ECO 201 Week 1-3

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell

Inflation is defined as

an increase in the overall level of prices in the economy

A duty of economists at the Department of Labor is to

analyze data on workers

In competitive markets, buyers

and sellers are price takers

The business cycle is measured by the

both a and b are correct

A market includes

both buyers and sellers

Prices usually reflect

both the value of a good to society and the cost to society of making the good

Policymakers use taxes

both to raise revenue for public purposes and to influence market outcomes.

Irregular fluctuations in economic activity are known as the

business cycle

Economists have helped modify the debate over the environment

by focusing discussion on issues of resource allocation

A legal maximum on the price at which a good can be sold is called a price

ceiling

A model that shows how dollars flow through markets among households and firms is called the

circular-flow diagram

When describing the opportunity cost of two producers, economists use the term

comparative advantage

The line that relates the price of a good and the quantity supplied of that good is called the supply

curve

People who provide you with goods and services

do so because they get something in return

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefit

The decisions of buyers and sellers that affect people who are not participants in the market create

externalities

Which of the following is correct? A tax burden

falls more heavily on the side of the market that is less elastic

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises

In a market economy, who makes the decisions that guide most economic activity?

firms and households

A legal minimum on the price at which a good can be sold is called a price

floor

In the circular-flow diagram, in the markets for

goods and services, households are buyers and firms are sellers

By definition, imports are

goods produced abroad and sold domestically

Congress intended that

half the FICA tax be paid by workers, and half be paid by firms

In the simple circular-flow diagram, the participants in the economy are

households and firms

Microeconomics is the study of

how individual households and firms make decisions

An example of positive analysis is studying

how market forces produce equilibrium

Economics is the study of

how society manages its scarce resources

For a competitive market

if a seller charges more than the going price, buyers will go elsewhere to make their purchases

Goods produced abroad and sold domestically are called

imports

The business cycle is the

irregular fluctuations in economic activity

Consumer surplus

is the amount a consumer is willing to pay minus the amount the consumer actually pays

The tax incidence

is the manner in which the burden of a tax is shared among participants in a market

The French expression used by free-market advocates, which literally translates as "allow them to do," is

laissez-faire

A person can benefit from specialization and trade by obtaining a good at a price that is

lower than his or her opportunity cost of that good

group of buyers and sellers of a particular good or service is called a(n)

market

The decisions of firms and households are guided by prices and self-interest in a

market economy

Which markets are represented in the simple circular-flow diagram

markets for goods and services and markets for factors of production

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price

When policymakers set prices by legal decree, they

obscure the signals that normally guide the allocation of society's resources

What must be given up to obtain an item is called

opportunity cost

What you give up to obtain an item is called your

opportunity cost

In the circular-flow diagram, another name for goods and services produced by firms is

output

The Federal Insurance Contribution Act (FICA) tax is an example of a(n)

payroll tax

The adage, "There is no such thing as a free lunch," means

people face tradeoffs

Market power refers to the

power of a single person or small group to influence market prices

Normative statements are

prescriptive, whereas positive statements are descriptive

A supply schedule is a table that shows the relationship between

price and quantity supplied

When drawing a demand curve

price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis

The signals that guide the allocation of resources in a market economy are

prices

A certain cowboy spends 10 hours per day mending fences and herding cattle. For the cowboy, a graph that shows his various possible mixes of output (fences mended per day and cattle herded per day) is called his

production possibilities frontier

The ability of an individual to own and exercise control over scarce resources is called

property rights

Economists at the Department of the Treasury

provide advice on tax policy to the President

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to

raise revenue from the wealthy

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all

rely upon one another for the goods and services we consume

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

rises

A marginal change is a

small, incremental adjustment

In a market economy,

supply and demand determine prices and prices, in turn, allocate the economy's scarce resources

In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of

supply and demand to allocate scarce resources

The minimum wage has its greatest impact on the market for

teenage labor

The President receives economic policy advice from economists at each of the following except

the Congressional Budget office

Producer surplus is

the amount a seller is paid minus the cost of production

If something happens to alter the quantity demanded at any given price, then

the demand curve shifts

The essence of science is

the scientific method

The demand for a good or service is determined by

those who buy the good or service

The minimum wage does not apply to

unpaid internships

The opportunity cost of an item is

what you give up to get that item

An example of normative analysis is studying

whether equilibrium outcomes are socially desirable

In a market, the marginal buyer is the buyer

who would be the first to leave the market if the price were any higher

The marginal seller is the seller

who would leave the market first if the price were any lower, and the marginal buyer is the buyer who would leave the market first if the price were any higher.

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay

The simple circular-flow diagram is a model that includes only some key players in the real economy. Which of the following key players are omitted from the simple circular-flow model?

Government

The nation's antitrust laws are enforced by economists at the Department of

Justice

Which of the following equations is valid?

Producer surplus = Total surplus - Consumer surplus

The federal government uses the revenue from the FICA (Federal Insurance Contribution Act) tax to pay for

Social Security and Medicare

A payroll tax is a

Tax on the wages that firms pay their workers

Which of the following is not a reason perfect competition is a useful simplification, despite the diversity of market types we find in the world?

There are many buyers and many sellers in all types of markets

Which of the following is not correct

The gains from specialization and trade are based not on comparative advantage but on absolute advantage

It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our food. Which of the following statements is true?

This is progress because freed-up labor that is used to produce other goods

Consumer surplus is equal to the

Value to buyers - Amount paid by buyers

Productivity is defined as the

amount of goods and services produced from each unit of labor input

Producer surplus equals the

amount received by sellers minus the cost to sellers

An example of a price floor is

the minimum wage