Econ Exam 1

An increase in the price of blueberries would lead to a(n)

a movement up and to the right along the supply curve for blueberries.

not feasible:

a point beyond the plotted line on the PPF

feasible:

a point on the PPF

shortage:

a situation in which quantity demanded is greater than quantity supplied

surplus:

a situation in which quantity supplied is greater than quantity demanded

equilibrium:

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

Circular Flow Model:

a visual model of the economy

Inefficient:

ex. unemployment, the economy is producing less than it could from the resources it has available

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

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

Which of the following can lead to market failure?

externalities and market power

expectations:

future income and future prices

describe a market:

a group of buyers + sellers of a particular good or service

characteristics of competitive markets: Competitive market:

a market in which there are many buyers & many sellers so that each has a negligible impact on the market price 1) the goods offered for sale are all exactly the same, & 2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

microeconomics vs. macroeconomics:

-Microeconomics is the study of economics at an individual, group/company level. Microeconomics focuses on issues that affect individuals & companies. -Macroeconomics is the study of a national economy as a whole.

why economists disagree:

-economists may disagree about the validity of alternative positive theories of how the world works -economists may have different values & therefore different normative views about what govt policy should aim to accomplish

market supply versus individual supply:

-market supply is the sum of the supplies of all sellers -the market supply is the sum of the 2 individual supplies

normative vs. positive statements

-positive statements are descriptive -normative statements are prescriptive

the two roles of economists:

1) scientists: seekers of truth 2) policy advisors: more opinion involved

3 steps for analyzing changes in equilibrium:

1. Decide whether the event shifts the supply or demand curve (or perhaps both) 2. Decide in which direction the curve shifts 3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity

Ten Principles of Economics

1. People face trade-offs 2. The cost of something is what you give up to get it 3. Rational people think at the margin 4. People respond to incentives 5. Trade can make everyone better off 6. Markets are usually a good way to organize economic activity 7. Govts. can sometimes improve market outcomes 8. A country's standard of living depends on its ability to produce goods and services 9. Prices rise when the govt prints too much money 10. Society faces a short-run trade-off between inflation and unemployment

Complements:

2 goods for which an increase in the price of 1 leads to a decrease in the demand for the other

Substitutes:

2 goods for which an increase in the price of 1 leads to an increase in the demand for the other

Serena Williams should pay someone else to mow her lawn instead of mowing it herself, unless

Serena has a comparative advantage over everyone else in mowing her lawn.

A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?

The United States should withdraw from the North American Free Trade Agreement (NAFTA).

determine/define comparative advantage:

The ability to produce a good at a lower opportunity cost than another producer. -The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X & is said to have a comparative advantage in producing it.

What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk, which is used to make lattés, increased, and scientists discovered that lattés cause heart attacks?

The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

Production Possibility Frontier (PPF)-

a graph that shows the various combinations of output

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

both buyers and sellers

marginal decision-making:

decision making are small adjustments comparing the marginal cost and marginal benefits

The supply curve for stand up paddle boards

does not shift when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the vertical axis of the graph.

Efficient:

if the economy is getting all it can from the scarce resources it has available.

If muffins and bagels are substitutes, a higher price for bagels would result in a(n)

increase in the demand for muffins

slope represents tradeoff:

linear PPF: constant slope = constant tradeoff

trade-offs:

making decisions requires trading off 1 goal against another

Tastes:

most obvious determinant of your demand

the role of incentives:

something that induces a person to act

law of demand:

states that other factors being constant (ceteris paribus), price + quantity demand of any good & service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.

law of supply:

states that other factors remaining constant, price + quantity supplied of a good are directly related to each other. AKA: when the price paid by buyers for a good rises, then suppliers increase the supply of that good in the market.

Absolute advantage:

the ability to produce a good using fewer inputs than another producer. -the producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

specialization and trade:

the gains from specialization + trade are based on comparative advantage

Which of the following is not held constant in a supply schedule?

the price of the good

equilibrium price:

the price that balances quantity supplied & quantity demanded

equilibrium quantity:

the quantity supplied & the quantity demanded at the equilibrium price

Adam Smith and the invisible hand:

the unobservable market force that helps the demand & supply of goods in a free market to reach equilibrium automatically is the invisible hand.

the role of assumptions:

they can simplify the complex world & make it easier to understand

understand why trade is mutually beneficial - identify terms of trade

trade allows all countries to achieve greater prosperity

A decrease in demand shifts the demand curve to the left.

true

opportunity cost:

whatever must be given up to obtain some item