service within a given market. It is made up of all the supply curves of all producers participating within that market. Shift in Demand - A change in the quantity demanded at any (every) price. In other words, a change in the amount being demanded that doesn't have to do with the price of that good/service. Note: our demand model shows how the quantity demand (x-axis) changes as the price for that good/service (y-axis) changes. How the price of pizza influences the quantity of pizza demanded is shown with a stationary curve. If something other than price influences how much pizza is demanded, the curve must not be where it was! All the other determinants of demand (other than price) are found in the book and should be studied to understand when to expect a curve to shift. Shift in Supply - A change in the quantity supplied at any (every) price. In other words, a change in the amount being supplied that doesn't have to do with the price of that good/service. Note: our supply model shows how the quantity supplied (x-axis) changes as the price for that good/service (y-axis) changes. How the price of pizza influences the quantity of pizza supplied is shown with a stationary curve. If something other than price influences how much pizza is supplied, the curve must not be where it was! All the other determinants of supply (other than price) are found in the book and should be studied to understand when to expect a curve to shift. Substitute Goods - Goods or services that can substitute for each other. Note that when the price of a hypothetical substitute rise (movement along its demand curve) then the demand for its substitutes will increase (their entire demand curves shift). Their demand curves shift because the demand increased for a reason other than THEIR price (it was the price of some other good that is a substitute). For example, for many people pizza and hamburgers are substitutes. They are both low cost foods frequently premade to order. On any given day, hungry people may be indifferent about which they would buy, substituting them out interchangeably. Both pizza and hamburgers have their own demand curves. Say the price for pizza goes up for some reason. This would move the quantity of pizzas purchased to a lower amount along the same pizza demand curve. But what happens to the demand for hamburgers? We know that more hamburgers would be bought, but how is it modeled? Well, we model changes in quantity against price changes holding all other things constant. What we've just described is a situation where something other than the price of hamburgers occurred, causing this assumption to fail. Since the change in the price of pizza has nothing to do with the price of hamburgers, the entire demand curve for hamburgers changes. Since the price of pizza goes up (movement along the pizza demand curve), the demand for hamburgers goes up (a shift to the right of the hamburger demand curve). Complementary Goods - Good frequently consumed in combinations. The consumption or use of one is thought to "complement" the consumption or use of the other. For example, hamburgers and fries. These are generally bought together. So much so, fast food chains bundle them together now! But think what would happen to the demand for one if the price of the other decreased or increased? It was also be impacted, but not because of its price but because the price changed for the complement! Note that when the price of a hypothetical complement rise (movement along its demand curve) then the demand for its complement will also fall (their entire demand curves shift). Their demand curves shift because the demand fell for a reason other than THEIR price (it was the price of some other good that is a complement). Equilibrium Price - The price identified in our supply/demand model by where the supply curve intersects the demand curve. It is where the two curve are equal to one another. (Supply = Demand) Market Mechanism - The use of prices and sales to signal desired outputs. Having the market allocate natural and human (labor) resources. Price Floor - Lowest possible price a market is allowed to sell a good or service for. An example of this would be the minimum wage. The legal price of labor (the wage rate per hour) is not allowed to go below this floor. Price floors are typically introduced by law. These actions do not allow the market supply to equal the market demand if the equilibrium exists lower than the floor but has no impact on markets where the price is higher. For example, the minimum wage may impact a cashier and not a nurse. Price Ceiling - Highest possible price a market is allowed to sell a good or service for. An example of this would be the price of generators shortly after a hurricane. The legal price of disaster related goods is not allowed to go above this ceiling. These actions do not allow the market supply to equal the market demand if the equilibrium exists higher than the ceiling but has no impact on markets where the price is lower. Market Surplus - The amount by which the quantity supplied (made available) in a market exceeds the quantity demanded at that price. This leads to goods/services going unsold at the current price. Since no money is made on goods/services that go unsold, there is an incentive to lower the price to increase revenue, ceteris paribus. Market Shortage - The amount by which the quantity demanded exceeds the quantity supplied (made available) at a given price. This leads to all inventory being used with some consumers not being able to find the good or service even if they had the money to purchase. When all suppliers in a market consistently sell out of product, they receive a signal that demand is high at that price. They realize that those that can and are willing to pay more will do so. In competitive markets (more on that later), the quantity supplied rises in the market as the price per product increases. This process will continue until they notice a surplus of product. Since they don't make money on unsold product, suppliers will try to sell the most possible for the highest price possible.

yup

the slope of the line between points L and M is

1.20

If the government required the actual market price to be fixed at $6 per unit,

A binding or effective price ceiling would result.

Which of the following will cause the production possibilities curve within an entire economy to shift inward, ceteris paribus?

A decrease in the size of the labor force within that economy.

A simple function can be described or illustrated by using:

A line graph. An equation involving one or more variables. Simply stating the relationship between one or more variables. (Example: This plant grows 2 inches each year. This car is going 45 miles per hour. Etc.)

Linear Function

A mathematical expression that has the same change in the dependent variable with every change in the independent variable that influences it. When graphed, it will be shown as a straight line.

New or improved technology would be represented by a what?

A shift outward of the production possibilities curve.

If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve (PPC) between the two goods will be?

A straight, downward-sloping line.

If a price is above equilibrium,

A surplus will cause the price to fall and the quantity supplied to decrease.

Our production possibilities curves (PPC) tell what is inefficient with...

All points inside the curve.

Production Possibility Curve

All the alternative combinations of final goods and services that could be produced in a given period with the full use of available resources and technology. While you can produce less than what is possible, you can't produce more than what is possible. However, producing less that what is possible is not the most efficient use of available resources since they are left idle.

Mixed Economy

An economy that uses both the market mechanism and government directives to allocate goods and resources. All economies are mixed, but have different mixes as decided by the local population.

Peanut butter and jelly are complements. A decrease in the price of one will result in

An increase in the demand (shift of the demand curve) for the other.

An increase in the equilibrium price of electricity can be caused by which of the following?

An increase in the demand for electricity.

Assume that pencils and pens are substitutes. If the price of pencils rises ceteris paribus, then we will see

An increase in the demand for pens.

Peanut butter and jelly are complements. A decrease in the price of one will result in

An increase in the demand for the other.

Show and describe increasing opportunity costs between two products from the example PPCs below.

Bowed outward or concave from below.

A decrease in the price of medicine below equilibrium will do what?

Cause a shortage of medicine.

An increase in the price of solar panels above equilibrium will

Cause a surplus of solar panels

Say you want to have a picnic with your romantic partner but you have a budget for the month that you can't go over. You aren't sure if you can afford it and stay under your budget, so you decide to investigate. You will need to pay attention to the cost of a picnic blanket and picnic basket because both of these are what?

Complements in consumption.

Capital

Final goods produced for use in the production of other goods and services, such as equipment and structures. For example, a tractor, machine, equipment, or a factory building. Capital can be owned or leased.

What would happen if consumer confidence in the economy improves?

Demand Curve (rightward)

Since baseballs and wooden bats are bought together (complements), we can expect the following to happen in the market for baseballs!

Demand for baseballs to decrease (shifts entire demand curve left).

Say it costs more for businesses to buy the factors used to produce (factors of production). This will cause both the demand and supply curve to shift to the right.

F

Services provided by governments are "free" to those who receive them. This means there are no opportunity costs of government programs.

F

The market mechanism satisfies all consumer desires and maximizes business profits.

F

The slope of a production possibilities curve is positive.

F

If the government places a price ceiling on cancer-treating drugs, then

Fewer cancer treating drugs will be available.

Opportunity Cost

Goods or services that are forgone in order to obtain something else. For example, the opportunity cost of staying up late is getting a good night's rest. This is not to be confused with a payment for something. Opportunity costs are the foregone opportunity that was lost for doing or pursuing something else with our limited time and resources.

Local governments provide law enforcement, which benefits society, but if the costs of law enforcement exceed the benefits, the result is a situation of

Government failure.

Slope

How much change you see on your Y-axis with the given change on your X-axis. Another way to remember this is, RISE over RUN.

Entrepreneurship

How the other factors of production are used or assembled in order to produce. For example, a farmer will need land to grow food, labor to run the farm, and capital (tractors, water hoses, etc.) to run the business. How much land, labor, and capital is the farmer's decision and is dependent on his entrepreneurship.

According to the law of increasing opportunity costs,

In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

Say the market wage for servers at restaurants is $9 an hour and the government institutes a minimum wage of $15 an hour. What will happen to the unemployment rate for these servers, ceteris paribus?

Increase as quantity of labor supplied increases and quantity of labor demanded decreases.

It states that the amount of a good being demanded (the quantity demanded) does what in response to price changes?

Increases as its price falls, ceteris paribus

The "law of demand" explains that the quantity of a good demanded does what?

Increases as its price falls, ceteris paribus.

s you move up the curve from point J toward point M, the slope

Increases.

During World War II the United States converted automobile factories to tank production. However, it found that some auto manufacturing facilities were not well suited to tank production. The production possibility curve for automobile and tank production showed that an increasing number of automobile production had to be sacrificed to produce more and more tanks. What do we know this describes about the switching of production from automobiles to tanks?

Increasing opportunity costs will occur with greater tank production.

Which of the following explains why a lighthouse is a "public good"?

It is not divisible and therefore cannot be kept from people who do not pay.

The benefit of producing at point G rather than point D is

KL units of clothing.

Scarcity

Lack of enough resources to satisfy all desired uses of those resources. Not enough to go around as society, businesses, or governments would find ideal.

What categories do we use to outline the things needed to produce with our factors of production?

Land, Labor, Capital, Entrepreneurship

A market failure means the market mechanism did what?

Leads the economy to a mix of output it doesn't find optimal.

Which of the following is best at telling what the production possibilities curve (PPC) illustrates?

Maximum combinations of goods and services an economy can produce given its available resources and technology.

How is a change in the "quantity demanded" represented on our graphs?

Means that price has changed and there is movement along the demand curve.

Consumers would never pay _________ for a product than the cost value of the alternative uses of their money. Sellers are not willing to sell a product for _________ than the value of their best forgone alternative.

More, Less

Which of the following points are unattainable, ceteris paribus?

N

Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"?

Number of buyers

Pick from the following what happens if the price of gasoline increases.

Shift the automobile demand curve to the left, and the bicycle demand curve to the right.

What is a variable?

Something that can change (or vary).

Land

Space available to deploy the other factors of production. Where labor works, capital is built upon, and the entrepreneurship to figure out how to use these factors of production is deployed.

Ceteris paribus, for a farmer, corn and wheat are which of the following if they can plant one or the other but not both?

Substitutes in production.

The government introduces environmental restrictions on the dumping of wastes from producing steel.

Supply Curve leftward

The slope of a curve at any point is given by this formula:

The change in y coordinates between two points divided by the change in their x coordinates.

In the market for labor (labor market), what line represents an employer?

The demand curve

The market demand increase?

The demand for organs doesn't change with the imposition of a zero price ceiling.

Laissez Faire

The doctrine of "leave it alone" or nonintervention by government in the market.

When the relationship between two variables changes,

The entire curve shifts.

hen the relationship between two variables changes,

The entire curve shifts.

The equilibrium price change?

The equilibrium price does not change.

An increase in the supply of gasoline with a shift to the right of the supply curve will cause

The equilibrium price to fall and equilibrium quantity to rise.

The points on a nation's production possibilities curve (PPC) are modeling what?

The full employment of resources to achieve a particular combination of goods and services.

Say scientists discover that corn products cause cancer. What impact will this have?

The market demand curve for corn will shift left.

Where do we find the "equilibrium price" in a market?

The market supply curve intersects the market demand curve.

Which of the following describes the opportunity costs of studying for an economics test?

The opportunities you don't take advantage of while spending time studying.

Labor

The people who work to produce, or support the production, of goods and services.

If the graph below represents the labor market for fence painters, and the government has imposed a price floor (minimum wage) above the equilibrium price for fence painters, what happens to the quantity demanded?

The quantity demanded decreases.

The quantity of organs demanded increase?

The quantity of organs demanded increases from qE to qd.

The quantity of organs supplied decrease?

The quantity of organs supplied decreases from qE to qa.

What do the 2 and 10 define in the following function: 2 + 10(x) = y

The relationship between x and y. How y changes as x changes. What y is for any value you plug in for x.

A linear function can be distinguished by

The same slope throughout the line causing it to not bend.

A linear function can be distinguished by

The same slope throughout the line.

Government failure means that government intervention fails to move us closer to our economic goals.

True

If you burn garbage in your backyard and the smoke damages a neighbor's house, the damage is considered an externality.

True

When the number of buyers in a market changes, the market demand curve shifts even if individual demand curves do not shift.

True

Which curve shifts and in which direction when the following events occur in the iPhone market?

a. Samsung comes out with a really awesome phone. (demand decreases) b. The economy is in a recession. (demand decreases) c. Apple moves its manufacturing facilities to locations that have lower wages. (supply increases)

Business firms supply goods and services to ____ and purchase factors of production in ____.

product markets; factor markets

What are the variables in the following function: 2 + 10(x) = y

x and y