Test 1 Study Guide

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suppose during a year an economy produces $6 trillion of consumer goods, $1 trillion of investment goods, $2 trillion in government services, and has $3 trillion of exports and $2 trillion of imports. GDP would be

$10 trillion

Ceteris Paribus, which of the following will most likely cause an inward shift of the production possibilities curve

A decrease in the size of the labor force

currently, the US economy is best described as

a service economy

assume a price elasticity of demand of 0.50. if the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10%, the quantity demanded will

increase by 5%

Ceteris Paribus, when a firm increases the price of its product, total revenue will

increase if the price elasticity of demand is inelastic

a market

is any place (physical or digital) where goods are bought and sold

According to the law of demand, a demand curve

is downward sloping

the change in total output that results from one additional unit of input is the

marginal physical product

Maximum total utility is achieved where:

marginal utility equals 0

which of the following best represents the law of diminishing marginal utility

marginal utility of a good eventually declines as more of it is consumed in a given time period

GDP is the sum of consumption, investment, government purchases, and

net exports

the value of output produced in the US in current prices measures

nominal GDP

a news wire article in the text indicates that north korea is expanding its middle programs, and at the same time it is running out of food. if north korea is on its production possibilities curve and reduces food production so that it can increase the size of its military, this is an example of

opportunity costs

country A and country B both recorded an increase in real GDP of 5% per year from 1980-2012. during this time, the population for country A grew at 6% per year and the population for country B grew at 4%. which of the following is true during this period

per capita GDP decreased for country A only

which of the following is a determinant of supply

prices of the factors of production

total revenue minus total cost equals

profit

price elasticity if demand shows how

quantity demanded responds to price changes

in economic theory, utility refers to the

satisfaction obtained from a good or service

the term externalities refers to

some costs and benefits of a market activity born by a third party

marginal cost is equal to

the change in total cost divided by the change in output

which one of the following generalizations is not correct

the demand for necessities is relatively elastic

a market shortage occurs when

the market price is below equilibrium

the maximum output that can be produced from a set of inputs is measured by

the production function

per capita GDP will always rise when

the rate of economic growth exceeds the rate of population growth

the market demand for a particular good indicates

the total quantities buyers are willing and able to purchase at alternative prices, ceteris paribus

Economists make a distinction between changes in quantity demanded and changes in demand

to distinguish a movement along a demand curve from a shift of the demand curve

average total cost is defined as

total cost divided by the quantity produced

the amount of utility obtained from the entire consumption of a good is know as

total utility

Adam Smith was a proponent of the doctrine of laissez faire

true

all economies must decide what to produce, how to produce it, and who gets the output

true

capital includes the machinery and buildings used to produce goods and services

true

If one variable increases when the other one increases, then the drawn curve is

upward sloping

costs of production that change with the rate of output are

variable costs

costs of production that do not change with the rate of output are

fixed costs

GDP can be found by

adding the monetary value of all final goods and services produced during a given period of time

which of the following provides the best example of the law of supply

an increase in price entices suppliers to produce more

Ceteris Paribus, the demand curve for a good will shift to the right in response to

an increase in tastes or preferences for the good

Ceteris Paribus, when technological change allows a smaller amount of a resource to be used in producing any combination of two goods, there will be

an outward shift of the production possibilities curve

suppose the price elasticity of demand for tacos is 0.80. if the price of tacos increases by 10%, then the quantity demanded of tacos should (ceteris paribus)

decrease by 8%

If more of an input factor is used, while holding other inputs constant, a firm will eventually experience

diminishing returns

a mixed economy is one that relies solely on market signals to allocate goods and services

false


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