econ 211 exam 1

Principle 1: People Face Trade-offs

To get something that we like, we have to give up something else that we also like

in a competitive market, the quantity of a product produced and the price of the product are determined by

both buyers and sellers

how can absolute advantage be determined?

by comparing different producers input requirements per unit of output

what are gains from specialization and trade based on?

comparative advantage

what represents specialization and its relationship with trade?

comparative advantage

An increase in the price of a good will

decrease demand

If the number of buyers in a market decreases, then

demand will decrease

true or false: David Ricardos greatest contribution in his theory on free trade, was based on absolute advantage

false

true or false: If one producer has the absolute advantage in the production of all goods, then that same producer will have the comparative advantage in the production of all goods as well.

false

true or false: When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other is constant

false

true or false: points outside the production possibilities frontier represent feasible levels of production

false

A decrease in the price of a good will

give producers an incentive to produce less

Prices act as signals in the markets. if the price of a good increases due to an increase in demand, this is a signal to producers to

increase production

when the price of a good decreases, buyers purchase more of the good

law of demand

If Max experiences a decrease in his income, then we would expect Max's demand for

normal goods to decrease

Principal 5: Trade can make everyone better off

people can buy a greater variety of goods and services at a lower cost

equality

prosperity is distributed uniformly among society's members

An increase in quantity supplied

results in a movement upward and to the right along a fixed supply curve

when quantity demanded decreases at every possible price, the demand curve has

shifted to the left

Principle 3: Rational People Think at the Margin

small incremental adjustments to a plan of action

Efficiency

society gets the most from its scarce resources

Principle 4: People Respond to Incentives

something that induces a person to act

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?

the amount you value the first movie + $3

today's supply curve for ipods could shift in response to a change in

the expected future price of ipods

Scarcity

the limited nature of society's resources

a rational decision maker takes action if and only if

the marginal benefit of the action exceeds the marginal cost

What is not a determinant of demand?

the price of a resource that is used to produce the good

Economics

the study of how society manages its scarce resources in the most efficient way possible

when the price of a good or service changes,

there is a movement along a given supply curve

true or false: points inside the production possibles frontier represent feasible levels of production?

true

true or false: when a production possibles frontier is a straight line, the opportunity cost of one good in terms of the other is constant

true

Principle 2: Opportunity Cost

whatever must be given up to obtain some item $