ECON EXAM 1
centrally planned economies allocate resources based on decisions by (1) , while market economies answer these questions through decisions made by(2) .
1 - government 2 - households and firms
efficiency means that goods are distributed in a way that (1) , while equity means that goods are distributed in a way that (2)
1 - maximizes benefits to society 2 - is fair
continued from previous what are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward
A (1) economy is 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 resource
1 - mixed
According to the law of supply, A. there is a positive relationship between price and quantity supplied. B. as the price of a product increases, firms will supply less of it to the market. C .as the price of a product increases, firms will supply more of it to the market. D. A and C only
A and C only
market economy:
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
total revenue
Price x Quantity
what is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources.
if demand decreases and supply increases, which of the following will definitely occur?
The equilibrium price will decrease
three questions of economics
What to produce? How to produce? For whom to produce?
how can a country gain from specialization and trade?
a country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
Production Possibilities Frontier (PPF)
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
the primary difference between absolute and comparative advantage is:
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
what do economists mean when they use the Latin expression ceteris paribus?
all else equal
which of the following events would create economic growth, that is, shift the production possibilities frontier outward? A. an n increase in the available labor. B.An increase in technology that affects the production of both goods. C.An increase in the available natural resources. D.All of the above
all of the above
Trade-off
an alternative that we sacrifice when we make a decision
centrally planned economy
an economy in which the government decides how economic resources will be allocated
which of the following events would cause the supply curve to decrease from S1 to S2?
an increase in the price of inputs
consider the market for Hewlett-Packard (HP) printers, depicted in the figure to the right, where the supply of HP printers has increased from S1 to S2. What would cause the supply curve for HP printers to shift to the right? A. a decrease in the price of a substitute in production B. A positive technological change C. A higher expected future price for HP printers. D. Both a and b
both A and B
A market is a group of (1)______ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
what is the basis for trade?
comparative advantage
from the list below, select the variable that will cause the demand curve to shift: A. the number of firms in the market B. Consumer income C. The cost of raw materials D. Technology and productivity
consumer income
Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extended periods of paid family leave from work and, consequently, the birthrate per woman increases. If so, then this could best be characterized as an example of people responding to
economic incentives.
consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is:
false: decreases in price affect the quantity demanded, not demand.
consider the supply of crude oil on the world market. In August 2011, the price of oil was roughly $80 per barrel. Which of the following changes would increase the supply of oil?The oil supply curve would shift to the right if:
future oil prices were expected to be lower
In economics, the term "capital" refers to
goods used to produce other goods
if country ABC can produce a unit of good 1 by sacrificing fewer units of good 2 than can country XYZ, it is correct to say that country ABC
has a comparative advantage in producing good 1.
Opportunity cost is
highest valued alternative that must be give up to engage in an activity
scarcity implies that every society and every individual face trade-offs because scarcity means that
human wants are greater than what available resources can produce
what does increasing marginal opportunity costs mean?
increasing the production of a good requires larger and larger decreases in the production of another good
the effect of higher income taxes on the total amount of consumer spending. This is a (2) issue
macroeconomic
the reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a (3) issue
macroeconomics
economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost
would you expect the new and better machinery and equipment to be adopted more rapidly in a market economy or in a centrally planned economy? The new machinery and equipment would be adopted more rapidly in a (1)
market economy
the effect of higher cigarette taxes on the quantity of cigarettes sold. This is a (1) issue
microeconomic
the reasons for low rates of profit in the airline industry. This is a (4) issue.
microeconomics
a primary difference between macroeconomics and microeconomics is:
microeconomics examines individual markets while macroeconomics examines the economy as a whole
Today, which of the following countries has a centrally planned economy? A.North Korea B.United States C.Canada D.Germany
north korea
trade-offs force society to make choices, particularly when answering the following three fundamental questions:
one, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced
When economists develop models designed to explain the choices people make, they generally assume that
people are rational
a large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is $2000 and the marginal cost is $1000 per bed, then the corporation ________ offer additional beds
should
the principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity
smaller
economic growth
the ability of the economy to increase the production of goods and services
What is comparative advantage?
the ability to produce a good or service at a lower opportunity cost than another producer
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
Law of Demand
the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises
marginal cost
the cost of producing one more unit of a good
from the list below, select the variable that will cause the supply curve to shift
the cost of raw materials
what happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
the country is operating on its production possibilities frontier.
if demand and supply both increase, which of the following will definitely occur?
the equilibrium quantity will increase.
which of the following statements about the idea that people are rational is correct?
the idea assumes that consumers and firms use all available information as they act to achieve their goals.
opportunity cost
the most desirable alternative given up as the result of a decision
The law of demand is the assertion that
the quantity demanded of a product is inversely related to its price.
an increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,
the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers' purchasing power.
marginal opportunity cost
the value of what the seller must give up to produce an additional unit
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals
Total Profit
total revenue - total cost
the three economic questions that every society must answer are:
what goods will be produced, how will they be produced, and who will receive the goods
according to the law of demand , there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward. Why?
when the price of a good increases, consumers' purchasing power falls, and they cannot buy as much of the good as they did prior to the price change.
is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good:
will have a comparative advantage if it has a lower opportunity cost of producing that good