Economics Exam 1 Study Guide

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

An increase in the price of grapes, an input to jelly

What simplifies the complex world and makes it easier to understand?

Assumptions

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor. What will these nations trade?

China will export shirts, while the United States will export aircraft

Suppose Ireland exports beer to China and imports pineapples from the United States. This situation suggests that

Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples.

The study of economy wide phenomena including inflation, economic growth, and employment.

Macroeconomics

The study of how households/firms make decisions and interact with one another.

Microeconomics

________ Statements are what you think/your values and prescribe how the world should be.

Normative Statements

___________ Statements are descriptive and attempt to describe the world as it is.

Positive Statements

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

Prices and quantities both rise.

A demand has two components: ___________ ________________ and _______.

Quantity demanded, price

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?

The demand curve shifts to the right

What do Circular Flow Diagrams show?

They show how dollars flow through markets among households and firms.

In an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has comparative advantage in lawn mowing?

Tyler in washing, Mateo in mowing

Assume, for Vietnam, that the domestic price of textiles without international trade is lower than the world price of textiles. This suggests that, in the production of textiles

Vietnam has a comparative advantage over other countries and Vietnam will export textiles.

What is a Production Possibilities Frontier? (PPF)

a graph that shows the combination of output that the economy can possibly produce, given the available factors of production.

In a Market for Factors of Production, firms ______ and households _______.

buy, sell

_________ determine the demand of the product

buyers

Economics is a science. What three things does it do ?

collect data and analyze it, devise theories, and use scientific methods

in this economy, countries are in the best position to allocate resources

communist country

Points on the production possibilities frontier (the curve) are _________.

efficient

A point inside the production possibilities frontier is

feasible, but not efficient

Economics is best defined as the study of

how society manages its scarce resources and how people make decisions

Any point inside the production possibilities frontier is _________. Why ?

inefficient; because there's no tradeoff going from inefficient to efficient point.

What are scarce resources

land, labor and capital

in this economy, many households and firms interact in markets for goods and services

market economy

what type of economy is guided by prices and self interest?

market economy

What is it called when there is one seller in the market?

monopoly

Governments may intervene in a market economy in order to

protect property rights, correct a market failure due to externalities, and achieve a more equal distribution of income.

In a Market for Goods and Services, firms _____ and households _____.

sell, buy

_________ determine the supply of the product

sellers

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.

supply, lower

When the price of the good rises, the quantity demanded of the good falls, and vise versa. this is called what?

the law of demand