econ 201

In today's media, what is an example in a headline about a want that is not satisfied? ______is an example of an unsatisfied want.

"Millions starve on a dollar a day"

Quintile

A 20 percent component of a population.

In the graph you have just made, what is the quantity demanded by the market when the price is $1.00 a bottle? At $1.00 a bottle, Tina buys ___of water a day, Tim buys _____of water a day,and the market quantity demanded is______of water a day.

2 bottles; 1 bottle; 3 bottles

In an hour, Emily can produce 20 milkshakes or 40 sundaes and Ben can produce 10 milkshakes or 25 sundaes. What are Emily's and Ben's opportunity costs of producing 1 milkshake? Emily's opportunity cost of producing 1 milkshake is____.Ben's opportunity cost of producing 1 milkshake is _____.

2 sundaes; 2.5 sundaes

If the price of water falls from $1.00 to $0.50 a bottle, how does the quantity demanded by the market change? Tina's quantity demanded increases from _____Tim's quantity demanded increases from ____,and the market quantity demanded increases from _____bottles of water a day.

2 to 3; 1 to 2; 3 to 5

What is the opportunity cost of increasing your income from $10 to $20? What about from $20 to $30?

20 grade points; 30 grade points

Cap-and-trade

A cap on total emissions with tradeable emission rights assigned or sold to individual producers.

Which of the following items could be a natural experiment that might be used to test an economic model?

A cataclysmic weather event that makes two situations differ by the one thing that we want to test.

Demand curve

A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same.

Supply curve

A graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same.

Scatter diagram

A graph of the values of one variable against the values of another variable.

Time-series graph

A graph that measures times (for example, months or years) on the X-axis and the variable or variables in which we are interested on the y-axis.

Cross-section graph

A graph that shows the values of an economic variable for different categories or groups in a population.

Market income

A household's wages, interest, rent, and profit earned in factor markets before paying income taxes.

Minimum wage law

A law makes it illegal to hire labor services for less than a specified wage rate.

What was the effect of the COVID-19 pandemic on the market for hand sanitizer?

A shortage occurred because the demand for hand sanitizer increased.

Market failure

A situation in which a market delivers an inefficient outcome.

Government failure

A situation in which government actions lead to either underprovision or overprovision.

Natural experiment

A situation that arises in the ordinary course of economic life when two outcomes differ by the one thing that we want to test.

Sales tax

A tax added to the advertised price when a sale is made.

Adam Smith

Adam Smith's book, An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, is considered the beginning of economics as a social science. Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. Every individual ... intends only his own gain, [but] he is ... led by an invisible hand to promote ... [the public interest] which was no part of his intention."

Amy Finkelstein

Amy Finkelstein, an economics professor at MIT, was the 2012 winner of the Clark Medal. Her data-driven research on insurance and health care identifies inefficiencies in insurance markets and how these inefficiencies influence the provision of health care services.

Why do prices exist?

Because of scarcity

Benefits principle

People should pay taxes equal to the benefits they receive from public goods and services.

The human resources manager of XYZ Inc. is considering two candidates for a market research analyst job. Candidate A is an economics major and candidate B is a sociology major. Who will most likely get the job, and why?

Candidate A Because her critical-thinking, analytical, and math skills are a better match for the job.

Which of the following situations is an example of comparative advantage?

Dave makes 4 pizzas, giving up 6 milkshakes, while Rob makes 2 pizzas, giving up 4 milkshakes.

Who has a comparative advantage in producing milkshakes?

Emily has a comparative advantage in the production of milkshakes.

Esther Duflo

Esther Duflo, 2019 Nobel Laureate and winner of the 2010 Clark Medal, is an economics professor at MIT. She has transformed research on the challenges faced by low-income countries by conducting large-scale field experiments to test economic models and gain insights that improve economic development policy.

Wages

Income paid for the services of labor.

Interest

Income paid for the use of capital.

Rent

Income paid for the use of land.

Rachel Kranton

Rachel Kranton teaches economics at Duke University. Identity economics is the attempt to understand choices that are influenced by a person's ideas of right and wrong. Kranton and Akerlof say that identity might be the biggest influence on a person's economic well-being. She has also studied the importance of networks, like supply chains.

Before globalization and advances in storage technologies, local prices for perishable fresh fruits and vegetables were influenced by seasonal availability. Which diagram best illustrates this seasonal influence?

Summer supply exceeds winter supply

In an hour, Suzie can produce 30 pizzas or 20 pies, while Ben can produce 20 pizzas or 10 pies. Does anyone have an absolute advantage? Do they have a comparative advantage?

Suzie has an absolute advantage.

Human capital

The knowledge and skill that people obtain from education, on-the-job training, and work experience.

Marginal social benefit

The marginal benefit enjoyed by society-by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal private benefit and marginal external benefit.

Marginal social cost

The marginal cost incurred by the entire society-_-by the producer and by everyone else on whom the cost falls. It is the sum of marginal private cost and marginal external cost.

Search costs

The opportunity cost of finding a willing seller or buyer.

Marginal cost

The opportunity cost of producing one more unit of a good or service.

Tragedy of the commons

The overuse of a common resource that arises because its users have no incentive to conserve it and use it sustainably.

Marginal tax rate

The percentage of an additional dollar of income that is paid in tax.

Public provision

The production of a good or service by a public authority that receives most of its revenue from the government.

Coase Theorem

The proposition that if property rights exist and the costs of enforcing them are low, then the market outcome is efficient, and it doesn't matter who has the property rights.

Equilibrium quantity

The quantity bought and sold at the equilibrium price.

Unit elastic demand

When the percentage change in the quantity demanded equals the percentage change in price, the price elasticity of demand equals one.

Elastic demand

When the percentage change in the quantity demanded exceeds the percentage change in price, the price elasticity of demand exceeds one.

Inelastic demand

When the percentage change in the quantity demanded is less than the percentage change in price, the price elasticity of demand is less than one.

Law of market forces

When there is a surplus, the price falls; and when there is a shortage, the price rises.

What is a market? A market is___.

any arrangement that connects buyers with the sellers of a good or service

You explored changes in the prices of bottled water, Gatorade, and a gym membership. Which of these prices has no effect on the demand for bottled water, and why? A change in the price of ____has no effect on the demand for bottled water because it.

bottled water; changes the quantity demanded along the demand curve

For consumers, hot dogs and burgers are substitutes. If the price of a hot dog falls and no other influences on buying plans change, what happens to the demand for burgers? The demand for burgers will _____.

decrease

Think about the market for avocados. If the price of an avocado rises and buying plans remain the same, what happens to the quantity demanded of avocados and the demand for avocados? The quantity demanded _____and the demand for avocados_____.

decreases: does not change

What are the flows of the factors of production in the circular flow model? The services of factors of production are the flow from____

households through factor markets to firms

Where in the circular flow model does the flow of expenditure on goods and services appear? Expenditure on goods and services flows from ____through the _____market.

households to firms; goods

In the graph you have just explored, what happens when the demand for bottled water changes and the price falls from $1.00 to $0.65 a bottle? The demand curve shifts ____and the equilibrium quantity changes from ____bottles per day.

leftward; 10 million to 9 million

What happens if the price is $1.00 a bottle? At $1.00 a bottle, there is _____of bottled water, so the price_____.

neither a shortage nor a surplus; doesn't change

How did distilleries react to the changes in the market for hand sanitizer? Distilleries _____.

produced hand sanitizer because hand sanitizer and spirits are substitutes in production

What is the event that changes the quantity of tennis lessons supplied, and what is the event that changes the supply of tennis lessons? If the price of a tennis lesson rises, the _____,but if more people become tennis coaches, the______.

quantity supplied increases; the supply of tennis lessons increases

As the temperature increases, Sara swims more hours each day. Sara makes a scatter diagram and measures temperature on the x-axis. What does Sara's scatter diagram look like? The points are scattered

rightward and upward

What does the law of demand state?The law of demand states: Other things remaining the same, when the price of a good_____,the quantity demanded of that good____.

rises; decreases

What does the law of supply state? The law of supply states: Other things remaining the same, when the price of a good ______the quantity supplied of that good_____.

rises; increases

If the demand for chocolate decreases with no change in the supply of chocolate, what happens in the market for chocolate? The decrease in demand will create a ______of chocolate at today's price, but gradually the price will_______.

surplus; fall

The market for ski trips is at its market equilibrium when demand decreases. At the initial equilibrium price, a____of ski trips makes the price of a ski trip start to____.

surplus; fall

What happens if the price is above the market equilibrium price? A_____arises and the price_____.

surplus; falls

What happens if the price of bottled water is $1.50 a bottle? At $1.50 a bottle, there is a ____of bottled water, so the price_____.

surplus; falls

In the market for smartphones, what event decreases the demand for smartphones today? The demand for smartphones decreases when____.

the price of a smartphone is expected to fall next month

What does the market supply curve show? The market supply curve shows _____all producers of the good.

the sum of the quantities supplied at each price by

A college campus has 10 trees: 5 maple trees, 3 oak trees, and 2 sycamore trees. How does a cross-section graph show the number of trees in each category? The cross-section graph shows

three bars. The longest bar is the maple tree bar and the shortest bar is the sycamore tree bar

How does a time-series graph show that the average daily temperature is generally increasing over time? The time-series graph measures

time on the x-axis, temperature on the y-axis, and the temperature has an upward trend

How does an economy grow? An economy grows when it uses its resources___.

to create new technologies or build new capital

Of economists' four factors of production, what is capital? Capital consists of ____.

tools, instruments, machines, buildings, and other construction that businesses use to produce goods and services

If StarCoffee and AnotherCup are the only cafes in a village, what is the market supply of lattes in the village? The market supply of lattes is the______

total quantity supplied by StarCoffee and AnotherCup at each price of a latte

Describe the change in college tuition since the early 1970s. Between the early 1970s and today, college tuition ____.

tripled

What is the source of economic growth? Economic growth occurs when an economy____.

uses its resources to produce new capital goods

Change in demand

A change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes.

Change in supply

A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

Cross elasticity of demand

A measure of the responsiveness of the demand for a good to a change in the price of another good when all other influences on buyers' plans remain the same.

Price elasticity of demand

A measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers' plans remain the same

Price elasticity of supply

A measure of the responsiveness of the quantity supplied of a good to a change in its price when all other influences on sellers' plans remain the same.

Total revenue test

A method of determining the price elasticity of demand.

Circular flow model

A model that describes the economic decision makers and the markets that create incentives and coordinate choices.

What happens in the graph when the price of bottled water rises?

A movement occurs up along the demand curve.

Subsidy

A payment by the government to a producer to cover part of the costs of production.

comparative advantage

A person who can perform the activity at a lower opportunity cost than anyone else has a comparative advantage.

Free rider

A person who enjoys the benefits of a good or service without paying for it.

Absolute advantage

A person who is more productive than another has an absolute advantage.

Individual transferable quota (ITQ)

A production limit assigned to an individual who is then free to transfer (sell) the quota to someone else.

Positive externality

A production or consumption activity that creates an external benefit.

Negative externality

A production or consumption activity that creates an external cost.

Abatement technology

A production technology that reduces or prevents pollution.

Common resource

A resource that can be used only once, but no one can be prevented from using what is available.

Incentive

A reward or a penalty that influences the choices that we make.

Poverty

A state in which a household's income is too low to be able to buy the quantities of food, shelter, and clothing that are deemed necessary.

Income tax

A tax on the incomes of sellers of the services of the factors of production labor, capital, and land.

Social Security tax

A tax on the payrolls of employers to pay Social Security benefits.

Excise tax

A tax on the production of a good that is included in the advertised price.

Correlation

A tendency for the values of two variables to move together (either in the same direction or in opposite directions) in a predictable and related way.

Voucher

A token that the government provides to households, which they can use to buy specified goods or services.

What happens in the market for bottled water when the supply of bottled water increases and the demand for bottled water decreases? The supply curve shifts _____,the demand curve shifts____,the quantity ____,and the price_____.

rightward; leftward; might increase or decrease; falls

Constant returns to scale

Features of a firm's technology that keep average total cost constant as output increases.

Economies of scale

Features of a firm's technology that make average total cost fall as output increases.

Diseconomies of scale

Features of a firm's technology that make average total cost rise as output increases.

One of the questions that the market economy seeks to answer is, What goods and services are produced? What goods and serices are produced in the U.S. economy?

Food and healthcare

Why does the quantity demanded of a good decrease if the price of the good rises?

For two reasons: A substitution effect and an income effect

Which of the following items is NOT an example of capital? All of the following items are examples of capital except _____

U.S. dollars

Now make the graph show the effects of an increase in demand. What happens in the market for bottled water when the demand for bottled water increases? The demand curve shifts ____,the price_____,and____Increases.

rightward; rises; the quantity supplied

Which of the following effects makes the law of demand true? When the price of a good rises,_____.

buyers look for lower-priced alternatives--the substitution effect

When bakeries produce sliced bread, they also produce bread crumbs. Bakeries sell the sliced bread to families and sell the bread crumbs to fish shops. When the price of bread crumbs rises, what happens to the supply of sliced bread and its price? Sliced bread and bread crumbs are____.When the price of bread crumbs rises, the supply of sliced bread______and the price of sliced bread______.

complements in production; increases; falls

What role do market prices play? In the market for a good for example, carrots the market price_____.

coordinates the choices made by buyers and sellers of carrots

If the price of a banana rises and all other influences on buying plans remain the same, which of the following changes occurs in the market for bananas? The price rise _____.

creates a movement up along the demand curve, but the demand curve does not shift

Now make the graph show the effects of an increase in both demand and supply. What happens in the market for bottled water when both the demand for and supply of bottled water increase? The demand curve and the supply curve shift ____,the quantity _____and the price_____.

rightward; increases; might rise or fall

How does an economy grow? An economy that uses new technology____.

experiences economic growth but incurs an opportunity cost

If the islanders change production from possibility C to possibility D, they_____.

face a tradeoff and incur an opportunity cost of 4 pounds of berries

What is the effect of the following event on the supply of pizzas? If other things remain the same, when _____,the supply of pizzas _____

the price of cheese rises; decreases and the supply curve of pizzas shifts leftward

When timber mills process logs, they produce both beams and sawdust. In the market for timber beams, which of the following events increases the supply of timber beams? The supply of timber beams increases when ____.

the price of sawdust rises or new technology lowers the cost of producing timber beams

What happens to buying plans today if the price of orange juice rises and no other influences on buying plans change? What happens today if the price of orange juice is expected to double next week? If the price rises today and no other influences on buying plans change,_______decreases, but if the price is expected to double next week,_____increases today.

the quantity demanded; demand

A tropical island is home to 10 people. The islanders use all their resources to dig for yams and catch crabs Do islanders get a free lunch, or do they face a tradeoff? Islanders _____.

face a tradeoff when they can dig for more yams only if they catch fewer crabs

When does the economy in the graph face a tradeoff, and when can it get a free lunch? If the economy is producing 1 million smartphones and 8 million bikes per year, it___. If it is producing 1 million smartphones and 5 million bikes per year, it____.

faces a tradeoff; can get a free lunch

What are the productive resources used to produce goods and services? The productive resources are called __ and they are___

factors of production; land, labor, capital, and entrepreneurship

How does a decrease in the demand for golf clubs change the market for golf clubs? A decrease in demand brings a ____in the price of golf clubs, and as the price adjusts, the quantity supplied _____.

fall; decreases

What happens in the market for bike sharing if the supply of bikes increases by more than the demand for bikes increases? The equilibrium price of a bike ride will_____and the equilibrium quantity of bike rides will____.

fall; increase

In the market for avocados, how does the market equilibrium change when the demand for avocados decreases and the supply of avocados increases? The equilibrium price of an avocado____and the equilibrium quantity of avocados_____.

falls; might increase, decrease, or not change

The market for cruises is at its market equilibrium when two events occur: cruise companies increase the number of cruise ships, and at the same time, cruising becomes less popular. How does the market for cruises change? The equilibrium price of a cruise _____and the equilibrium quantity of cruises_____.

falls; might increase, decrease, or not change

What are the flows of the incomes earned by the factors of production in the circular flow model? The incomes earned by the factors of production are the flow from

firms through factor markets to households

Where in the circular flow model does the flow of payments for labor services appear? Pavments for labor services flow from ____through the _____market.

firms to households; factor

Which of the following statements is correct? When an economy uses its resources to increase its quantity of capital,____.

future production possibilities expand, but scarcity is not eliminated

You are thinking about your plans for the upcoming summer break. Which of the following possibilities describes the tradeoff and opportunity cost that you might face? If you decide to____.

go home and play some free Internet games, you will face a tradeoff and incur an opportunity cost

What are the flows in the market economy? The flows in the market economy that go from firms to households are the flows of____. The flows in the market economy that go from households to firms are the flows of ____.

goods and services and flows of wages, rent, interest, and profit; labor, land, capital, and entrepreneurship and flows of expenditure on goods and services

When Harry runs a marathon, his speed decreases as the distance run increases. What is the relationship between Harry's speed and distance run when the distance is measured on the x-axis? The relationship is ___, and as the distance run increases, the curve becomes __

negative; steeper

Harry produces 5 balloon rides and 6 boat rides an hour. If Harry can produce more balloon rides without producing fewer boat rides, is he producing on his PPF? Harry is ____his production possibilities frontier.

producing inside

What happens when the demand for bottled water changes and the price rises from $0.65 to $1.50 a bottle? The demand curve shifts _____and the equilibrium quantity changes from ______bottles per day.

rightward; 9 million to 11 million

What happens when the supply of bottled water changes and the price falls from $1.50 to $0.65 a bottle? The supply curve shifts _____and the equilibrium quantity changes from _____bottles a day.

rightward; 9 million to 11 million

Now make the graph show the effects of an increase in the supply of bottled water. When the supply of bottled water increases, the supply curve shifts ______,the price_____,and____increases.

rightward; falls; the quantity demanded

When does a surplus occur in a market, and how is the market equilibrium restored? A surplus occurs when, at a given price,_____.When a surplus occurs, the price ______to restore the market equilibrium.

the quantity supplied exceeds the quantity demanded; falls

What happens in the market for orange juice if (1) the price falls and other infuences on selling plans remain the same and (2) a Florida frost destroys some of the season's crop? When the price falls,_____decreases, and when a frost destroys some of the season's crop,____decreases.

the quantity supplied; supply

What happens in the graph when the price of bottled water rises? What happens when the price of flavored water (a substitute in production for bottled water) rises? When the price of bottled water rises,_____.When the price of flavored water rises,____.

there is a movement up along the supply curve; the supply curve shifts leftward

Every day, we make many choices. Why can't we avoid making choices? We can't avoid having to make choices because

we don't have enough time to do all the things we want to do

Mia and Mario produce pasta and pizzas. They now make a deal to specialize and trade. The gains from specialization and trade arise because ____

what they produce is a point on the Mia-Mario economy PPF.

Internet access and streamed movies are complements. If the price of Internet access rises, how will the demand for streamed movies change? The demand for streamed movies _____

will decrease, and the demand curve for streamed movies will shift leftward

Which of the following situations illustrates a tradeoff?

will study for my exam tonight instead of watching a movie.

Change in the quantity supplied

A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.

At 5 bags OR 3 windows per hour, how long will it take Chris to do his half, filling 15 bags and cleaning 12 windows?

7 hours

In the graph you have just made, what are the equilibrium price and quantity? The equilibrium price ____a bottle and the equilibrium quantity is ____million bottles a day.

$1.00; 10

Which of the following news items are positive statements and which are normative statements? 1. The United States spends too much on space exploration and not enough on infrastructure. 2. More police on inner-city streets will reduce the crime rate. 3. Cable TV subscriptions are decreasing. 4. Netflix offers better movies than Hulu Plus does. Statements ____ because ____

1 and 4 are normative; they are opinions that can't be tested against data

Which of the following items are positive statements and which are normative statements? 1. If the price of gasoline rises, people will drive less and use less gasoline. 2. More rain forests need to be converted to state parks. 3. The United States imports too many goods. 4. Most iPads are bought by teenagers. Statements_____

1 and 4 are positive

In an hour, Sophie can produce 40 milkshakes or 40 sundaes and Bob can produce 20 milkshakes or 10 sundaes. Calculate Sophie's and Bob's opportunity costs of producing a milkshake. Sophie's opportunity cost of producing 1 milkshake is____.Bob's opportunity cost of producing 1 milkshake is _____.

1 sundae; 0.5 sundae

Which of the following distinctions does the PPF illustrate? 1. Attainable and unattainable production 2. Efficient and inefficient production 3. Tradeoff and free lunch

1, 2, and 3

In the graph you have just made, what are the quantities supplied by Aqua, Prima, and the market? At a price of $1.00 a bottle, Aqua sells ____of water a day, Prima sells_____of water a day, and the market quantity supplied is ___of water a day.

1,000 bottles; 2,000 bottles; 3,000 bottles

What happens in the market for bottled water when the price of a bottle of water rises? If the price rises from $1.00 to $1.50, Aqua's quantity supplied increases from _____bottles, Prima's quantity supplied increases from ____bottles, and the market quantity supplied increases from _____bottles of water a day.

1,000 to 2,000; 2,000 to 3,000; 3,000 to 5,000

In one hour, Nick can fill 3 bags of leaves OR clean 6 windows. Nick's opportunity cost for a bag of leaves is _____ cleaned window(s), his opportunity cost for a cleaned window is _____bag(s) of leaves.

2; 1/2

In a village, Lou and Lisa are the only people who buy haircuts. When the price is $15.00, Lisa plans to buy two haircuts a year and at $10.00 a haircut she plans to buy three. When the price is $15.00 a haircut, Lou plans to buy one haircut a year and at $10.00 a haircut he plans to buy two. What is one point on the market demand curve for haircuts? The quantity demanded is_____.

3 haircuts per year at $15.00 a haircut

At 3 bags OR 6 windows per hour, how long will it take Nick to clean all 24 of the windows?

4 hours

At 5 bags OR 3 windows per hour, how long will it take Chris to fill all 30 of the bags?

6 hours

At 3 bags OR 6 windows per hour, how long will it take Nick to do his half, filling 15 bags and cleaning 12 windows?

7 hours

Positive disagreements

Disagreements that can be settled by facts--disagreements about what is.

Normative disagreements

Disagreements that can't be settled by facts--disagreements about what should be.

Change in the quantity demanded

A change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same.

Externality

A cost or a benefit that arises from production and that falls on someone other than the producer; or a cost or a benefit that arises from consumption and that falls on someone other than the consumer.

Explicit cost

A cost paid in money.

Long-run average cost curve

A curve that shows the lowest average total cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labor employed.

Marginal benefit curve

A curve that shows the relationship between the quantity consumed of a good and its marginal benefit.

Marginal cost curve

A curve that shows the relationship between the quantity produced of a good and its marginal cost.

Public choice

A decision that has consequences for many people and perhaps for an entire society.

Chocolate is produced from cocoa beans, which can be grown only in a few African nations close to the equator. If global warming decreases the production of cocoa beans, which diagram shows its effect in the market for chocolate?

A decrease in supply

Economic model

A description of some economic phenomenon that includes only those features assumed necessary to explain the observed facts.

Economic profit

A firm's total revenue minus opportunity cost.

Trend

A general tendency for the value of a variable to rise (an upward or positive trend) or fall (a downward or negative trend).

Inferior good

A good for which demand decreases when income increases, and demand increases when income decreases.

Normal good

A good for which demand increases when income increases, and demand decreases when income decreases.

Private good

A good or service that can be consumed by only one person and only by the person who buys it.

Public good

A good or service that can be consumed simultaneously by everyone and from which no one can be excluded.

Club good

A good or service that can be consumed simultaneously by everyone, but those who have not joined the club can be excluded from enjoying its benefits.

Substitute

A good that can be consumed in place of another good.

Substitute in production

A good that can be produced in place of another good.

Complement

A good that is consumed with another good.

Complement in production

A good that is produced along with another good.

Excludable

A good, service, or resource is excludable if it is possible to prevent someone from enjoying its benefits.

Nonexcludable

A good, service, or resource is nonexcludable if it is impossible to prevent someone from enjoying its benefits.

Nonrival

A good, service, or resource is nonrival if its use by one person does not decrease the quantity available for someone else.

Price ceiling or price cap

A government regulation in a market that places an upper limit on the price at which the item may be traded.

Rent ceiling

A government regulation in the rental housing market that makes it illegal to charge more than a specified rent to come.

Price floor

A government regulation that places a lower limit on the price at which the item may be traded

Production quota

A government regulation that places an upper limit on the quantity that may be supplied.

Negative relationship

A graph in which the two variables move in opposite directions. (Also called inverse relationship.)

Inverse relationship

A graph in which the two variables move in opposite directions. (Also called negative relationship.)

Positive relationship

A graph in which the two variables move in the same direction. (Also called direct relationship.)

Direct relationship

A graph in which the two variables move in the same direction. (Also called positive relationship.)

Income Lorenz curve

A graph of the relationship between the cumulative percentage of households and the cumulative percentage of income.

Wealth Lorenz curve

A graph of the relationship between the cumulative percentage of households and the cumulative percentage of wealth.

If in the market for chocolate the effect of global warming is larger than the effects of a rising population and global income growth, which diagram shows how the equilibrium price and quantity of chocolate will change?

A larger decrease in supply than increase in demand

Demand schedule

A list of the quantities demanded at each different price when all the other influences on buying plans remain the same.

Supply schedule

A list of the quantities supplied at each different price when all the other influences on selling plans remain the same.

Competitive market

A market that has many buyers and many sellers, so many that no single buyer or seller can influence the price.

Income elasticity of demand

A measure of the responsiveness of the demand for a good to a change in income when all other influences on buyers' plans remain the same.

Benefit-cost analysis

An accounting exercise to determine the total benefit, total cost, and net benefit of a proposed project.

Market

An arrangement that brings buyers and sellers together and enables them to get information and do business with each other.

Centrally planned economy

An economy in which government regulators allocate most of the resources.

Market economy

An economy that uses markets and prices to coordinate choices and allocate resources.

Tradeoff

An exchange--giving up one thing to get something else.

Laboratory experiment

An experiment that puts people (often students) in a decision-making situation and varies the influence of one factor at a time to discover how they respond to changed incentives.

Chocolate has been considered a luxury for centuries, during which global population and income have increased. Which diagram shows the effects of population and income growth in the market for chocolate?

An increase in demand

Which of the following events increases the demand for college education?

An increase in population, a rise in income, and an increase in the number of jobs requiring a college education

Implicit cost

An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment.

Economic depreciation

An opportunity cost of a firm using capital that it owns-measured as the change in the market value of capital over a given period.

Production quota

An upper limit to the quantity of a good that may be produced in a specified period.

Suppose that Bill's income increases. If, other things remain the same, Bill buys less ketchup and more apple juice, what sort of goods are ketchup and apple juice?

Apple juice is a normal good.

Law of decreasing returns

As a firm uses more of a variable factor of production, with a given quantity of fixed factors, the marginal product of the variable factor eventually decreases.

Gary Becker

Gary Becker, of the University of Chicago, winner of the 1992 Nobel Prize, took economics into areas that were traditionally considered sociology. He studied racial discrimination, crime, family organization, drug addiction, and organ donation. He was also a leader in the study of human capital.

George Akerlof

George Akerlof shared the Nobel Prize for Economics in 2001 for his work on markets in which sellers are better informed than buyers about the quality of the product-used cars in his example. More recently, and working with Rachel Kranton, he has studied the role of identity--a persons's concept of self--on economic choices.

Just to make sure it's clear, having comparative advantage means:

Having a lower opportunity cost than everyone else

Disposable income

Market income plus cash benefits paid by the government minus taxes.

Money income

Market income plus cash payments to households by governments.

Goods markets

Markets in which goods and services are sold.

Factor markets

Markets in which the services of factors of production are bought and sold.

Property rights

Legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in the courts.

Mary can make 40 pizzas an hour or 40 cakes an hour, while Ali can produce 20 pizzas or 10 cakes. Does Mary or Ali have an absolute advantage or a comparative advantage?

Mary has an absolute advantage.

Mary makes 10 muffins and 20 cakes a day. Her opportunity cost of producing a cake is 2 muffins. Tim makes 20 muffins and 10 cakes a day. His opportunity cost of producing a cake is 4 muffins. If Mary and Tim specialize and produce the good in which they have a comparative advantage, what do they produce?

Mary produces only cakes and Tim produces only muffins

This rate change in Seattle, which did not occur in surrounding cities, creates an opportunity for economists to conduct a ...?

Natural experiment

The belief that higher prices are bad is:

Normative

Suppose you work more and study less, and your grade is 70 points instead of 90 points. The loss of 20 points is your:

Opportunity cost

Law of demand

Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases.

Law of supply

Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases.

Scarcity

Our inability to get everything we want.

Economics studies choices that arise from one fact. What is that fact?

Our resources are unable to satisfy all our wants.

Ability-to-pay principle

People should pay taxes according to how easily they can bear the burden.

Raj Chetty

Rai Chetty is an economics professor at Harvard University and winner of the 2013 Clark Medal. His research is on tax policy, social insurance, and education policy. His data-intensive work has shown that large changes in income taxes have large effects on the decision to get a job but small effects on the hours of work by people who have jobs.

Ronald Coase

Ronald Case, winner of the 1991 Nobel Prize, founded the field of law and economics. He revolutionized how we think about the social cost of pollution; explained in a paper he wrote when an undergraduate at the London School of Economics) why people create and work for firms rather than for themselves; and showed broadcasting regulators how to use market forces to allocate radio frequencies.

Pollution taxes

Taxes on polluting production set at a level that confronts producers with the external costs of their actions. Also called Pigovian taxes.

Vertical equity

Taxpayers with a greater ability to pay should bear a greater share of the taxes.

Horizontal equity

Taxpayers with the same ability to pay should pay the same taxes.

Land

The "gifts of nature," that we use to produce goods and services.

Quantity demanded

The amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price.

Quantity supplied

The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price.

Tax burden

The amount of tax paid plus the deadweight loss that results from the tax.

Tax revenue

The amount that a government receives from a tax.

Income

The amount that a household receives in a given period.

Regressive tax

The average tax rate decreases as income increases, and the marginal tax rate is below the average tax rate.

Progressive tax

The average tax rate increases as income increases, and the marginal tax rate exceeds the average tax rate.

Proportional tax

The average tax rate is the same at all income levels, and the marginal tax rate equals the average tax rate, also called a flat tax.

Marginal external benefit

The benefit from an additional unit of a good or service that people other than the consumer of that good or service enjoy.

Marginal private benefit

The benefit from an additional unit of a good or service that the consumer of that good or service receives.

Marginal benefit

The benefit received from consuming one more unit of a good or service.

Production possibilities frontier

The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced.

Marginal cost

The change in total cost that results from a one-unit increase in output.

Marginal product

The change in total product that results from a one-unit increase in the quantity of labor employed.

Total cost

The cost of all the factors of production used by a firm.

Marginal external cost

The cost of producing an additional unit of a good or service that falls on people other than the producer.

Marginal private cost

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service.

Opportunity cost

The cost of something is what you must give up to get it.

Total fixed cost

The cost of the firm's fixed factors of production--the cost of land, capital, and entrepreneurship.

Total variable cost

The cost of the firm's variable factor of production--the cost of labor.

Excess burden

The deadweight loss created by the tax.

Rational ignorance

The decision not to acquire information because the marginal cost of doing so exceeds the marginal benefit.

Deadweight loss

The decrease in total surplus that results from inefficient underproduction or overproduction.

Technological change

The development of new goods and of better ways of producing goods and services.

Tax incidence

The division of a tax between the buyer and the seller.

Tax rate

The dollar amount of a tax per unit.

Consumer surplus

The excess of the marginal benefit of a good over the price paid for it, summed over the quantity bought.

Producer surplus

The excess of the price of a good over the marginal cost of producing it, summed over the quantity produced.

Capital accumulation

The growth of capital resources, including human capital.

Entrepreneurship

The human resource that organizes labor, land, and capital.

Owners of factors of production sell their services. The income they earn determines for whom goods and services are produced. Which of the following statements is correct?

The owners of capital earn interest and labor earns wages.

Poverty rate

The percentage of families living in poverty.

Average tax rate

The percentage of income that is paid in tax.

Equilibrium price

The price at which the quantity demanded equals the quantity supplied.

Total revenue

The price of the good multiplied by the quantity sold.

Economic growth

The process of sustained expansion of production possibilities.

Tax base

The quantity on which a tax is levied.

Demand

The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same.

Supply

The relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same.

Dave Donaldson

The research of Dave Donaldson, a Canadian economist at MIT and winner of the 2017 Clark Medal, is an example of how the best economists use data. He calculated from original records railroad transportation costs in 19th century India and calculated the gains from the inter-regional trade made possible by the new railroad technology. The gains were big!

Factors of production

The resources used to produce goods and services-land, labor, capital, and entrepreneurship.

Normal profit

The return to entrepreneurship. Normal profit is part of a firm's opportunity cost because it is the cost of not running another firm.

Command-and-control regulation

The setting of standards that define what is and is not legally permitted, and direct monitoring to ensure that the standards are met.

allocative efficiency

The situation an economy achieves when its scarce resources are used to produce the quantities of goods and services that are valued most highly.

slope

The slope of a curve equals the change in the y-variable divided by the change in the -variable.

Economy

The social mechanism that coordinates choices and allocates scarce resources to their alternative uses.

Economics

The social science that studies the choices that individuals, businesses, and governments make as they cope with scarcity; the incentives that influence those choices; and the social mechanism that coordinates them.

Total surplus

The sum of producer surplus and consumer surplus.

Market demand

The sum of the demands of all the buyers in a market.

Market supply

The sum of the supplies of all the sellers in a market.

A new technology lowers the cost of producing a movie. Does this event change the quantity of movies supplied, the supply of movies, or both?

The supply of movies increases.

Median voter theory

The theory that governments pursue policies that make the median voter as well off as possible.

Goods and services

The things that people value and produce to satisfy wants.

Which of the following options is the opportunity cost of attending a ball game?

The things you would have bought with what you spent on the ticket and the bus fare getting to the game plus the alternative things you would have done with your time.

Long run

The time frame in which the quantities of all resources can be varied.

Short run

The time frame in which the quantities of some resources are fixed. In the short run, a firm can usually change the quantity of labor it uses but not its technology and quantity of capital.

Total product

The total quantity of a good produced in a given period.

Big tradeoff

The tradeoff between efficiency and equality.

Big tradeoff

The tradeoff between the fairness and the efficiency of a tax.

Wealth

The value of the things that a household owns at a point in time.

Labor

The work time and work effort that people devote to producing goods and services.

Economic problem

To make choices that use scarce resources in the best possible way to make the best choices.

Which of the following examples illustrates absolute advantage?

Tom does his math homework in 2 hours, while Harry takes only 30 minutes to do the same task.

Capital

Tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services.

Average total cost

Total cost per unit of output, which equals average fixed cost plus average variable cost.

Average fixed cOst

Total fixed cost per unit of output.

Average product

Total product divided by the quantity of a factor of production. The average product of labor is total product divided by the quantity of labor employed

Average variable cost

Total variable cost per unit of output.

Perfectly elastic demand

When a close-to-zero price change brings a large change in the quantity demanded, the price elasticity of demand is infinitely large.

Perfectly elastic supply

When a close-to-zero price change brings a large change in the quantity supplied, the elasticity of supply is infinitely large.

Perfectly inelastic demand

When a price change brings no change in the quantity demanded, the price elasticity of demand equals zero.

Perfectly inelastic supply

When a price change brings no change in the quantity supplied, the elasticity of supply equals zero.

Production efficiency

When it is not possible to produce more of one good or service without producing less of something else.

Political equilibrium

When the choices of voters, firms, politicians, and bureaucrats are all compatible and no group can see a way of improving its position by making a different choice.

Increasing marginal returns

When the marginal product of an additional worker exceeds the marginal product of the previous worker.

Decreasing marginal returns

When the marginal product of an additional worker is less than the marginal product of the previous worker.

Unit elastic supply

When the percentage change in the quantity supplied equals the percentage change in the price, the elasticity of supply equals one.

Elastic supply

When the percentage change in the quantity supplied exceeds the percentage change in the price, the elasticity of supply exceeds one.

Inelastic supply

When the percentage change in the quantity supplied is less than the percentage change in the price, the elasticity of supply is less than one.

Market equilibrium

When the quantity demanded equals the quantity supplied-buyers' and sellers' plans are in balance.

Is it possible to earn a grade of 70 and also earn $10? If you produce this combination of grade and income, are you using your time efficiently?

Yes; No

Why do economists say "There is no such thing as a free lunch"? Economists say "There is no such thing as a free lunch" because____.

a free lunch would be available only if production was inefficient and people don't make choices that waste resources

Soft-drink firms produce both cola and flavored water. Which of the following events increases the supply of cola? The supply of cola increases when ______

a new technology that lowers the cost of making cola is used

Phone produces smartphones. When it produces 1,000 smartphones, a phone costs $100; when it produces 5,000 smartphones, a phone costs $75; and when it produces 10,000 smartphones, a phone costs $90. What is the relationship between the cost of producing a phone and the quantity of smartphones produced? With the quantity produced measured on the x-axis, a graph of the data shows

a relationship with a minimum point

What happens in the market for oranges if the price is below the equilibrium price? If the price is below the equilibrium price,_____.

a shortage of oranges occurs, so the price starts to rise

The number of concerts in California and the number of beaches in Florida are unrelated variables. How does a graph illustrate such a relationship? A graph shows the relationship as

a vertical curve

Recently, economists conducted an experiment that awarded teachers merit pay if their students' test results improved. The results showed that teachers didn't just teach to the test but also provided students with skills that will serve them well later in life. What can you learn from this experiment? Merit pay was ___because

an effective incentive for teachers; students acquired skills beyond what was needed to increase test scores

What is the most likely explanation for the changes in college enrollment and tuition over the last forty years? The changes are most likely the result of ____because tuition and enrollment both increased.

an increase in demand

How do economists try to disentangle cause and effect? Economists try to disentangle cause and effect by

building and testing economic models

Terry is training for the Olympics: The farther he sprints, the longer is his recovery time, and recovery time increases at an increasing rate. What type of curve illustrates the relationship between the distance sprinted and recovery time when the distance sprinted is measured on the x-axis? The relationship is illustrated by ___ as the distance increases.

an upward-sloping curve that becomes steeper

Liz and Joe made a deal to specialize and trade. The deal results in Liz and Joe producing____.

at a point on the Liz- joe economy PPF

Why is the economy's PP bowed outward? The economy's PPF is bowed outward because when resources are used efficiently, goods are produced____.

at the lowest possible opportunity cost

Cake shops use flour to produce cakes. How do cake shops respond to a rise in the price of flour, other things remaining the same? Cake shops_____.

decrease the supply of cakes because the cost of producing a cake has risen

How has the U.S. distribution of income changed over the past few decades? Labor's share of total income has____and the percentage of total income earned by the highest quintile has____.

decreased; increased

How have new fracking technologies changed the opportunity cost of production? New fracking technologies have_____the opportunity cost of producing_____.

decreased; shale gas

Gatorade and bottled water are substitutes. How does a fall in the price of Gatorade influence the market for bottled water?As the price of Gatorade falls, the demand for bottled water____

decreases and the demand curve for bottled water shifts leftward

A bakery uses its resources to produce both cakes and bread. When the price of bread rises, how does the bakery change what it produces? The bakery ____.

decreases the supply of cakes

Ice cream is made from fresh milk. A change occurs in the market for ice cream and the supply of ice cream changes. How does the supply change and why? The supply of ice cream ____.

decreases today when the price is expected to rise next month

When both the demand for and supply of bottled water decrease but demand decreases by more than supply decreases, how do the quantity and the price change? The quantity____and the price____.

decreases; falls

When the supply of bottled water increases and the demand for bottled water decreases, but the decrease in demand is greater than the increase in supply, how do the quantity and the price change? The quantity ____and the price______.

decreases; falls

If the price of a gym membership rises to $3.00, what happens to the demand for bottled water, and why? The demand for bottled water ___and the demand curve shifts_____because a gym membership is a ____bottled water.

decreases; leftward; complement of

When the wage rate of bottling-plant workers increases, what happens to the supply of bottled water, and why? The supply of bottled water ____and the supply curve shifts ______because the wage rate is a____bottled water.

decreases; leftward; cost of producing

When the price of flavored water increases, what happens to the supply of bottled water, and why? The supply of bottled water ____and the supply curve shifts ____because flavored water is a____for bottled water.

decreases; leftward; substitute in production

What changes occur in the market for shorts when the wage rate paid to garment workers increases? The higher wage rate____the supply of shorts, which____the equilibrium price and ____.

decreases; raises; decreases the quantity demanded of shorts

What changes occur in the graph of Tina's demand curve as the price of bottled water rises? As the price rises, Tina's quantity demanded _____as she moves____along her demand curve.

decreases; up

What is the problem with using a statistical correlation to test an economic model? The problem with correlation is that it

does not provide information about the direction of causation

2 tries left Think about the things you want, the choices you make, and where you make your transactions. Where do the following transactions take place? 1. When you want a bagel and a latte or a new pair of shoes, you find them in a ____market. 2. When you want a weekend job, you will look for one in a____market. 3. Market ____create(s) the incentives that coordinate the choices of buyers and sellers and of consumers and producers.

goods; factor; prices

Read the following media headlines. 1. Many full-service gas stations are switching to self-service. 2. Spas and gyms are booming. 3. Store managers earn $200,000 a year, while salespeople earn $20 an hour. Which headline is about what goods and services are produced? Which is about how they are produced? And which is about for whom they are produced? Statement 1 is about ____Statement 2 is about_____;Statement 3 is about ____

how; what; for whom

Profit

income earned by y entrepreneurship.

The relationship between two variables is described by an upward-sloping straight line. What might the two variables be? The variables might be

income earned from working at Starbucks at a wage rate of $16 an hour

Where in the circular flow model does a worker's paycheck appear? A worker's paycheck appears in the flow of____.

incomes paid by firms to households for labor services

Which curve illustrates the law of supply? The curve that shows that producers _____.

increase the quantity supplied when the price rises

For consumers, donuts and cookies are substitutes. How do buying plans change if the price of a donut increases? If the price of a donut increases, the demand for cookies will _____

increase, and the demand curve for cookies will shift rightward

Did college enrollment increase, decrease, or remain relatively constant over the last forty years? Over the last forty years, college enrollment_____.

increased. It approximately doubled

When the price of a ticket rises from $20 to $40 and all other influences on selling plans are unchanged, how does the quantity supplied of concert tickets change? The quantity supplied _____.

increases from 2 million to 4 million concert tickets

A timber mill produces wooden boards from logs, and in the process, the mill produces sawdust, which it uses to make wooden pellets. When the price of sawdust rises, other things remaining the same, how does the timber mill change what it produces? The timber mill_____.

increases the supply of wooden boards

When both the demand for and supply of bottled water increase but demand increases by more than supply increases, how do the quantity and the price change? The quantity___and the price___.

increases: rises

If the price of a smartphone falls and no other influence on buying plans change, how do the quantity demanded of smartphones and the demand for smartphones change? The quantity demanded _____and the demand for smartphones _____.

increases; does not change

In the market for lattes, if the number of coffee shops increases, how does the quantity of lattes demanded and the demand for lattes change? The quantity of lattes demanded _____and the demand for lattes____.

increases; does not change

How does an increase in income influence the demand for tennis rackets? The demand for tennis rackets _____and the demand curve shifts_____.

increases; rightward

If the price of Gatorade rises to $3.00 a bottle, what happens to the demand for bottled water, and why? The demand for bottled water ____and the demand curve shifts____because Gatorade is a____bottled water.

increases; rightward; substitute for

When the supply of bottled water decreases and the demand for bottled water increases but the increase in demand is greater than the decrease in supply, how do the quantity and the price change? The quantity ____and the price_____.

increases; rises

What happens to the supply curve when the supply of bottled water changes? When the supply of bottled water ____,the supply curve_____.

increases; shifts rightward

When buying plans change the demand for bottled water, how does the demand curve shift? When the demand for bottled water____,the demand curve___.

increases; shifts rightward

In the graph you just explored, what changes occur when the price of bottled water rises? When the price rises from $1.00 to $1.50 a bottle, Aqua's quantity supplied _____and Aqua moves____.

increases; up along the supply curve

If the island economy produces 4 pounds of fish and 5 pounds of berries, is its production efficient and why? Production on this island is___.

inefficient, because it is wasting or not using all its resources

Car makers report that luxury cars are becoming more popular. What do you predict is happening to the demand for luxury cars? The demand for luxury cars ____.

is increasing

Businesses use resources and technology to produce goods and services. Economists group the resources into four factors of production. What are they? The four factors of production are___.

labor, land, capital, and entrepreneurship

What are the incomes that factors of production earn? Rent is the income paid for the use of____ Wages are income paid for the services of___ Profit (or loss) is the____earned by an entrepreneur for running a business. Interest is the income paid for the use of___

land; labor; income; capital

What happens when the supply of bottled water changes and the price rises from $1.00 to $1.50 a bottle? The supply curve shifts _____and the equilibrium quantity changes from_____bottles a day.

leftward; 10 million to 9 million

What happens in the market for bottled water when both the demand for and supply of bottled water decrease? The demand curve and the supply curve shift ____,the quantity______,and the price____.

leftward; decreases; might rise or fall

What happens in the market for bottled water when the demand for bottled water decreases? The demand curve shifts_____,the price_____,and______decreases.

leftward; falls; the quantity supplied

Now make the graph show the effects of a decrease in supply and an increase in demand and then work this exercise. What happens in the market for bottled water when the supply of bottled water decreases and the demand for bottled water increases? The supply curve shifts_____,the demand curve shifts______,the quantity _____,and the price______.

leftward; rightward; might increase or decrease; rises

What changes occur in the market for bottled water when supply decreases? The supply curve shifts _____,the price_____and____decreases.

leftward; rises; the quantity demanded

How do you respond to a rise in the price of a movie ticket? With movie tickets more expensive, you have an incentive to go to the movies

less often and view more movies online

What is the opportunity cost of economic growth? The opportunity cost of economic growth is____.

less production of consumption goods today

In the market for cola, how does the market equilibrium change when both the supply of cola and the demand for cola decrease? The equilibrium price of cola _____and the equilibrium quantity of cola_____.

might rise, fall, or not change; decreases

In the market for coffee, what happens to the price of coffee when both the supply of coffee and the demand for coffee increase? The equilibrium price of coffee ______and the equilibrium quantity of coffee_____.

might rise, fall, or not change; increases

The market for digital watches is at its market equilibrium. Now the cost of producing a digital watch rises, and at the same time, the price is expected to fall next month. What is the effect on the equilibrium price and equilibrium quantity this month? This month, the equilibrium price of a digital watch ____and the equilibrium quantity of digital watches____.

might rise, fall, or not change; will decrease

The market for fresh chicken is at its market equilibrium. Now the price of beef rises and the number of chicken producers increases. What happens to the equilibrium price and equilibrium quantity of chicken? With all other influences on the market for chicken remaining the same, the equilibrium price of a chicken ______and the equilibrium quantity of chicken _____.

might rise, fall, or not change; will increase

When does a movement along the supply curve occur, and when does the supply curve shift? If the price of a good rises, a_____the supply curve occurs, but if any other influences on selling plans change, then a _____the supply curve occurs.

movement up along; shift of

What is an economic model? An economic model is a mathematical or graphical description of

only those features of the real world assumed necessary to explain the observed facts

How has new fracking technologies influenced the U.S. PPF? The U.S. PPFhas shifted____.

outward along the shale gas axis only

Since 2010, how has the annual average growth rate of U.S. shale gas production changed? The annual average growth rate has been____.

over 20 percent

Why is economics a science? Economics is a science (a social science) because it seeks to

predict the effects of economic forces by using the same methods as natural scientists

When you changed the prices of bottled water and flavored water and the wage rate of bottling-plant workers, which change had no effect on the supply of bottled water, and why? A change in the ____has no effect on the supply of bottled water because it ____.

price of bottled water; changes the quantity supplied along the supply curve

What do you measure on the y-axis, and what is Tina's quantity demanded when the price is $1.50 a bottle? A graph measures _____on the y-axis, and at $1.50 a bottle, Tina's quantity demanded is?

price of the good; 1 bottle per day

When you make a graph of a supply curve, what do you measure on the y-axis? How does Aqua's quantity supplied change as the price of bottled water rises? A graph of the supply curve measures the _____on the y-axis, and when the price of bottled water rises, Aqua's quantity supplied _____.

price of the good; increases

How does the market economy coordinate choices and allocate scarce resources? The market economy uses _ resources to coordinate choices and allocate scarce.

prices

What happens in the market for video games if the demand for video games increases by more than the supply of video games decreases? The equilibrium price will____and the equilibrium quantity will____.

rise; increase

If incomes increase and the number of producers of batteries decreases, how will the equilibrium price and equilibrium quantity of batteries change? The equilibrium price of a battery will ___and the equilibrium quantity of batteries _____.

rise; might increase, decrease, or not change

How does the increase in income change the equilibrium price and equilibrium quantity of tennis rackets? The equilibrium price of a tennis racket _____and the equilibrium quantity _____.

rises; increases

In the market for pizza, how does the market equilibrium change when the demand for pizza increases and the supply of pizza decreases? The equilibrium price of a pizza ____and the equilibrium quantity of pizzas_____.

rises; might increase, decrease, or not change

What happens to the price of a computer when the supply of computers decreases? A decrease in the supply of computers creates a ____of computers at the original price and a ____in the price of a computer.

shortage; rise

What happens if the price is $0.75 a bottle? At $0.75 a bottle, there is a _____of bottled water, so the price______.

shortage; rises

What happens if the price is below the market equilibrium price? A____arises and the price____.

shortage; rises

How goods and services are produced changes over time. Which of the changes taking place today are resulting from artificial intelligence replacing human intelligence? Artificial intelligence (capital) is replacing human intelligence (labor) in the production of

some goods, and freed-up labor is producing new goods that satisfy previously unsatisfied wants

A factory uses its resources to produce leather jackets and leather belts. If the price of a leather jacket falls, what happens in the market for leather belts? Leather jackets and leather belts are ____.A fall in the price of a leather jacket will_____the equilibrium price of a leather belt and____the equilibrium quantity of leather belts.

substitutes in production; decrease; increase

What is market equilibrium? At the market equilibrium, the price of the good is_____.

such that the quantity demanded by buyers equals the quantity supplied by sellers

Students who study economics gain a wide variety of skills that employers look for in job applications. What are these skills? The skills that employers look for in economics majors include

the ability to speak and write clearly and analyze data

Which of the following statements defines economics? Economics is the social science that studies

the choices made to cope with scarcity, the influences on those choices, and how choices are coordinated

What is human capital? Human capital is____.

the knowledge and skill of people

Which of the following events will increase the supply of sunscreen? If_____and no other influences on selling plans change, then the supply of sunscreen will increase.

the number of sunscreen producers increases

Make and interpret graphs that display economic data.

• A graph is made by plotting the values of two variables & and y at a point that corresponds to their values measured along the x-axis and the y-axis. • When the axes measure two economic variables, a scatter diagram shows the relationship between the two variables. It shows whether they are positively related, negatively related, or unrelated. •When the x-axis measures time, a time-series graph shows how a variable fluctuates over time. • Sometimes, one of the axes displays categories rather than values. A cross-section graph shows the values of a variable across the categories.

Explain how people gain from specialization and trade.

• A person has a comparative advantage in producing a good if that person can produce the good at a lower opportunity cost than everyone else. • People gain by specializing in the activity in which they have a comparative advantage and trading with others.

Explain how economics is useful as a job skill and a life skill.

• Economics is a toolkit used to make decisions. • Economics is a foundation on which to build critical-thinking skills. • Economics majors work in a wide range of jobs as economists and analysts. • The outlook for job growth of economics majors is good and pay is above average.

Explain how economists go about their work as social scientists and policy advisers.

• Economists distinguish between positive statements that can be checked by appealing to facts and normative statements that are matters of opinion. • Economists use the scientific method to try to understand how the economic world works. • Economic models are tested using natural experiments, statistical investigations, and laboratory experiments.

Describe three questions that economists try to answer.

• Economists want to understand the forces that determine what, how, and for whom goods and services are produced.

Make and interpret graphs used in economic models.

• Graphs are used to show relationships among variables in economic models. • Relationships can be positive (an upward-sloping curve), negative (a downward-sloping curve), positive and then negative (have a maximum point), negative and then positive (have a minimum point), or unrelated (a horizontal or vertical curve). • A straight line has a constant slope. • A curved line has a varying slope. To calculate the slope of a curved line, we calculate the slope at a point on the curve.

Explain how economic life is organized.

• Markets coordinate the economic choices of households and firms. • The circular flow model shows the flows of factors of production from households to firms and of goods and services from firms to households. • The circular flow model shows the corresponding flows of incomes paid by firms to households and of expenditures from households to firms.

Explain and illustrate the economic problem.

• The economic problem is making the best use of scarce resources. • The production possibilities frontier illustrates the economic problem. • Production efficiency occurs at points on the PPF. • Along the PPF, the opportunity cost of producing more of one good is the increasing amount of the other good that must be given up.