Economics Chapter 1, 2, and 3!!!!

Define Voluntary Exchange

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

Voluntary exchange

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

define marginal analysis

Analysis that involves comparing marginal benefits and marginal costs.

define production possibilities frontier (PPF)

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

Which of the following is the correct definition of demand​ curve?

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

If demand is perfectly​ elastic, then what is the effect of an increase in​ price?

a decrease in quantity demanded to zeroa

Which of the following events would shift the supply of smartphones to the​ right?

a decrease in the price of inputs used to produce smartphones

If the income elasticity of SUVs is greater than​ 1, what is the good​ considered?

a luxury

Define the circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms shows that in factor markets, households supply labor and other factors of production in exchange for wages and other payments from firms

define entrepreneur

is someone who operates a business. Entrepreneurial ability is the ability to bring together the other factors of production to successfully produce and sell goods and services.

if the demand curve is inelastic then an increase in price increases revenue because

the decrease in quantity demanded is proportionally smaller than the increase in price.

if the demand curve is unit elastic then an increase in price does not affect revenue because

the decrease in quantity demanded is proportionally the same as the increase in price.

The basis for trade is comparative​ advantage, not absolute advantage.

true

Which participants are of greatest importance in determining what goods and services are​ produced?

. Households.

To take advantage of high prices for snow shovels during a very snowy​ winter, Alexander​ Shovels, Inc., decides to increase output. .

A change in quantity supplied

define positive analysis

Analysis concerned with what is.

The more time that​ passes, the more __________ the demand for a product becomes.

elastic

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

market demand

define Product markets

markets for goods—such as smartphones—and services—such as medical treatment.

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.A

what is a supply curve?

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

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfish."

this statement is based on the misconception that following your​ self-interest and being selfish are the same thing.

t or f: if a product has more substitutes available, it will have a more elastic demand. If a product has fewer substitutes available, it will have a less elastic demand.

true

Copyrights are a​ 'tax' on readers in the sense that

copyrights limit of the supply of related creative work which results in higher prices.

Is the columnist arguing that Spain has an absolute advantage over China in producing​ textiles, a comparative​ advantage, or​ both?

A comparative advantage in producing textiles.

_________ shows the relationship between the price of a product and the quantity of the product demanded.

demand curve

Is the demand for agricultural products elastic or​ inelastic? Why? The demand for agricultural products is

inelastic because such products represent a small share in the​ consumer's budget.

What do property rights have to do with developing such​ markets?

Property rights make it more likely that investments will be made.

What is a free​ market?

A free market is one where the government does not control the production of goods and services.A

what is an Inferior good?

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

what is Normal good

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

define market

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

how do economists develop a model?

Decide on the assumptions to use. Formulate a testable hypothesis. Use economic data to test the hypothesis. Revise the model if it fails to explain the economic data well. Retain the revised model to help answer similar economic questions in the future.

Consider the following​ statement: ​ "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes​ mistakes." What is the most correct response to this​ statement?

Economics assumes that consumers and firms are​ rational, not that they always make the right decisions.

Which of the following statements about economics as a social science is​ correct?

Economics studies the actions of individuals.

what are behavioral assumptions?

Economists assume that consumers will buy the goods and services that will maximize their well-being or their satisfaction.

What type of economic analysis is concerned with the way things ought to​ be?

Normative Analysis

Suppose economists develop an economic model and find that​ "it works great in​ theory, but it fails in​ practice." Which of the following should the economists do​ next?

They should revise the model in light of its failure to explain or predict real world events.

Relative to a market​ economy, a​ centrally-planned economy would be expected to be

better at neither productive efficiency nor allocative efficiency because the absence of​ market-imposed competition negates the need of firms to satisfy consumer wants or produce using the​ lowest-cost methods.

How are economic resources allocated in a market​ economy?

by the decisions of households and firms interacting in markets

Leonard​ Fleck, a philosophy professor at Michigan State​ University, has​ written, ​"When it comes to health care in​ America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy​ taxpayers, we want costs​ controlled." Is it necessary for all economic systems to limit services such as health​ care?

yes

define Normative analysis

Analysis concerned with what ought to be.

What are the two main categories of participants in​ markets?

Firms and households.

What is the basis for​ trade?

Comparative advantage.

Is soda a substitute or a complement for​ candy? Briefly explain.

Complement, because the​ cross-price elasticity of demand is negative.

Increase in equilibrium price When Demand for Soda Is Price Inelastic _________When Demand for Soda Is Price Elastic _________

Larger Smaller

Decline in equilibrium quantity When Demand for Soda Is Price Inelastic _________ When Demand for Soda Is Price Elastic ___________

Smaller Larger

Define comparative advantage

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

Explain whether the demand for cigarettes is​ elastic, inelastic, or unit elastic. The price elasticities in this range

are inelastic because they are less than one​ (in absolute​ value).

Complete the following​ statement: ​"When there is a shortage of a good

consumers compete against one another by bidding the price upward.

The price of fries increases due to a potato shortage. This will

decrease the demand for McDonald's Big Mac hamburgers.

what is a free market

exists when the government places few restrictions on how goods and services can be produced or sold or on how factors of production can be employed

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.

A market system prevents people from getting as many goods and services as they want due to which of the​ following?

income

The​ author's statement would be correct if the price elasticity of demand for the​ publisher's books is

more than one in absolute value.

According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity?

prices

From 1950 to​ 2012, wheat production in the United States increased​ dramatically, resulting in a substantial decline in wheat prices. Two key factors explaining this decline in prices are that the demand for wheat is​ ________, and the income elasticity of demand for wheat is​ ________.

price​ inelastic; low

Economic data is used

to test models

define revenue

A firm's revenue is the total amount received for selling a good or service. We calculate it by multiplying the price per unit by the number of units sold.

In product markets who are demanders and who are suppliers.

In product markets, households are demanders and firms are suppliers.

Effect on city tax revenue When Demand for Soda Is Price Inelastic ____________ When Demand for Soda Is Price Elastic ___________

More tax revenue collected Less tax revenue collected

define services

Services are activities performed for others, such as providing haircuts or investment advice.

The columnist notes​ that, in​ fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is​ accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.

Spain must be able to produce textiles at a lower opportunity cost than China can.

if the products are substitues then the cross-price elasticity of demand will be positive like

Two brands of smartphones

The three economic questions that every society must answer are

What goods will beWh ​ produced, how will they be​ produced, and who will receive the​ goods?

define Natural resources

include land, water, oil, iron ore, and other raw materials (or "gifts of nature") that are used in producing goods.

What is the outcome of enforcing contracts and property rights in a market​ system?

increased economic activity

Which of the following is not scarce according to the economic​ definition? A. Capital. B. Food. C. Gas. D. Time. E. None of the above.

none

what is a demand curve?

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

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

supply table

what is trade?

the act of buying and selling

If demand is elastic then an increase in price reduces revenue because . . .

the decrease in quantity demanded is proportionally greater than the increase in price.

what is an oppurtunity cost?

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

​Today, which of the following countries has a centrally planned​ economy?

North Korea

Economists use models

to answer questions and analyze issues.

what is a casual relationship in economic terms?

1 variable directly affects another variable

why would one use a Circular-flow diagram

A model that illustrates how participants in markets are linked.

Define oppurtunity cost

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

if the products are unrelated then the cross-price elasticity of demand will be 0 like

iphones and butter

what is a Technological change

A change in the quantity of output a firm can produce using a given quantity of inputs.

Which of the following events would create economic​ growth, that​ is, shift the production possibilities frontier​ outward?

A. An increase in the available labor. B. An increase in the available natural resources. C. An increase in technology that affects the production of both goods.

Define market economy

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

A columnist for Forbes argues​ that: "Even if China is always better than Spain at producing​ textiles, if the best thing that Spain could be doing is textiles then​ that's what Spain should be​ doing." What does the columnist mean by writing that China​ "is always better than​ Spain" in producing textiles​ (which include​ clothing, sheets, and similar​ products)?

China can produce textiles at a lower cost in terms of resources than Spain can.

define Factors of production, economic resources, or inputs

Firms use factors of production to produce goods and services. The main factors of production are labor, capital, natural resources—including land—and entrepreneurial ability. Households earn income by supplying the factors of production to firms. Economists use the terms factors of production, economic resources, and inputs interchangeably.

Would you pay​ $12 for a cup of​ coffee? Starbucks is betting enough people will say​ "yes," as it launches a chain of luxury coffee shops called Starbucks Reserve. Which​ generation(s) do you expect Starbucks Reserve to​ attract: baby boomers​ (ages 53 and​ over), Generation X​ (ages 35 and​ over), or millennials​ (ages 17 and​ over)? Briefly explain.

Generation ​ X, because their average incomes are likely to be higher.

From 1979 to​ 2015, China had a policy that allowed couples to have only one child.​ (Since 2016, couples have been allowed to have two​ children.) The​ one-child policy caused a change in the demographics of China. Between 1980 and​ 2015, the share of the population aged 14 and under decreased from 36 percent to 17 percent.​ And, as parents attempted to ensure that the lone child was a​ son, the number of male children relative to female children increased. How has the​ one-child policy changed the relative demand for goods and services in​ China?

It has undoubtedly shifted away from goods and services appealing to youthful​ buyers, particularly youthful female buyers.

According to an article in the Wall Street Journal​, in​ 2017, farmers in the United States were facing a fourth consecutive year of falling farm incomes. The article states that a​ "deepening downturn in the U.S. agricultural​ economy" was the result of years of bumper harvests. ​Source: Jesse​ Newman, "U.S. Farm Income Seen Falling for Fourth Straight​ Year," Wall Street Journal​, February​ 7, 2017. ​Shouldn't increases in the amount of agricultural products farmers sell be good news for them and raise their​ incomes? Briefly explain.

No, an increase in supply is bad news for farmers because the price elasticity of demand for their products is inelastic.

When does productive efficiency​ occur?

Productive efficiency occurs when a good or service is produced at the lowest possible cost

Define comparative advantage

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

Define absolute advantage

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

If Amazon.com raises its prices by 10 percent​ and, as a​ result, the quantity of books demanded on Barnesandnoble.com increases by 35​ percent, what do consumers consider the two Web sites to​ be?

close subtitutes

what is a perfectly competitive market?

a market where there are many buyers and sellers, all the products sold are identical, and there are no barriers to new firms entering the market

If a firm is productively and allocatively​ efficient, it earns ________ ​; if it is​ not, it _______

a profit suffers a loss

Suppose that sales of bottled water decline during a recession when employment and household incomes fall. This indicates that bottled water is

a normal good

A good for which demand increases as income rises is​ ________, and a good for which demand increases as income falls is​ ________.

a normal ​ good; an inferior good

Income elasticity of demand is

the percentage change in quantity demanded divided by the percentage change in income.

Goods and services that are used together—such as hot dogs and hot dog buns—are called

complements

what is Elastic demand?

The case where the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value.

what is Inelastic demand?

The case where the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value.

what is Perfectly inelastic demand?

The case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero.

what is Perfectly elastic demand?

The case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity.

what is Substitution effect?

The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

what is income effect?

The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.

Why would such markets be important for a country that is hoping to raise the standard of living of its​ residents?

Strong, innovative markets result in more economic growth.

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.

define trade-off

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

​________ is used to describe how changes in price affect a​ consumer's purchasing​ power, and​ ________ is used to describe how a change in price affects the quantity demanded of a good by making it more or less expensive than substitute goods.

The income; the substitution effect

what is Price elasticity of demand?

The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.

what is Price elasticity of supply?

The responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product's price.

Why​ isn't elasticity just measured by the slope of the demand​ curve?

The slope can change dramatically comma depending on the units chosen for quantity and price.

define economics

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

Define Macroeconomics

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

The demand for grapefruits is highest during summer and lowest during winter. Yet grapefruit prices are normally lower in summer than in winter. What must be happening to the supply of grapefruits​, from winter to​ summer, for the equilibrium price to​ fall?

The supply increases more than the demand increases.

Of the three ways to enter the parklong dashin a​ private, noncommercial​ vehicle; on a​ motorcycle; and by​ foot, bike, or skilong dashwhich way would you expect to have the largest price elasticity of​ demand, and which would you expect to have the smallest price elasticity of​ demand?

The​ private, noncommercial vehicle has the largest price elasticity of demand and visitors 16 and older entering by​ foot, bike,​ ski, etc. have the smallest price elasticity of demand.

define Productive efficiency

a situation in which a good or service is produced at the lowest possible cost

what is Market equilibrium?

a situation in which quantity demanded equals quantity supplied

Which of the following is the​ textbook's definition of a supply​ schedule?

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

Imagine that the next time the New England Patriots play the Miami Dolphins at Gillette Stadium in​ Foxborough, Massachusetts, Patriots star quarterback Tom Brady has a temporary lack of judgment and plans to sell Patriots memorabilia during the game because he realizes that he can sell five times more Patriots products than anyone in the stadium sports gear store.​ Likewise, imagine that you are a creative and effective manager at work and that you tell your employees that during the next six​ months, you plan to clean the offices because you can clean five times better than the cleaning staff. Both you and Tom are making an error in judgment by assuming that specialization should be based upon

absolute advantage

what is positive analysis

analysis concerned with what is

what is normative analysis

analysis concerned with what ought to be

An increase in the price of a substitute for iPads will lead to​ __________ in the quantity of iPads​ demanded, so the​ cross-price elasticity of demand will be​ _________.

an​ increase; positive

define Households

are all the individuals in a home

what is a product market?

are markets for goods—such as smartphones—and services—such as medical treatment.

what are Factor markets

are markets for the factors of production.

If a shortage exists in a​ market, we know that the actual price is

below the equilibrium​ price, and the quantity demanded is greater than the quantity supplied.

Rank the following four goods from lowest income elasticity of demand LOADING... ​(1) to highest income elasticity of demand​ (4). a. Bread b. Pepsi c. Mercedes-Benz automobiles d. Laptop computers

bread pepsi laptop mercadi benz

According to a news story about the bus system in the Lehigh Valley in​ Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent​ increase" in bus fares. Given this​ information, the demand for bus trips is

bus trips are a necessity for those without cars.

If the​ cross-price elasticity of demand is​ negative, then the products​ are:

complements, but if it is​ positive, then the products are substitutes.

The British historian Thomas Macaulay once remarked that copyrights are​ "a tax on​ readers." Copyrights are a​ 'tax' on readers in the sense that

copyrights limit of the supply of related creative work which results in higher prices.

If copyrights are a​ 'tax' on​ readers, governments provide a legal framework to enforce them because

copyrights provide needed protection for authors and creators of movies or other artistic works.

Which of the following is the​ textbook's definition of a supply​ curve?

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

The publisher of a magazine gives his staff the information in the table below. He tells​ them, ​"Our costs are currently​ $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to​ $3.00 per issue. This will result in our revenue LOADING... being exactly equal to our​ cost." Current price ​$2.00 per issue Current sales ​150,000 copies per month Current total costs ​$450,000 per month In order for the​ publisher's analysis to be​ correct,

demand is perfectly inelastic.

What role do they play in the working of a market​ system? Private property​ rights:

encourage a significant number of people to be willing to risk funds by investing them in business. encourage firms to spend money on research and development.

George sells land he owns to​ McDonald's so it can build a new restaurant. his takes place in the _____________ market. The household ____________the factor of production and the firm _____________the factor of production

factor supplies demand

George works 20 hours per week at​ McDonald's. This takes place in the ___________ market. The household _________ the labor and the firm __________the labor.

factor supplies demands

If a country has a comparative advantage in the production of a​ good, then that country

has a lower opportunity cost in the production of that good.ha

if the products are complements then the cross-price elasticity of demand will be negative like

iPhones and applications downloaded from online stores

_____________ of a price change refers to the change in the quantity demanded of a good that results because a change in the good's price increases or decreases consumers' purchasing power. Purchasing power is the quantity of goods a consumer can buy with a fixed amount of income. When the price of a good falls, the increased purchasing power of consumers' incomes will usually lead them to purchase a larger quantity of the good. When the price of a good rises, the decreased purchasing power of consumers' incomes will usually lead them to purchase a smaller quantity of the good.

income effect

Late in the​ semester, a friend tells​ you, ​"I was going to drop my psychology course so I could concentrate on my other​ courses, but I had already put so much time into the course I decided not to drop​ it." Is your​ friend's reasoning correct or​ incorrect?

incorrect (marginal)

If the demand for orange juice is elastic​, will a decrease in the price of orange juice increase or decrease the revenue received by orange juice​ sellers? If the price of orange juice decreases​, revenue will......

increase

The authors are assuming the price elasticity of demand for tickets to the Met is

inelastic

In a famous essay on the market​ system, the economist Leonard Read discussed how a pencil sold by the U.S. firm Eberhard Faber Pencil Company​ (now owned by Paper​ Mate) was made. He noted that logging companies in California and Oregon grew the cedar wood used in the pencil. The wood was milled into​ pencil-width slats at a factory in San​ Leandro, California. The graphite for the pencil was mined in Sri Lanka and mixed with clay purchased from a firm in Mississippi and wax from a firm in Mexico. The rubber was purchased from a firm in Indonesia. Which of the following statements is​ true?

it was not necessary for the managers of any of firms that participated in the making of the pencils to know how the components they produced were used to make pencils.

The inverse relationship between the price of a product and the quantity of the product demanded is called the

law of demand

________ which states that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied

law of supply

When lettuce prices​ doubled, from about ​$1.55 per head to about ​$3.10​, the reaction of one consumer was quoted in a newspaper​ article: ​"I will not buy​ [lettuce] when​ it's ​$3.10 a​ head," she​ said, adding that other green vegetables can fill in for lettuce.​ "If bread were​ $5 a loaf​ we'd still have to buy it. But lettuce is not that important in our​ family." For this​ consumer's household, which product has the higher price elasticity of demand bread or​ lettuce?

lettace

the amount of shares needed by a food program to get certain types of food would be equivalent to what economic variable in the marketplace for goods and​ services?

market prices

The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a __________ issue

micro

Price elasticity estimates for a product might be less reliable if calculated using only one brand instead of a cross section of brands because

one brand may not be representative of the elasticity for the entire catgory.

For this​ consumer's household, is the cross-price elasticity of demand between lettuce and other green vegetables positive or​ negative:

positive

Absolute advantage is the ability of an​ individual, a​ firm, or a country to

produce more of a good or service than competitors using the same amount of resources.

Macroeconomics is the study of

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

The law of demand is the assertion that

the quantity demanded of a product is inversely related to its price.th

What are private property​ rights? Private property rights​ are.....

the rights individuals and firms have to the exclusive use of the ​ tangible, physical property and intellectual property.

When it comes to assessing how this system affects the financial interests of doctors and the well being of​ consumers, it may be that the former gain more simply because

there are far fewer of​ them, hence each stands to gain much from supply restrictions.

Jacob​ Goldstein, a correspondent for National Public​ Radio, discussed the effect that a tax on sugared soft drinks would have on​ consumers: ​"How much would a tax drive down​ consumption? Economists call this issue​ "price elasticity of ​demand"-much demand goes down as price​ increases..." Briefly explain whether you agree with​ Goldstein's definition of price elasticity of demand.

​​Disagree, because price elasticity of demand refers to percentage changes in price and quantity demanded.

Assuming that these statistics are available or could be​ gathered, are they likely to resolve the normative issues in this​ debate?

No, because normative issues involve value judgments that incorporate an​ individual's full range of​ experiences, beliefs, and emotions.

define economic variable

Something measurable that can have different values, such as the number of people employed in manufacturing.

Suppose you were building an economic model to forecast the number of people employed in U.S. manufacturing in 2024. Should your model take into account the possibility of changes in economic policy enacted by the president and​ Congress?

​​Yes, the model should account for economic policy because it could affect employment in manufacturing.

what is Elasticity?

A measure of how much one economic variable responds to changes in another economic variable.

Government policymakers use economic principles to make​ decisions, such as

A. whether to raise taxes on cigarettes to discourage teenage smoking. B. whether to raise interest rates to reduce the threat of inflation. C. whether to allocate additional funds to research on cancer or to research on heart disease

what is trade?

Exchange of goods and services

Economists assume that the only reason people take the actions they do is in response to economic incentives.

False

What is an​ entrepreneur?

They bring together factors of production.

What is the​ circular-flow diagram and what does it​ illustrate?

The​ circular-flow diagram shows how households and firms are linked through product and factor markets.

t or f: The more substitutes available for a​ product, the greater the price elasticity of demand.

true

according to an article in the Wall Street Journal​, reporting on​ Coca-Cola's results for the fourth quarter of​ 2016: "Higher pricing ... drove revenue growth of​ 8%."Based on this​ information, is the demand for the beverages Coke sells price elastic or price​ inelastic? Briefly explain

​​Inelastic, because a price increase raises​ Coca-Cola's revenue.

Can this change in opportunity cost account for the decline in college football​ attendance? Briefly explain.

​​Yes, because these changes increase the opportunity cost of watching football games in person.

When quantity demanded is completely unresponsive to​ price, what is the value of price elasticity of​ demand?

0

In the six months following Hurricane​ Katrina, production of oil in the Gulf of Mexico declined by 25 percent. .

A change in supply

The success of​ Apple's iPod leads more firms to begin producing digital music players.

A change in supply

define profit

A firm's profit is the difference between its revenue and its costs. Economists distinguish between accounting profit and economic profit. In calculating accounting profit, we exclude the costs of some economic resources that the firm does not pay for explicitly. In calculating economic profit, we include the opportunity costs of all resources used by the firm. When we refer to profit in this book, we mean economic profit. It is important not to confuse profit with revenue.

define Technology

A firm's technology is the processes it uses to produce goods and services. In the economic sense, a firm's technology depends on many factors, such as the skill of its managers, the training of its workers, and the speed and efficiency of its machinery and equipment.

What do economists mean by market​ equilibrium?

A market outcome where quantity supplied is equal to quantity demanded.

define Economic model

A simplified version of reality used to analyze real-world economic situations.

For which of the following products is the price elasticity of demand​ (in absolute​ value) the​ largest? A. Tide liquid detergent Your answer is correct.B. automobiles C. cigarettes D. milk

A. Tide liquid detergent

When economists speak of a surplus​, they mean a situation in which

A. firms have unsold goods piling up. B. the quantity supplied exceeds quantity demanded. C. the market price is above the equilibrium price.

When demand is elastic, price and total revenue move inversely so...

An increase in price reduces total revenue, and a decrease in price raises total revenue.

According to the FBI Bank Crime​ Statistics, there were more than​ 4,000 bank robberies in the United States in​ 2015, an increase of 3.9 percent over 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic​ partitions, called bandit barriers​, that separate bank tellers from the public. According to a special agent with the​ FBI, ​"Bandit barriers are a great deterrent.​ We've talked to guys who rob​ banks, and as soon as they see a bandit​ barrier, they go find another​ bank." Despite this​ finding, many banks have been reluctant to install these barriers.​ Wouldn't banks have a strong incentive to install bandit barriers to deter​ robberies? Why,​ then, do so many banks not do​ so?

Banks have no economic incentive to install the barriers. (costs more to install than the robbery)

Why are models based on​ assumptions?

Because models have to be simplified to be useful.

A news article about virtual reality headsets observes​ that: "For any hardware​ platform, it is critical to attract outside developers and build a virtuous cycle in which popular software titles drive hardware​ sales, which in turn brings in more software​ developers." The article refers to two types of​ software: games, such as Final Fantasy​, that are already available for video game​ consoles, and software intended only for use with virtual reality headsets. As both these types of software become​ available, are they likely to make virtual reality headsets closer or less close substitutes for video game​ consoles?

Closer​ substitutes, because video game consoles and virtual reality headsets could be used for the same purpose.

In a market​ system, how does society decide what goods and services will be​ produced?

Consumers, firms, and the government determine what goods and services will be produced by the choices they make

Which of the following statements about microeconomics and macroeconomics is​ correct? A. Microeconomics does not involve the analysis of economic policy. B. Macroeconomics does not involve the analysis of economic policy. C. All economic situations can be categorized as being microeconomics or macroeconomics. D. Microeconomics involves the study of how households and firms make choices.

D. Microeconomics involves the study of how households and firms make choices.

Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in​ government?

Economics teaches us how to look at the tradeoffs involved in every decision.

What do economists mean by​ scarcity?

Economists mean that unlimited wants exceed limited resources.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system?

For markets to work, people must be free to pursue their​ self-interest.

define human capital

Human capital refers to the accumulated training and skills that workers possess. For example, college-educated workers generally have more skills and are more productive than workers who have only high school degrees; therefore, college-educated workers have more human capital.

The head of the United Kumquat Growers Association makes the following statement. ​"The federal government is considering implementing a price floor in the market for kumquats. The government will not be able to buy any surplus kumquats produced at the price floor or to pay us any other subsidy. Because the demand for kumquats is elastic I believe this program will make us worse​ off, and I say we should oppose​ it." Do you agree or disagree with this​ reasoning?

I agree with this reasoning. Since the demand for kumquats isI ​ elastic, the revenues will fall significantly with a price floor.

Which of the following is a correct statement about a mixed​ economy?

In a mixedIn ​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

In recent​ years, a number of cities have passed taxes on carbonated sodas to help reduce obesity and to raise tax revenues. An article in the New York Times observes​ that: "With that public​ momentum, a soda tax may be coming to a city near​ you." If this forecast is​ correct, is the demand for premium bottled water likely to increase or​ decrease? Briefly explain.

Increase, because premium bottled water and carbonated sodas are substitutes.

What does increasing marginal opportunity costs​ mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.In

To be successful as a luxury coffee​ bar, how does Starbucks need to distinguish Starbucks Reserve coffee shops from its standard Starbucks coffee​ shops?

It could offer a greater variety of menu items to attract new customers to its Starbucks Reserve coffee shops.It B. Starbucks must convince consumers that its standard coffee is not an adequate substitute for its​ $12 luxury coffee. C. Starbucks Reserve could offer amenities that are not available at standard Starbucks coffee shops.

Using the same amount of​ resources, suppose that Nicaragua can produce twice as much sugar as Colombia.​ Nevertheless, Colombia could still have the comparative advantage in producing sugar if

It is even less efficient than Nicaragua in the production of goods other than sugar.

Suppose that Lichtenstein and Luxembourg currently have identical production possibilities frontiers but that Lichtenstein devotes only 5 percent of its resources to producing capital goods over each of the next 10​ years, whereas Luxembourg devotes 30 percent. Which country is likely to experience more rapid economic growth in the​ future?

Luxembourg

Which of the following is not a step that economists use in developing a useful economic​ model? A. Formulate a testable hypothesis. B. Decide on the assumptions to be used in developing the model. C. Revise the model if it does not explain the data well. D. Use economic data to test the hypothesis. E. Make a value judgement about the merits of the hypothesis.

Make a value judgement about the merits of the hypothesis.Ma

a study of consumers in Mexico found that the​ cross-price elasticity of demand between soda and milk was​ 0.11, while the​ cross-price elasticity of demand between the soda and candy was -0.32. Is soda a substitute or a complement for​ milk? Briefly explain.

Substitute, because the​ cross-price elasticity of demand is positive.

Does it indicate that​ gasoline-powered cars and hybrids are substitutes or​ complements?

Substitutes, because the more consumers buy of one​ good, the less they will buy of the other good.

According to an article on​ reuters.com, Fiat Chrysler​ Automobiles, the firm that sells Dodge and Chrysler cars and trucks in the United​ States, decided to invest​ $1 billion to modernize two of its U.S. production plants. The article described the possible effect on Fiat​ Chrysler's decision of President​ Trump's trade policies. What trade policies was the article referring​ to, and how would those policies affect Fiat​ Chrysler's decision on whether to expand production in the United​ States?

Tariffs on imports to increase the cost of producing cars outside the United States.

what is Quantity demanded?

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

what is Quantity supplied

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

Which determinant is the most​ important?

The availability of close substitutes

What is the advantage of the midpoint​ method?

The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.

what is Cross-price elasticity of demand?

The percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

what is Ceteris paribus ("all else equal") condition

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

define Innovation

There is a distinction between an invention and an innovation. An invention is a new good or a new process for making a good. An innovation is the practical application of an invention. (Innovation may also be used more broadly to refer to any significant improvement in a good or in the means of producing a good.) Much time often passes between the appearance of a new idea and its development for widespread use. For example, the Wright brothers first achieved self-propelled flight at Kitty Hawk, North Carolina, in 1903, but the Wright brothers' plane was very crude, and it wasn't until the introduction of the DC-3 by Douglas Aircraft in 1936 that regularly scheduled intercity airline flights became common in the United States. Similarly, the first digital electronic computer—the ENIAC—was developed in 1945, but the first IBM personal computer was not introduced until 1981, and widespread use of computers did not have a significant effect on the productivity of U.S. businesses until the 1990s.

Which of the following best describes​ scarcity?

Unlimited wants exceed the limited resources available.

In a market​ system, how does society decide who will receive the goods and services​ produced?

Who receives the goods and services produced depends largely on how income is distributed.

If you were a manager at​ McDonald's, how would you go about analyzing whether to switch to​ fresh, never-frozen beef​ patties? In your​ answer, consider whether your decision would have to be all or nothing long dashall ​fresh, never-frozen beef patties in all​ McDonald's hamburgers, and whether you would have to switch in all​ McDonald's locations around the world​ (they are in 119​ countries), or just in certain countries.

You would want to compare the marginal benefits and marginal costs of serving hamburgers made with fresh beef.

In many​ cities, firms that own office buildings can renovate them for use as residential apartments. According to a news​ story, in many cities​ "residential rents are surpassing office​ rents."

a decrease in the supply of office​ space, shifting it to the left.

McDonald's distributes ​$1.00 off coupons. This will cause

a movement along the demand curve for​ McDonald's Big Mac hamburgers.

Which of the following is the correct definition of demand​ schedule?

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

How else can you calculate the price elasticity of​ demand?

a. Price elasticity of demand can be calculated using initial values for price and quantity. B. Price elasticity of demand can be calculated using final values for price and quantity.

If a surplus exists in a​ market, we know that the actual price is

above the equilibrium​ price, and the quantity supplied is greater than the quantity demanded.

How is the price elasticity of demand​ measured?

by dividing the percentage change in the quantity demanded of a product by the percentage change in the​ product's price

With respect to​ consumption, individuals and countries

can, through​ trade, consume beyond their production possibilities frontiers.

In what ways does a free market economy differ from a centrally planned​ economy? Unlike a free market​ economy,

centrally planned economies have extensive government controls.

Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the

ceteris paribus ce condition.

You observe that when the price of houses decreases the demand for household appliances increases. Houses and household appliances are considered to be ____________ goods

complementary

The U.S. economy enters a period of rapid growth in incomes. This will cause

demand for ​ McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The price of Burger​ King's Whopper hamburger declines. This will cause

demand for​ McDonald's Big Mac hamburgers to decrease.

Outward shifts in the production possibilities frontier represent ___________

economic growth

he price of organic apples rises and apple growers find that their revenue decreases. Is the demand for organic apples elastic or​ inelastic? The demand for organic apples is

elastic

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25​ percent, demand for Red Bull is​ _______ in this range.

elastic (>1)

If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and​ grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other.

false

In a competitive​ market, firms can dictate what the equilibrium price of a good or a service will be.

false

When demand curves​ intersect, the curve with the larger slope in absolute value​ (the steeper demand​ curve) is more elastic.

false

t or f: The demand curve for a luxury is less elastic than the demand curve for a necessity.

false

In the United​ States, to receive a medical​ license, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a Residency Review Committee​ (RRC), which is made up of physicians in that specialty. A hospital that does not abide by the rulings of the RRC runs the risk of losing its accreditation from the Accreditation Council for Graduate Medical Education​ (ACGME). The ACGME and the RRCs argue that this system makes it possible to ensure that residency programs do not expand to the point where they are not providing residents with​ high-quality training. This system may help protect consumers by ensuring that

future doctors receive high-quality training.

Which of the following are the two key groups of participants in the circular flow of​ income?

households and firms

Microeconomics is the study of

how households and firms make ​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

define Labor

includes all types of work, from the part-time labor of teenagers working at McDonald's to the work of senior managers in large corporations.

If the income elasticity of demand is negative then the good is

inferior.

what is Production possibilities frontier (PPF)?

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

what is a market

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

The price elasticity of demand in the United States for crude oil has been estimated to be -0.061 in the short run and -0.453 in the long run. The demand for crude oil

is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found

What is an entrepreneur?

is someone who operates a business

If the income elasticity of demand is positive and greater than 1 then the good is

normal and a luxury.

If the income elasticity of demand is positive but less than 1 then the good is

normal and a necessity.

A good is a __________ when the demand for the good increases following a rise in income and decreases following a fall in income.

normal good

. The price of coffee at Starbucks is too high. This represents

normative analysis

George buys a Tesla Model S. This takes place in the ___________ market. The household ________ the good and the firm ________ the good.

product demands supplies

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

quantity demanded

Firms often rely on market experiments to calculate the price elasticity of demand for a new product.

true

You​ shouldn't necessarily do what you are better than anyone else at doing

unless your advantage in that activity is greater than advantages you possess in other activities.

Do you agree with how the second Wall Street Journal article uses the word​ "demand"? (ii. A different article in the Wall Street Journal​ noted: "Electric cars are poised to reduce U.S. gasoline demand by​ 5% over the next two​ decades...." )

yes

what is Total revenue?

The total amount of funds a seller receives from selling a good or service, calculated by multiplying price per unit by the number of units sold.

Consider firms selling three goodslong dashone firm sells a good with an income elasticity of demand less than​ zero, one firm sells a good with an income elasticity of demand greater than zero but less than​ one, and one firm sells a good with an income elasticity of demand greater than one. In a​ recession, sales of a good with

an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most.

If cigarette manufacturers raise​ prices, will their revenue increase or​ decrease? Briefly explain. If manufacturers raise​ prices, then their revenue will

increase because the percentage increase in price will be larger than the percentage decrease in quantity.

According to a news story about the International Energy​ Agency, the agency forecast that​ "the current slide in​ [oil] prices​ won't [reduce] global​ supply." ​Would a decline in oil prices ever cause a reduction in the supply of​ oil?

no, a decline in oil prices would reduce the quantity of oil​ supplied, not the supply of oil.

___________refers to the change in the quantity demanded of a good that results because a change in price makes the good more or less expensive relative to other goods that are substitutes. When the price of premium bottled water falls, people will substitute buying premium bottled water for other goods, such as regular bottled water or carbonated soft drinks, like Coke and Pepsi.

substitution effect

An article in the New York Times about the New York Metropolitan Opera​ (the Met) suggests that the popularity of opera might be increased if the Met reduced its ticket prices. But the article observes that such ticket price cuts would only be possible if the Met received a gift from​ "a very​ deep-pocketed donor." The authors of the article are assuming a cut in ticket​ prices, and assuming there is no gift from a​ "very deep-pocketed​ donor," ______ increase the​ Met's revenue.

will not

This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage. Even if you are better at unloading the dishwasher than your​ spouse, you​ shouldn't always be the one to unload it because

you may be even better at some other household task and must consider the opportunity cost.

On the lower part of a linear demand curve below the​ midpoint, the demand is​ ________ and raising the price causes total revenue to​ _________.

​​inelastic; increase

In​ general, the demand for a good will be​ _________ elastic the​ ___________ the share of the good in the average​ consumer's budget.

​​less; smaller

What is the actual cost and also the opportunity cost of distributing the tickets this​ way?

A. The cost of people blocking traffic in and around the​ department's office building. B. The cost of travel to the​ department's office. C. The activities that cannot be done​ (such as earning money at​ work) when one is standing in line.

The Apply the Concept feature explains that there are both positive and normative aspects to the debate over whether the federal government should enact tariffs on imports of cars from Mexico. What economic statistics would be most useful in evaluating the positive elements in this​ debate? Assuming that these statistics are available or could be​ gathered, are they likely to resolve the normative issues in this​ debate? Which of the following economic statistics would be useful in evaluating the positive elements in this​ debate?

A. The size of the U.S.​ government's trade debt. B. Revenue the U.S. government could receive from the tariff. C. Car prices in the U.S. D. The number of U.S. jobs in automobile manufacturing.

Firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the latter tend to be healthier and consequently

A. experience lower rates of absenteeism and early retirement. B. less costly to insure and therefore employ due to their lower claim submission rate. C. more productive at work.

Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid​ (a relatively small​ amount) for doing so. The programs​ vary, but typically consist of employees completing a health​ assessment, receiving a healthy living​ program, and monitoring their monthly health activities.

A. performs more​ efficiently, thereby improving overall productivity in the workplace. B. translates into lower​ costs, in part by reducing​ illness-related absenteeism and premature retirements.

Warren Buffet is the Chief Executive Officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal​, Buffet argued that economic policies in the United States should be designed so that people who are willing to work receive enough income to live a​ "decent lifestyle." He argued that an expansion of the Earned Income Tax Credit​ (EITC) would be superior to an increase in the minimum wage as a means to reach this goal. The EITC is a program under which the federal government makes payments to​ low-income workers. Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a​ "decent lifestyle"?

This is a normative economic​ question, so the answer is a matter of the norms or values of the person answering.

Alberto Chong of Georgia State University and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of the letters were returned. Was this test most relevant to evaluating the productive efficiency or the allocative efficiency of these postal​ services? This test that Albert Chong and his colleagues carried out was most relevant for evaluating the

allocative efficiency of these postal services because the test was designed to measure how often and how quickly the letters sent were returned.al

Define centrally planned economy

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

define social science

applies the scientific method to the study of the interactions among individuals.

Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away​ 1,000 tickets to the football game against your​ school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first​ 1,000 students who show up at the​ department's office at 10 a.m. the following Monday. a. The groups of people that are most likely to get the tickets will be those for whom the expected marginal ▼ benefits costs of going to the​ department's office on Monday morning are greater than the expected marginal ▼ .

benefits costs

Which groups are likely to gain and which groups are likely to lose as a result of Fiat​ Chrysler's decision to produce more cars in U.S. plants rather than in overseas​ plants? Fiat​ Chrysler's decision to produce in the United States likely benefits ____________ and harms _______________

benefits workers harms consumers

f teachers put too much weight in the grading scale on a certain part of the​ course, like readings outside the​ textbook, students might respond by ________________ other parts of the course.

de-emphasizing

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

Centrally planned economies allocate resources based on decisions by ▼ ​, while market economies answer these questions through decisions made by ▼ households and firms government .

government households and firms

Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by ___________ the grade weight assigned to being prepared.

increasing

The article also implied that Fiat​ Chrysler's decision might have been affected by the possibility that the Trump administration might relax environmental​ regulations, such as a rule requiring companies to increase their​ cars' miles per​ gallon, and might attempt to reduce the taxes that corporations pay on their profits. These two factors would affect Fiat​ Chrysler's decision by...

making it more profitable to produce cars in the United States.

Efficiency means that goods are distributed in a way that _____________ ​, while equity means that goods are distributed in a way that is _______ .

maximizes benefits to society fair

The reasons for low rates of profit in the airline industry. This is a ___________ issue

micro

Which of the following areas of economics studies issues such as ways to reduce teenage​ smoking?

micro

Dr.​ Strangelove's theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in​ profusion, the price of mushrooms is high. When subatomic particle emissions are​ low, the price of mushrooms also is low. Is it possible to test this​ theory?

no (correlation does not equal causation)

Define equity

The fair distribution of economic benefits.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

According to Forbes​ magazine, in 2017 Bill Gates was the​ world's richest person with wealth of​ $86 billion. ​Source: ​"The World's​ Billionaires," forbes.com​, March​ 20, 2017. Does Bill Gates face​ scarcity?

​​Yes, because even though​ billionaires' financial resources enable them to afford a much greater array of goods and services than those less​ wealthy, their financial resources are not infinite.

College football​ attendance, especially student​ attendance, has been on the decline. In​ 2016, home attendance at major college football games declined for the sixth consecutive year and was the lowest since 2000. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up to engage in that activity. ​Source: Jon​ Solomon, "College Football Attendance in​ 2016: Crowds Decline for Sixth Straight​ Year," cbssports.com, December​ 16, 2016. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 10 years ago is

​​higher, because more games are televised today.

What do economists mean by the word​ "marginal"?

extra or additional

tesla increases employment at its Fremont plant. This takes place in the _________ market The households ____________ the labor and the firm ____________ the labor.

factor supply demand

An increase in demand causes an increase in the equilibrium price. The increase in equilibrium price will then cause an increase in supply.

false

A free market is a market with​ ________ government restrictions on how a good or service can be produced or sold and with​ ________ government restrictions on how a factor of production can be employed.

few few

in a simple​ circular-flow model, there are flows of​ _________ and flows of​ _____

funds received from the sale of factors of​ production; spending on final goods and services factors of​ production; goods and services

Whether carried out by an individual or a​ country, production beyond the production possibilities frontier

is not physically possible.is

​Economists' estimates of price elasticities can differ​ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement from the Centers for Disease Control and​ Prevention: ​"A 10 percent increase in the price of cigarettes reduces consumption by 3 to 5​ percent." Given this​ information, compute the range of price elasticity of demand for cigarettes. According to the​ article, the price elasticity of demand for cigarettes ranges from _________ the lowest end of the range in absolute​ value) to _________

-0.30 -0.50

define firm company or business

A firm is an organization that produces a good or service. Most firms produce goods or services to earn a profit, but there are also nonprofit firms, such as universities and some hospitals. Economists use the terms firm, company, and business interchangeably.

when does a free market exist?

A free market exists when the government places few restrictions on how goods and services can be produced or sold or on how factors of production can be employed.

define households

A household consists of all persons occupying a home. Households are suppliers of factors of production—particularly labor—used by firms to make goods and services. Households also demand goods and services produced by firms and governments.

Which of the following statements about a hypothesis is​ correct?

A hypothesis is a statement that could in principle turn out to be incorrect.

Why might this fact make it more likely that a market mechanism would improve the​ well-being of people receiving food from local food​ banks?

A market mechanism is better suited to match donations to the locations where recipients receive the most benefit.A

what is Perfectly competitive market?

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

what is Income elasticity of demand?

A measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income.

what is the law of supply?

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

what is the Law of demand

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

Define productive efficiency

A situation in which a good or service is produced at the lowest possible cost.

what is market equilibruim

A situation in which quantity demanded equals quantity supplied.

what is Shortage?

A situation in which the quantity demanded is greater than the quantity supplied.

What is a surplus?

A situation in which the quantity supplied is greater than the quantity demanded.

Define scarcity

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

What is scarcity?

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

b. The federal government should spend more on AIDS research. This represents

normative analysis

Define allocative efficiency

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

define Allocative efficiency

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

What is a demand schedule?

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

what is Supply schedule?

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

Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. What is the opportunity cost of spending more money to find a cure for heart​ disease?

A. The reduction in funding for research to cure other diseases.

Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts:

A. to make their decisions free of influence from other parts of the government. B. to make their decisions free of influence from people with powerful political connections. C. to make their decisions free of intimidation by criminal gangs. D. to make their decisions based on the law.

What is the role of an​ entrepreneur?

A. to take risks B. to bring together the factors of productionlong dash​labor, ​capital, and natural resources C. to operate a business that produces a good or service

What do economists mean when they use the Latin expression ceteris paribus​?

All else equal.

When does allocative efficiency​ occur?

Allocative efficiency occurs when production is in accordance with consumer preferences.

Which of the following statements about an economic variable is​ correct?

An economic variable is something measurable that can have different values.

Define mixed economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

define market economy

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

Define centrally planned economy

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

define Entrepreneur

An entrepreneur is someone who operates a business. In a market system, entrepreneurs decide what goods and services to produce and how to produce them. An entrepreneur starting a new business puts his or her own funds at risk. If an entrepreneur is wrong about what consumers want or about the best way to produce goods and services, his or her funds can be lost. Losing money in a failed business is not unusual: In the United States, about half of new businesses fail within four years. Without entrepreneurs willing to assume the risk of starting and operating businesses, economic progress would be impossible in a market system.

Which of the following illustrates the law of​ supply?

An increase in price causes an increase in the quantity​ supplied, and a decrease in price causes a decrease in the quantity supplied.

When demand is inelastic, price and total revenue move in the same direction so....

An increase in price raises total revenue, and a decrease in price reduces total revenue.

Which of the following statements about microeconomics and macroeconomics is​ correct? A. Macroeconomics does not involve the analysis of economic policy. B. Macroeconomics is the study of the economy as a whole. Your answer is correct.C. Microeconomics does not involve the analysis of economic policy. D. All economic situations can be categorized as being microeconomics or macroeconomics.

B. Macroeconomics is the study of the economy as a whole.

What are the key determinants of the price elasticity of demand for a​ product? The key determinants of the price elasticity of demand for a product​ are:

B. availability of close​ substitutes, passage of​ time, necessities versus​ luxuries, definition of the​ market, and share of the good in the​ consumer's budget.

The Toyota Prius is a​ gasoline-electric hybrid car that gets 54 miles to the gallon. An article in the Wall Street Journal notes that sales of the Prius have been hurt by low gasoline prices and​ that: "Americans are now more likely to trade in a hybrid or an electric vehicle for an​ SUV...." Does the article indicate that​ gasoline-powered cars and gasoline are substitutes or​ complements? Briefly explain.

Complements, because they are used together.

From the list​ below, select the variable that will cause the demand curve to​ shift:

Consumer income

The Applying the Concept feature explains that the Feeding America charity asked three professors at the University of​ Chicago's Booth School of Business to design a more efficient way of allocating food to local food programs and that the professors proposed changing the food allocation system to one that resembled a market. Under the new​ system, the​ "shares" each food program receives to use in bidding for the types of food would be the equivalent to what economic variable that consumers use in the marketplace to bid for goods and​ services?

Consumer income.

Regarding the question of whether health insurance provides people with an incentive to become​ obese, the finding of Bhattacharya and Bundorf seems

D. relevant since the link between insurance and obesity was established while holding many other variables constant.

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.Mi

In the​ 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28​ industries, Balassa found that the United States had an absolute advantage LOADING.... In these​ circumstances, would there have been any gain to the United States from importing any of these products from​ Britain? Explain.

Even with an absolute​ advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.

Writing in the New York Times​, Michael Lewis argued that ​"...a market economy is premised on a system of incentives designed to encourage an ignoble human​ trait: self-interest."

Financial reward.

In a market​ system, what determines how goods and services will be​ produced?

Firms determine how goods and services will be produced.

what are complements?

Goods and services that are used together.

what are Substitutes?

Goods and services that can be used for the same purpose.

define goods

Goods are tangible merchandise, such as books, computers, or Blu-ray players

define capital

In everyday speech, the word capital can refer to financial capital or to physical capital. Financial capital includes stocks and bonds issued by firms, bank accounts, and holdings of money. In economics, though, capital refers to physical capital, which includes manufactured goods that are used to produce other goods and services. Examples of physical capital are computers, factory buildings, machine tools, warehouses, and trucks. The total amount of physical capital available in a country is called its capital stock.

State government Medicaid programs provide medical insurance to poor and disabled people. A news article described a new prescription drug that costs as much as​ "$94,000 for one​ 12-week treatment​ regimen" to treat hepatitis​ C, a liver disease. Several states restricted access to the new drug under their Medicaid programs to patients who are most acutely ill​ (stage 3 or stage​ 4) with hepatitis C. State Medicaid programs are paid​ for, in​ part, out of state budgets. What​ trade-offs do state governments face when new prescription drugs are introduced with much higher prices than existing​ drugs?

Increases in spending on prescription drugs will require reductions in other government programs or services.

​Shouldn't an increase in the price of soda resulting from a tax always increase that amount that families have to spend to buy​ soda? Briefly explain.

No, these higher soda prices will not increase the amount spent on soda if the price elasticity of demand is elastic.

In recent​ years, increases in the number of visitors to National Parks such as Yellowstone and Grand Canyon have resulted in over​ $12 billion in deferred maintenance costs. In response to the overcrowding that has contributed to the cost​ overruns, the Park Service has considered limiting the number of daily visits to the parks and soliciting corporate sponsorships. Margaret​ Walls, a vice president for research at Resources for the​ Future, has offered another​ suggestion: increasing entrance fees. But she​ warns: "Figuring out an efficient and fair fee structure will not be easy. It requires detailed data on​ visitation, for​ starters, as well as analysis to shed light on price elasticities of demand for different groups of visitors at different​ locations." Why is it important for the Park Service to have estimates of price elasticities of demand before raising entrance fees to the National​ Parks?

Price elasticities of demand will reveal whether raising entrance fees will increase or decrease park revenue.Pr

5 things that shift the market of supply

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

What are the implications of this idea for the shape of the production possibilities​ frontier?

The production possibilities frontier will be bowed outward

What is comparative​ advantage?

The ability to produce a good or service at a lower opportunity cost than other producers.

What is absolute​ advantage?

The ability to produce more of a good or service than competitors using the same amount of resources

The key determinants of the price elasticity of demand are:

The availability of close substitutes for the good The passage of time Whether the good is a luxury or a necessity The definition of the market The share of the good in the consumer's budget

what is Unit-elastic demand?

The case where the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.

what are Demographics?

The characteristics of a population with respect to age, race, and gender.

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.

what is the Market demand?

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

If demand decreases and supply​ increases, which of the following will definitely​ occur?

The equilibrium price will decrease.

If demand and supply both​ increase, which of the following will definitely​ occur?

The equilibrium quantity will increase.

define scientific method

The process of developing models, testing hypotheses, and revising models

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Is it likely that the production possibilities frontier in this situation would be a straight​ line:or bowed​ out

The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.

Define Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

In The Wealth of Nations​, Adam Smith discussed what has come to be known as the​ "diamond and water​ paradox": ​"Nothing is more useful than​ water: but it will purchase scarce​ anything; scarce anything can be had in exchange for it. A​ diamond, on the​ contrary, has scarce any value in​ use; but a very great quantity of other goods may frequently be had in exchange for​ it."

The supply of water is greater than the supply of diamonds.

During the 1928 presidential election​ campaign, Herbert​ Hoover, the Republican​ candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good​ policy? Explain.

This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.

What is the guild system?

Under this system, governments would give guilds, or organizations of producers, the authority to control the production of a good. For example, the shoemakers' guild controlled who was allowed to produce shoes, how many shoes they could produce, and what price they could charge. In France, the cloth makers' guild even dictated the number of threads in the weave of the cloth.

The grading system plays an important role in student learning. In their book Effective​ Grading: A Tool for Learning and Assessment in College​, Barbara Walvoord and Virginia Anderson state that ​"grading infuses everything that happens in the​ classroom." They also argue that grading​ "needs to be acknowledged and managed from the first moment that an instructor begins planning a​ class." The grading system used by a teacher can affect the incentives of students to learn the course material by

altering the payoffs to achieving success on the various components of the course.al

If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights?

an independent court system

what is a factor market

are markets for the factors of production. Factors of production are the inputs used to make goods and services

define Firms

are suppliers of goods and services. Firms use the funds they receive from selling goods and services to buy or hire the factors of production needed to make the goods and services.

what are factors of production

are the inputs used to make goods and services. Factors of production are divided into four broad categories

what are factors of production

are the inputs used to make goods and services. Factors of production are divided into four broad categories: labor, capital, natural resources, and an enterpurnur

what is Property rights?

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

The cost of ________________ a book is the price you pay to buy the​ book, but the cost of ____________________ a book would include the time spent reading the book.

buying consuming

Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the

ceteris paribus condition. Ceteris paribus means "all else equal" in Latin.

An article on marketwatch.com states​ that: "While the fizzy soda drinks companies have experienced an annual volume sales decline since​ 2003, bottled water grew every year over the last two​ decades, except 2009 during the depths of the Great​ Recession." A factor that could have caused a decline in sales of carbonated​ ("fizzy") beverages is

changing preferences toward health.

Suppose the demand for premium bottled water increases rapidly during​ 2018. At the same​ time, six more firms begin producing premium bottled water. A student remarks​ that, because of these​ events, we​ can't know for certain whether the price of premium bottled water will rise or fall. The​ student's remarks​ (that, because of these​ events, we​ can't know for certain whether the price of premium bottled water will rise or​ fall) is

correct. When there is an increase in supply and an increase in ​ demand, the new equilibrium quantity increases but whether the equilibrium price increases or decreases is unknown.

Any attempt to determine whether or not this is a good system must focus on its

costs and benefits

After Russia seized what had formerly been the Ukrainian territory of Crimea in February​ 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted​ that, ​"If sanctions push Russia onto a path of greater​ self-reliance, its manufacturing and service industries will surely grow​ faster...." If the columnist is correct about the effect of the​ sanctions, then, in the long​ run, the sanctions will

decrease the economic​ well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners.

An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent​ years, the increase has still amounted to only 5 percent of world production.​ Still, that increase has been​ "enough to help trigger a price​ collapse." ​Source: Georgi Kantchev and Bill​ Spindle, "Shale-Oil Producers Ready to Raise​ Output," Wall Street Journal​, May​ 13, 2015. A small increase in supply can lead to a large decline in equilibrium price when

demand is relatively inelastic.

Tables that show the relationship between the price of a product and the quantity of the product demanded are called

demand tables

The difference between a change in supply and a change in the quantity supplied is that the latter is

displayed graphically as a movement along a supply curve while the former is shown as a shift in the supply curve.

When San Francisco and other cities in California adopted soda​ taxes, an opinion column in the New York Times observed​ that: "Often, the taxes​ don't even pinch the budgets of​ low-income families, because they respond by drinking less​ soda." When the columnist writes that soda taxes​ don't "pinch the​ budgets" of​ low-income families, he means that​ low-income families more on sodas.

do not spend

Determine whether the demand for the following product is likely to be elastic or inelastic Demand for cola is likely to be

elastic

Amazon allows authors who​ self-publish their​ e-books to set the prices they charge. One author was quoted as​ saying: "I am able to drop prices​ and, by sheer volume of​ sales, increase my​ income." The demand for this​ author's books was price

elastic because a decrease in price resulted in higher revenue.

The entrance fee into Yellowstone National Park in northwestern Wyoming is​ "$30 for a​ private, noncommercial​ vehicle; $25 for a motorcycle or a​ snowmobile; or​ $15 for each visitor 16 and older entering by​ foot, bike,​ ski, etc." The fee provides the visitor with a​ seven-day entrance permit into Yellowstone and nearby Grand Teton National Park. The demand for entry into Yellowstone National Park for visitors in​ private, noncommercial vehicles is

elastic because when the price is high and the quantity demanded isel ​ low, demand is elastic.

One study found that the price elasticity of demand for soda is -0.78, while the price elasticity of demand for​ Coca-Cola is -1.22. The price elasticity of​ Coca-Cola is ​(interpret the absolute value of these​ elasticitiies, i.e., ignore the minus sign​):

greater than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda.

What happens when the quantity demanded is very responsive to changes in​ price? The percentage change in quantity demanded will be.....

greater than the percentage change in price.

A good is an _________ when the demand for it decreases following a rise in income and increases following a fall in income.

inferior good

Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the​ poor, when a proponent of one particular method asserts​ that: ​"If only one poor person is helped with this​ method, then all our time and money would have been worth​ it." If you were a member of the​ organization, what reply best represents clear economic​ thinking? This attitude

ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.

5 things that shift market demand the most

income Prices of related goods Tastes Population and demographics Expected future prices

A news story from 2017 about the oil market​ stated, "crude oil prices fell ... in part​ [due to] renewed concerns about the global supply​ glut."

increase in supply of, relative to the demand​ for, crude oil.

As part of his 2016 federal budget​ proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous​ question, do you think President Obama was likely to have recommended changes that would​ increase, or changes that would​ decrease, the payments that borrowers would have to​ make? President Obama was likely to have recommended changes that would

increase the payments that borrowers would have to make so that the government would be paid back sooner

The federal government subsidizes some loans to college students.​ Typically, the more students who participate in these programs and the more they​ borrow, the higher the cost to the federal government. In​ 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan​ programs: ​(1) Payments were capped at 10 percent of a​ borrower's discretionary​ income; ​(2) any unpaid balances for people working for the government or in the​ non-profit sector were forgiven after 10​ years; and ​(3) people working in the private sector had their loans forgiven after 20 years. As a result of these changes in the federal student loan​ program, you would predict that the total amount​ students' borrowed under these programs would have

increased because the terms of repayment have been made more generous.

As you move up a linear demand​ curve, the price elasticity of demand in absolute value

increases.

The price elasticity of demand for a particular brand of raisin bran​ is, in absolute​ value,

larger than the price elasticity of demand for all breakfast cereals.la

Suppose that Lichtenstein and Luxembourg currently have identical production possibilities frontiers but that Lichtenstein devotes only 5 percent of its resources to producing capital goods over each of the next 10​ years, whereas Luxembourg devotes 30 percent. Which country is likely to experience more rapid economic growth in the​ future?

luxembourg

The effect of higher income taxes on the total amount of consumer spending. This is a ________ issue

macro

Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of​ recessions?

macro

the reasons for the economies of East Asian countries growing faster than the economies of​ sub-Saharan African countries. This is a ___________ issue.

macro

The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ▼ macroeconomic microeconomic issue. ​ However, to understand how much new machinery and equipment firms decide to​ purchase, one must analyze the incentives individual firms​ face, which is a ▼ macroeconomic microeconomic issue.

macro micro

The Food and Drug Administration​ (FDA) is part of federal​ government's Department of Health and Human Services. Among its other​ functions, the FDA evaluates the safety and effectiveness of drugs and medical devices. FDA approval had to be granted before OraSure was allowed to market its home HIV test. In a centrally planned​ economy, the government decides how resources will be allocated. In a market​ economy, the decisions of households and firms interacting in markets allocate resources. The regulation of the production and sale of drugs and medical devices in the United States is an example of how resources are allocated in a

market economy because the drug​ development, and the resources allocated to the​ development, occurs in the market.

A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to ▼ maximize total output minimize production costs while the latter ensures it of ▼

minimize production costs ample revenues

​Therefore, the​ cross-price elasticity of demand between ​"substitutes​" is most likely positive and the​ cross-price elasticities of demand between ​"complements​" is most likely

negative

The late Nobel​ Prize-winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market​ system, "may be very different​ from, and even opposed​ to, intentions is surely the most important intellectual contribution that economic thought has​ made." it is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because

neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person. Your answer is correct.

If a market is in equilibrium is it necessarily true that all potential buyers and sellers are satisfied with the market​ price?

no

Productive efficiency occurs when a good or service​ (such as the distribution of​ tickets) is produced at the lowest possible cost. Is this an efficient way to distribute the​ tickets?

no

Some economists have been puzzled that although entrepreneurs take on the risk of losing time and money by starting new​ businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. William Baumol believes part of the explanation for this puzzle may be that entrepreneurs are like people who buy lottery tickets. On​ average, people who​ don't buy lottery tickets are left with more money than people who buy tickets because lotteries take in more money than they give out. Baumol argues that​ "the masses of purchasers who grab up the​ [lottery] tickets are not irrational if they receive an adequate payment in another​ currency: psychic​ rewards." The term​ "psychic rewards" refers to.........

nonmonetary forms of remuneration that are psychologically uplifting.

This is.......

not an equitable way to distribute the tickets because some students who really want them may be unable to go and get them.

If the price of Sprite falls while the demand for Coca - Cola falls​, is the cross-price elasticity of demand between the pair of products likely to be positive or​ negative?

positive

a. A​ 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents

positive analysis

c. Rising paper prices will increase textbook prices. This represents

positive analysis

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

quantity supplied.

define Capital

refers to physical capital, such as computers, office buildings, and machine tools, used to produce other goods.

The production possibilities frontier will shift outward

results from if resources are used to create capital goods

Firms are likely to produce more of a good or service when its price ____________ and less of a good or service when its price _____________

rises falls

What is the law of​ demand? The law of demand is the

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

According to an article in the Wall Street Journal​, some small publishers have argued that Amazon has been increasing the prices it sells their books for on its Web site. Amazon was increasing the prices by reducing the discount it offered consumers on the retail prices of the books. One small nonfiction publisher said that Amazon had reduced the discount on its books from about 30 percent to about 16 percent. According to the author of the​ article: ​"For this​ publisher, that means less revenue and less profit as some buyers reject the more expensive​ books." Some buyers will no longer buy the​ publisher's books at a higher price. The publisher will earn less revenue only if

sales fall significantly.

In a graph​ (not shown) of the banana market in the United​ States, the imposition of a tariff on banana imports would

shift supply ​ leftward, increasing equilibrium price and decreasing equilibrium quantity.

A production possibilities​ frontier:

shows the maximum attainable combinations of two goods that may be produced with available resources.sh

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

Effect on discouraging soda consumption When Demand for Soda Is Price Inelastic ____________ When Demand for Soda Is Price Elastic ___________

smaller effect Larger effect

goods and services that can be used for the same purpose are called

substitues

Years​ ago, an apple producer argued that the United States should enact a​ tariff, or a​ tax, on imports of bananas. His reasoning was​ that: ​"the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United​ States." This producer apparently assumed apples and bananas to be _____________ .

substitutes

Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. ​"There is nothing morally unattractive about​ saying: We need to analyze which way of spending money on health care will produce more benefit and which​ less, and using our money as efficiently as we can. I​ don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible​ costs." It would be more moral to reduce​ pollution,

taking the cost into account because money spent on pollution reduction is not available for other worthy activities

__________ which is a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

technological change

what is absolute advantage?

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

What is the midpoint method for calculating price elasticity of​ demand? The midpoint method for calculating price elasticity of demand​ is:

the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.

From the list​ below, select the variable that will cause the supply curve to​ shift:

the cost of raw goods

The demand for agricultural products is​ inelastic, and the income elasticity of demand for agricultural products is low. How do these facts help explain the disappearing family​ farm? The family farm has been disappearing because

the demand for food has not increased proportionally with increases inth ​ income, and increases in the supply of food have resulted in significant decreases in food prices.

define equity

the fair distribution of economic benefits

In colonial​ America, the population was spread thinly over a large​ area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a​ result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs​ fell? As transportation costs​ fell,

the farmers gained access to new markets and customers. Using comparative advantage, the farmers​ specialized, producing those goods for which they had lower opportunity cost. As they traded for other​ goods, their incomes and living standards increased.

if a demand curve is elastic then a decrease in price increases revenue because

the increase in quantity demanded is proportionally greater than the decrease in price.

if the demand curve is inelastic then a decrease in price reduces revenue

the increase in quantity demanded is proportionally smaller than the decrease in price.

if a demand curve is unit elastic then a decrease in price does not affect revenue

the increase in quantity demanded is proportionally the same as the decrease in price.

This idea is an important intellectual contribution because

the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards.

What is the formula for the price elasticity of​ demand? The formula for the price elasticity of demand is

the percentage change in quantity demanded divided by the percentage change in price.th

The​ cross-price elasticity of demand is

the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

what is a relative price

the price of one good or service relative to the prices of other goods or services

Psychic rewards that an entrepreneur might receive include ​(check all that ​apply)​:

the pride of self-accomplishment. status within the community. being ​one's own boss.

what is Microeconomics

the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

what is macroeconomics

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

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 the consumers' purchasing power.

In the foreword to a report on property rights around the​ world, Peruvian economist Hernando De Soto noted​ that: "countries that have weak property rights also struggle to develop​ strong, innovative economic​ markets." What does De Soto mean by​ "strong, innovative economic​ markets"?

these are markets that search out opportunities to provide new goods and services.

President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs because they

underestimated the number of students who would take advantage of the programs.

How should policymakers determine the amount of money that should be allocated for research curing heart​ disease? They should base their decision on

whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.

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.

We can show economic​ inefficiency:

with points inside the production possibilities frontier.

We can show economic​ efficiency:

with points on the production possibilities frontier.

Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a​ necessity?

yes. If the income elasticity of demand is greater than​ 1, then the good is a luxury. If the income elasticity of demand is positive but less than​ 1, then the good is a necessity.

According to an article in the Wall Street Journal​, Staples​ Inc., an office supply​ store, "has found a new use for some of its roomy​ office-supply stores: make parts of them into​ offices." With many businesses having moved to storing their records digitally and many consumers now shopping online rather than in​ stores, Staples no longer needs as much floor space for filing cabinets and some other products. To use the surplus​ space, Staples has begun a partnership with​ Workbar, an​ office-sharing firm, to offer small business owners and professionals shared workspaces within select Staples retail stores. Does Staples incur a cost from using some of the space in its retail stores for office​ workspaces? If Staples does incur a​ cost, briefly explain what the cost would be.

​Yes, if the surplus space could be used for some other alternative​ use, then Staples incurs an opportunity cost.

Consider the following two uses of the word​ "demand" in news​ articles: i. An article in the Wall Street Journal noted that an​ "increase in the price of oil quickly reduces demand for​ oil." ii. A different article in the Wall Street Journal​ noted: "Electric cars are poised to reduce U.S. gasoline demand by​ 5% over the next two​ decades...." Do you agree with how the first Wall Street Journal article uses the word​ "demand"? Do you agree with how the first Wall Street Journal article uses the word​ "demand"?

​​No, a change in the price of oil affects the quantity of oil​ demanded, not the demand for oil.

The chapter mentions that in 1965 married women with children worked an average of 32 hours per week while men worked an average of only 4 hours on house work long dash a total of 36 hours of housework. In​ 2016, the estimated average weekly hours of housework for women declined to​ 15.7, while the hours worked by men increased to about 9.7 long- a total of 25.4 hours of housework. Does the decrease in the total number of hours of house work long- from 36 to 25.4 long -mean that families are willing to live in messier​ homes?

​​No, because there are more labor saving devices so less time is required.

Can you think of any reason when it might be appropriate for states to provide expensive new drugs only to the patients who are most ill from a​ disease?

​​Yes, it might be appropriate when other uses of those resources have less value.

Use income elasticity to distinguish a normal good from an inferior good. For a normal​ good, the income elasticity of demand will be

​​positive, but for an inferior​ good, the income elasticity of demand will be negative.

The income elasticity of demand for a normal good is​ _____ and for an inferior good is​ ______.

​​positive; negative

Goods and services that can be used for the same purpose are​ ________, and goods and services that are used together are​ ________.

​​substitutes; complements