Econ 110 Ch. 1 - Ch. 4

An increase in quantity supplied is represented by a rightward shift of the supply curve. True or False

False

As population declines, scarcity eventually disappears. True or False

False

Quantity demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Quantity supplied

The amount of a good or service that a firm is willing and able to supply at a given price.

Published in 1776, ________ was written by Adam Smith.

"An Inquiry into the Nature and Causes of the Wealth of Nations"

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal cost of adding the shrub-trimming service to the standard package?

$10

Monique buys a new television for $795. She receives consumer surplus of $355 from the purchase. How much does Monique value her television?

$1150

perfectly competitive market

(1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

What effects Supply for smartwatches

-How many smartwatches are producers willing to sell? -Affected by the price of the smartwatches -Affected by other factors, including prices of other goods

What effects Demand for smartwatches

-How many smartwatches do consumers want to buy? -Affected by the price of the smartwatches -Affected by other factors, including prices of other goods

How many goods can you have a competitive advantage in?

1

The Farm Factory, a booth at the local Farmer's Market, sells fresh eggs for $1.50 per dozen and fresh milk for $2.50 per gallon. What is the opportunity cost of buying a gallon of milk?

1 2/3 dozen eggs

We can think about efficiency in a market in two ways:

1. A market is efficient if all trades take place where the marginal benefit exceeds the marginal cost,and no other trades take place. 2. economic surplus

What does a PPF graph show? (4)

1. Trade-off 2. Efficiency 3. Scarcity 4. Opportunity Cost (MC)

3 Questions must be asked

1. What Goods and Services Will Be Produced? 2. How Will the Goods and Services Be Produced? 3. Who Will Receive the Goods and Services Produced?

What does the supply curve show? (2)

1. Willingness of producer to accept and produce at that price 2. MC

Gov. intervention created what 3 things

1. wedge between buyer and seller (inefficient) 2. decrease in total surplus 3. DWL

What does the demand curve show? (2)

1. willingness of consumer to pay 2. MB

What Explains the Law of Demand? When the price of a good falls, two effects take place:

1.Consumers substitute toward the good whose price has fallen. 2.Consumers have more purchasing power, which is like an increase in income.

analyzing markets, we generally assume

1.People are rational 2.People respond to economic incentives 3.Optimal decisions are made at the margin

Hours Open Total Revenue (dollars) 1 $40 2 65 3 80 4 90 5 95 6 98 Table 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 above. He would have to hire a worker for those hours at a wage rate of $18 per hour. Refer to Table 1. Using marginal analysis, how many hours should Julius extend his shop's hours of operations?

2 hours

What causes a shift in demand?

A change in something other than price that affects demand causes the entire demand curve to shift. A shift to the right is an increase in demand. A shift to the left is a decrease in demand.

What causes a shift in supply?

A change in something other than price that affects supply causes the entire supply curve to shift. A shift to the right is an increase in supply. A shift to the left is a decrease in supply.

PPF (def.)

A curve shows the possible combination of goods and services that can be produced using all available resources and technology

Demand curve

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

Supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

technological change

A firm may experience a positive or negative change in its ability to produce a given level of output with a given quantity of inputs.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Price ceiling

A legally determined maximum price that sellers can charge

Price floor

A legally determined minimum price that sellers may receive.

economic surplus

A market is efficient if it maximizes the sum of consumer and producer surplus (i.e. the total net benefit to consumers and firms)

Economic efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Circular-flow diagram

A model that illustrates how participants in markets are linked. Households provide factors of production to firms. Firms provide goods and services to households. Firms pay money to households for the factors of production. Households pay money to firms for goods and services.

Law of Demand

A rule that states that holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Voluntary exchange

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.

Demand schedule

A table that shows the relationship between the price of a product and the quantity of the product demanded.

Supply schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied.

Mixed economy

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.

Market economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Centrally planned economy

An economy in which the government decides how economic resources will be allocated.

Gov trade off with interference in the market

An important trade-off for a government is that between efficiency and equity.

Change in Prices of Inputs

An increase in the price of an input decreases the profitability of selling the good, causing a decrease in supply. A decrease in the price of an input increases the profitability of selling the good, causing an increase in supply.

Calculating total revenue on a demand curve graph

Area under the curve: The area of a rectangle is equal to its base multiplied by its height; total revenue is equal to quantity multiplied by price.

2. People Respond to Economic Incentives

As incentives change, so do the actions that people will take.

How does a shift in demand curve change the quantity and price?

As the demand curve shifts, the quantity demanded will change, even if the price doesn't change. The quantity demanded changes at every possible price.

How does the shift in supply effect the quantity supplied and price?

As the supply curve shifts, the quantity supplied will change, even if the price doesn't change. The quantity supplied changes at every possible price.

Marginal Analysis

Comparing MC and MB

Trade benefits who

Both you and your neighbor benefits from trade even though she could produce more of that good Both you and your neighbor are able to consume more with trade than without.

All of the following are examples of spending on goods and services in the circular flow model except A) Amanda purchases a new electric guitar to pursue her hobby seriously. B) Chaitanya buys a new spa pedicure chair for her expanding nail salon business. C) Hernan buys a pizza at Papa C's. D) Lenny buys a new digital camera to take pictures at his son's graduation.

Chaitanya buys a new spa pedicure chair for her expanding nail salon business.

What does CS measure?

Consumer surplus in a market is equal to the total benefit received by consumers (measured in dollars) minus the total amount they must pay to buy the good or service.

Who pays most of the tax when it is imposed?

Consumers

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Which country does not come close to the free market benchmark?

Cuba

One of the basic principles of economics is that trade makes A) Everyone is better off B) Everyone is worse off C) Some people better off and some worse off D) None of the above

Everyone is better off

When does voluntary exchange cease

Each transaction that takes place improves the well-being of the buyer and seller; transactions continue until no further improvement can take place.

1. People Are Rational

Economists generally assume that people are rational, using all available information to achieve their goals. Rational consumers and firms weigh the benefits and costs of each action and try to make the best decision possible.

Marginal Cost Marginal Benefit

Economists think about decisions like this in terms of the marginal cost and benefit (MC and MB): the additional cost or benefit associated with a small amount extra of some action.

Every society faces a trade-off between _______

Equity and efficency

If the demand for a product decreases and the supply of the same product increases, the equilibrium quantity will increase. True or False

False

In economics, the term "free market" refers to a market where no sales tax is imposed on products sold. True or False

False

In market economies, income distribution is always going to be completely equitable. True or False

False

In the circular flow model, households supply resources such as labor services in the product market. True or False

False

Peanut butter and jelly are complements. If the price of peanut butter increases, the demand for jelly will increase. True or False

False

Physical capital refers to stocks and bonds True or False

False

Policies based on normative economic ideas tend to increase economic efficiency and improve equity. True or False

False

Rent control is an example of a price floor. True or False

False

The difference between consumer surplus and producer surplus in a market is equal to the dead weight loss. True or False

False

There is a shortage of every good that is scarce. True or False

False

Product Markets

Firms supply goods and services to product markets; households buy these products from the firms.

Complements

Goods and services that are used together. Ex. However the same increase in the price of a Big Mac would decrease the demand for McDonald's fries.

Substitutes

Goods and services that can be used for the same purpose. Ex. An increase in the price of a Big Mac would increase the demand for Whoppers.

Inferior goods

Goods for which the demand increases as income falls and decreases as income rises.

Normal goods

Goods for which the demand increases as income rises and decreases as income falls.

who provides the factors of production

Households consist of individuals: labor, capital, natural resources, and other inputs used to make goods and services.

Factor Markets

Households receive payments for labor, etc. by selling them to firms in factor markets

What Factors Influence Market Demand?

Income -Increase in income increases demand if the product is normal, decreases demand if the product is inferior. Prices of related goods-Increase in price of related good increases demand if products are substitutes, decreases demand if products are complements. Tastes Population and demographics Expected future prices

Economic decline happens when the PPF shifts

Inward

Marginal analysis is involving comparing

MB and MC

Economically efficient outcomes may not be the most desirable because

Markets result in high inequality; some people prefer more equity, i.e. fairer distribution of economic benefits.

Minnie Mickey Hats 40 50 Umbrellas 10 5 10) Refer to Table above. Which of the following statements is true? A) Minnie has a comparative advantage in making both products. B) Mickey has a comparative advantage in making both products. C) Minnie has a comparative advantage in making hats and Mickey in making umbrellas. D) Mickey has a comparative advantage in making hats and Minnie in making umbrellas.

Minnie has a comparative advantage in making hats and Mickey in making umbrellas.

Will the price change when at equilibrium if something changes other than price

No

We need to privatize the social security program in the State of Kansas is a A) Normative Statement B) Positive Statement C) Social Statement D) Market Statement

Normative Statement

Calculating opportunity cost on the x and y-axis

On the PPF it is the slope for the x-axis and the reciprocal for the y-axis

Markets may not result in fully efficient outcomes. For example:

People might not immediately do things in the most efficient way Governments might interfere with market outcomes Market outcomes might ignore the desires of people who are not involved in transactions - ex: pollution

One reason some manufacturing companies began moving production to China in the early 2000s was due to lower wages that could be paid to Chinese workers. Moving manufacturing to China to take advantage of lower wages so goods could be produced at a lower cost than if produced in the United States exemplifies which key economic idea?

People respond to economic incentives.

Is the PPF a positive or normative tool?

Positive; it shows "what is", not "what should be".

The PPF shows the _______ combination of goods and services a firm can produce A) Possible and efficient B) Possible and inefficient C) Impossible and efficient D) Impossible and inefficient

Possible and efficient

How is price determined?

Price is determined by the interaction of buyers AND sellers.

What Factors Influence Market Supply?

Prices of inputs Technological change Prices of substitutes in production Number of firms in the market Expected future prices

What does PS measure?

Producer surplus in a market is equal to the total amount firms receive from consumers minus the cost of producing the good or service.

Market economies tend to be more efficient than centrally-planned economies. Market economies promote:

Productive efficiency Allocative efficiency

competitive market equilibrium

Recall that markets with many buyers and sellers are perfectly competitive markets; a market equilibrium in one of these markets

The basic principle in economic studies is A) Trade-off B) Scarcity C) Money D) Efficiency

Scarcity

The study of economics arises due to

Scarcity

When the government imposes an added tax on a firm...

Some consumer surplus and some producer surplus will become tax revenue for the government, and some will become dead weight loss, shown by the yellow-shaded area.

It is clear that when a government imposes price controls:

Some people are made better off, Some people are made worse off, and The economy generally suffers, as a deadweight loss will generally occur.

What is the most important method by which governments fund their activities?

Taxes

Comparative advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Absolute advantage

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Trade

The act of buying and selling

Substitution effect

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.

Income effect

The change in the quantity demanded of a good that results from the effect of a change in the good's price on a consumers' purchasing power.

Demographics

The characteristics of a population with respect to age, race, and gender. Increases in the number of people buying something will increase the amount demanded.

Does a decrease in price mean shift in demand?

The decrease in price will cause a movement along the demand curve but not an increase in demand.

The steeper the PPF

The easier it is to produce

Equity

The fair distribution of economic benefits.

opportunity cost

The highest-valued alternative given up in order to engage in some activity

Opportunity cost

The highest-valued alternative that must be given up to engage in an activity. Ex. The 20 fewer sedans is the opportunity cost of producing 20 more SUVs.

Trade-off

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Customer Surplus on a graph

The overall consumer surplus remains the area below the demand curve, above the (new) price

________ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

The production possibilities frontier model

deadweight loss

The reduction in economic surplus resulting from a market not being in competitive equilibrium Deadweight loss can be thought of as the amount of inefficiency in a market. In competitive equilibrium, deadweight loss is zero.

Ceteris paribus ("all else equal") condition

The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held constant.

The law of supply

The rule that holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decrease in the quantity supplied.

If the United States lifts the embargo on Cuban products, what will happen in the U.S. market for Cuban cigars? A) The supply curve will shift to the left. B) The supply curve will shift to the right. C) The demand curve will shift to the right. D) The demand curve will shift to the left.

The supply curve will shift to the right.

Which of the following describes a characteristic of a perfectly competitive market? A) There are many buyers but few sellers. B) There are many sellers but few buyers. C) There are many buyers and sellers. D) Equilibrium is achieved when demand for the product sold in the market equals the supply.

There are many buyers and sellers.

Which of the following is a result of imposing a rent ceiling? A) Some consumer surplus is converted to producer surplus. B) There is an increase in the quantity of apartments supplied. C) There is an increase in the quantity of apartments demanded. D) The marginal benefit of the last apartment rented is less than the marginal cost of supplying it.

There is an increase in the quantity of apartments demanded.

Which of the following is a normative economic statement? A) Tobacco products should be banned in all public spaces. B) The increase in tobacco taxes has caused an increase in the price of cigarettes. C) Better awareness of health risks has decreased tobacco use. D) A reduction in tobacco subsidies has caused the price of tobacco to increase.

Tobacco products should be banned in all public spaces.

Producer Surplus on a graph

Total producer surplus is equal to the area above the supply curve and below the market price

A surplus is defined as the situation that exists when the quantity of a good supplied is 3 eater than the quantity demanded. True or False

True

Consider a country that produces only two goods: pineapples and tractors. Suppose it is possible for this country to increase its production of pineapples without producing fewer tractors. In this case, its current output combination is inefficient. True or False

True

If a country produces only 2 goods, it is possible to have an absolute advantage in the production of both goods True or False

True

In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it can still benefit by trading with the other country. True or False

True

The additional benefit to a consumer from consuming one more unit of a good or service is the marginal benefit. True or False

True

Total Surplus =

Ts= Cs + Ps

Which of the following is a macroeconomic question? A) What determines the minimum wage? B) What determines the production of video game consoles? C) What factors determine the price of Oreo cookies? D) What determines the salaries of college professors?

What determines the minimum wage?

3. Optimal Decisions Are Made at the Margin

While some decisions are all-or-nothing, most decisions involve doing a little more or a little less of something.

Who is less flexible workers or firms?

Workers so workers end up with the most tax burden

When a Market is Not in Equilibrium, There Is

a Dead weight Loss

Fewer Firms =

a decrease in supply (vice versa) If a firm anticipates that the price of its product will be higher in the future, it might decrease its supply today in order to increase it in the future.

black market

a market in which buying and selling take place at prices that violate government price regulations.

If the government implements a binding price ceiling on insulin, this will have all of the following effects on the market for insulin except A) a decrease in economic surplus. B) a decrease in producer surplus. C) an increase in dead weight loss. D) a more efficient equilibrium.

a more efficient equilibrium.

The recession of 2007-2009 would most likley be represented in a PPF graph by

a point inside the PPF

The minimum wage is an example of

a price floor.

shortage

a situation in which quantity demanded is greater than quantity supplied

surplus

a situation in which quantity supplied is greater than quantity demanded Prediction: sellers will compete amongst themselves, driving the price down.

An example of a factor of production is A) a car produced by an auto manufacturer. B) a worker hired by an auto manufacturer. C) a loan granted to an auto manufacturer. D) the automobiles exported by an auto manufacturer.

a worker hired by an auto manufacturer.

Marginal cost is the ________ associated with a particular increase in an activity.

additional cost

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.

allocative efficiency

If you can produce more of something than others with the same resources, you have

an absolute advantage.

An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an increase in the supply of peanuts as a result of favorable growing conditions, will result in A) an increase in the equilibrium quantity of peanuts and no change in the equilibrium price. B) an increase in the equilibrium price of peanuts and no change in the equilibrium quantity. C) an increase in the equilibrium price of peanuts; the equilibrium quantity may increase or decrease. D) an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease.

an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease.

An outward shift of a nation's production possibilities frontier can occur due to A) a reduction in unemployment. B) a natural disaster like a hurricane or bad earthquake. C) a change in the amounts of one good desired. D) an increase in the labor force.

an increase in the labor force.

Which of the following would cause a decrease in the supply of peanut butter? A) a decrease in the price of jelly (assuming that peanut butter and jelly are complements) B) a decrease in the price of peanut butter C) an increase the price of peanuts D) an increase in the technology used to produce peanut butter

an increase the price of peanuts

If an increase in income leads to a decrease in the demand for salami, then salami is A) an inferior good. B) a neutral good. C) a necessity. D) a normal good.

an inferior good.

Positive analysis

analysis concerned with what is Economists mostly perform a positive analysis.

Normative analysis

analysis concerned with what ought to be

At a product's equilibrium price A) anyone who needs the product will be able to buy the product, regardless of ability to pay. B) the federal government will provide the product to anyone who cannot afford it. C) not all sellers who are willing to accept the price will find buyers for their products. D) any buyer who is willing and able to pay the price will find a seller for the product.

any buyer who is willing and able to pay the price will find a seller for the product.

Future products are _________ for current products

are substitutes for current products. An expected increase in the price tomorrow increases demand today. An expected decrease in the price tomorrow decreases demand today.

A black market is a market where buying and selling take place

at prices that violate government price regulations.

Points on the PPF are

attainable

The ________ production points on a PPF are the points along and inside the production possibilities frontier

attainable

Voluntary exchange increases economic efficiency

because neither the buyer nor the seller would agree to a trade unless they both benefit.

In Venezuela, the government attempted to control rising food prices by implementing price ceilings in the market. These price ceilings were set ________ the market prices, which resulted in ________ of food.

below; shortages

other than inefficiency or equity what does gov. intervention produce

black market, favoritism, bad goods

Who benefits from trade?

both the buyer and seller otherwise the trade wouldn't happen

A PPF with a _______ indicated increasing opportunity cost as more and more of one good is produced

bowed out

A shallow demand or supply curve means that buyers or sellers...

change how much they buy or sell a lot when the price changes. Then consumers or producers could not be forced to accept as much of the burden of the tax.

The basis for trade is

comparative advantage, not absolute advantage. Individuals, firms, and countries are better off if they specialize in producing goods and services for which they have a comparative advantage and obtain the other goods and services they need by trading.

Productive efficiency comes about because

competition

If the PPF is linear, then the opportunity cost of producing a good or service is

constant

On a linear PPF the opportunity is...

constant

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following? A) never have to engage in trade with other nations B) increase the variety of products that it can produce with a decrease in resources C) consume a combination of goods that lies outside its own production possibilities frontier D) produce a combination of goods that lies outside its own production possibilities frontier

consume a combination of goods that lies outside its own production possibilities frontier

Which of the following is part of an economic model?

data

Demand Curve Shifts to the Left/Decrease

decrease in quantity decrease in price

Supply Curve Shifts to the Left/Decrease

decrease in quantity increase in price

The willingness of consumers to buy a product at different prices is shown on a

demand curve.

A steep demand or supply curve means that buyers or sellers...

do not change how much they buy or sell when the price changes; this results in consumers or producers taking on much of the burden of the tax.

Shift outward in the PPF represents

economic growth

Government is trading off between what and what when imposing or not imposing price restrictions

efficiency and equity

Circular-flow diagram doesn't include

gov., financial systems, foreign buyers, etc.

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.

The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.

income

A(n) ________ is represented by a rightward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.

increase in demand; increase in quantity demanded

Supply Curve Shifts to the Right/Increase

increase in quantity decrease in price

Demand Curve Shifts to the Right/Increase

increase in quantity increase in price

Points below the PPF curve are

inefficient

inputs

inputs/factors of production Buyer: Firm Seller: house holds product: labor for wages

What kind of relationship is the demand curve?

inverse

production possibilities frontier (PPF)

is a curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology.

Market

is a group of buyers and sellers of a good or service, and the institution or arrangement by which they come together to trade.

Market equilibrium

is a situation in which quantity demanded equals quantity supplied.

The area above the market supply curve and below the market price

is equal to the total amount of economic surplus in a market.

free market

is one with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed.

entrepreneur

is someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.

Consumer surplus

is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.

Producer surplus

is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.

Economics

is the study of the choices people make to attain their goals, given their scarce resources.

Capital

manufactured goods that are used to produce other goods and services

When government taxes a cigarette company $1.00 what happens to MC?

marginal costs effectively increased by $1.00 per unit.

The ability to exercise control over one's own resources with in the confines of the law refers to

one's property rights

The ability to exercise control over one's own resources within the confines of the law refers to

one's property rights.

Specialization

only producing the one product you have a competitive advantage in

PPF bowed out

opportunity costs are often increasing

outputs

outputs/market for goods and services Buyers: house holds Sellers: firms Product: good and services bought with income

Every society faces economic trade-offs. This means

producing more of one good means less of another good can be produced.

When you purchase a new surfboard you do so in the

product market

When both supply and demand shift. quantity and demand....

quantity and price increase and decrease and unchanged is ambiguous

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

The assumption that people are ________ is one of the basic assumptions in economic studies

rational

In a market economy, those who are willing and able to buy what is produced

receive the most of what is produced.

Firms A) have no influence on the circular flow in a market economy B) purchase resources in the product market C) sell goods in the product market D) sell resources in the factor market

sell goods in the product market

Economic growth is represented on a PPF model by the PPF moving

shifting outward

Economic Models

simplified versions of reality used to analyze real-world economic situations

The opportunity cost of the good on the x-axis is the _______ of the PPF A) Height B) Slope C) y-intercept D) inverse of the slope

slope

Economic variables

something measurable that can have different values, such as the incomes of doctors.

The processes used to produce goods and services describes

technology.

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

Economic growth

the ability of the economy to increase the production of goods and services.

Comparative advantage means

the ability to produce a good or service at a lower opportunity cost than any other producer

Tax incidence:

the actual distribution of the tax burden between buyer and seller (most normally goes to buyer)

tax incidence

the actual division of the burden of a tax between buyers and sellers in a market.

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

Marginal cost

the additional cost to a firm of producing one more unit of a good or service.

market demand

the demand by all the consumers of a given good or service.

Assume that the hourly price for the services of personal trainers has risen and sales of these services have also risen. One can conclude that A) the law of demand has been violated. B) the number of personal trainers has increased. C) the demand for personal trainers has increased. D) personal trainers are deliberately charging high prices because they provide services for wealthy clients.

the demand for personal trainers has increased.

If the price of smartphones was to increase, then A) the demand for smartphone apps would decrease. B) the demand for smartphone apps would increase. C) the quantity of smartphone apps demanded would increase. D) the quantity of smartphone apps demanded would decrease.

the demand for smartphone apps would decrease.

Equity

the fair distribution of economic benefits

Opportunity cost is defined as

the highest valued alternative that must be given up to engage in an activity.

demand curve describes ________ to the next cup of tea

the marginal benefit of each additional cup of tea, while the supply curve describes the marginal cost of each additional cup of tea Only at competitive equilibrium is the last unit valued by consumers and producers equally—economic efficiency

A supply curve shows

the marginal cost of producing one more unit of a good or service.

Consumer surplus in a market for a product would be equal to the area under the demand curve if

the market price was zero.

When the marginal benefit equals the marginal cost of the last unit sold in a competitive market,

the net benefit of consumers is equal to the net benefit of producers.

A demand curve shows the relationship between A) the price of a product and the quantity of the product demanded. B) the amount of a product sellers are willing to sell at a particular price and the amount consumers are willing to buy at that price. C) the quantity that consumers are willing and able to buy and the quantity that sellers are willing and able to offer. D) the price of a produce and the demand for the product.

the price of a product and the quantity of the product demanded.

Technology

the processes a firm uses to produce goods and services

Dead weight loss refers to A) the opportunity cost to firms from producing the equilibrium quantity in a competitive market. B) the sum of consumer and producer surplus. C) the loss of economic surplus when the marginal benefit equals the marginal cost of the last unit produced. D) the reduction in economic surplus resulting from not being in competitive equilibrium.

the reduction in economic surplus resulting from not being in competitive equilibrium.

Property rights

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.

The circular flow model demonstrates

the roles played by households and firms in the market system.

On a bowed out PPF the opportunity cost...

the slope/opportunity cost steepens then the opportunity cost is increasing

Macroeconomics

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Status quo

we start at the equilibrium

If in the market for apples the supply has decreased, then A) the supply curve for apples has shifted to the right. B) there has been a movement upward along the supply curve for apples. C) the supply curve for apples has shifted to the left. D) there has been a movement downwards along the supply curve for apples.

the supply curve for apples has shifted to the left.

Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline A) the supply curve shifted to the left resulting in an increase in the equilibrium price. B) the supply curve shifted to the right resulting in an increase in the equilibrium price. C) the demand curve shifted to the left resulting in a decrease in the equilibrium price. D) the demand curve shifted to the right resulting in an increase in the equilibrium price.

the supply curve shifted to the left resulting in an increase in the equilibrium price.

Every society faces what

trade-off due to scarcity/limited resouces

Scarcity forces...

trade-offs

Points above the PPF curve are

unattainable with current resources

Allocative efficiency arises due

voluntary exchange

Productive efficiency

where goods or services are produced at the lowest possible cost

Allocative efficiency

where production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

non-binding price ceiling and/or floor means

will naturally go to the equilibrium for this not to happen you need a binding price floor or ceiling

Equation of the line of supply and demand curves

y=mx+b