Economics questions
Shifters of supply
1. A change in resource price ex. an increase in the price of steel 2. a change in technology ex. the printing press 3. changes in nature and politics ex. crops freeze 4. changes in taxes ex. yacht taxes
What are shifters in demand ?
1. Change in consumer income A. Normal good ex. shrimp B. Inferior goods ex. Ramen Noodles 2. change in number of consumers ex. change in class size 3. change in price of a related good a. substitute (beef and chicken) b. complements (milk and cereal) 4. change in expectation a. expected change in price b. expected change in income 5. change in sonsumer tastes and prefrences ex. do you think fsu sold more sports merchandise before or after natty? Obvi after
#10 Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions
1. Investments in productive assets and in the skills of workers enhance our ability to produce goods and services However, investment requires us to give up consumption. Production = consumption(the using up of a resource) + investment 2. . Improvements in technology spur economic progress. As a student can you do more with: Computer, printer, internet or paper, pencil, and books 3. Improvements in economic organization can promote growth Growth comes from a legal system that promotes: Private property rights e.g. Patent (get the rewards for 12 years of making the product, then it goes into the market and the price goes down) Competition Personal and economic freedom e.g. pursue there interest and make money there best able to
Four pitfalls to avoid when engaging in sound economic reasoning
1. Violation of ceteris paribus principle ceteris paribus: other things constant Is it okay to compare your grandparent's earnings in 1960 with your cousins earnings in 2017? (inflation) 2. The belief that good intentions guarantee desirable outcomes ex. The drug war (more bad then good) ex. Tariffs (supply jobs somewhere else shut tariff manufacturing down) ex. Anti-depressant medication 3. Fallacy of composition: the fallacious belief that what is true for one person is true for all people ex. Standing at a football game ex. The paradox of thrift 4. The belief that association is causation ex. School study finding that taking 15 credits your freshmen year is correlated with higher average GPAs no true
An airline ticket from Baltimore to Miami costs $425. A bus ticket is $125. Traveling by plane will take 5 hours, compared with 35 hours by bus. Thus, the plane costs $300 more but saves 30 hours of time. Rosemarie will gain by choosing air travel if, and only if, each hour of her time is valued at more than $10 per hour. $20 per hour. $30 per hour. $100 per hour.
10
Maria wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $2.50 per gallon, the car wash costs $2, but if she buys 10 gallons of gasoline, the car wash is free. For Maria, the marginal cost of the tenth gallon of gasoline is zero. 50 cents. $2.00. $2.50.
50 cents
Caitlyn buys a new phone for $700. We can conclude that she must value the new phone more than the $700. she is $700 worse off. she would have been happier if she had saved the money instead. whoever sold her the phone is $700 worse off.
A
During 2007-2008, the price of gasoline increased from approximately $1.50 to $4.00 per gallon. As a result, the demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline. supply of gas guzzling automobiles decreased, causing their price to increase. supply of gas guzzling automobiles increased causing their price to fall. demand for gas guzzling automobiles increased, causing their price to increase.
A
Economic progress reflects that people are achieving higher income levels and living standards. requires that individuals work longer hours. indicates that scarcity is no longer a problem. indicates income levels are higher even though environmental and health conditions have worsened.
A
High transaction costs will tend to reduce the number of mutually beneficial exchanges. lead to more specialization in accordance with the law of comparative advantage. increase the total gains from trade. increase the number of mutually beneficial exchanges.
A
If we are going to get the most value from our resources, entrepreneurs should choose the investment alternatives that? yield a profitable rate of return. are most heavily subsidized by the government. result in the production of the largest possible output regardless of value to consumers. reduce the value of resources and retard wealth accumulation
A
If you want to earn a high income you should figure out what others value because? others will be willing to pay attractive prices for things they value. you will be able to gain at the expense of others. you will not have to compete in the job market. you will then be able to charge higher prices than alternative
A
P1Q10 Government spending programs that create jobs are often popular because the created jobs are highly visible, while the secondary effects of lost jobs in other areas, higher interest rates, and higher future taxes are less visible. if a spending program is approved by Congress, it means that the value of what is produced is greater than the value of the resources used to produce it. the benefits of job creation are always greater than the costs. Jobs are the key to economic progress. when spending programs are funded by the government there are no secondary effects.
A
P1Q13 Which of the following is a major implication of the invisible hand concept? When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. Prosperity cannot be achieved unless the selfish nature of people can be changed. Competition is harmful to the health of an economy because it results in wasteful duplication. Government-operated firms tend to have lower costs than private sector firms.
A
P1Q4 It's a Sunday, and Mason is ranking his choice of activities in the following order: study for an economics exam on Monday, play video games, swim at the pool with friends, or listen to music. If Mason chooses to study for his economics exam, what is the opportunity cost of this choice? Playing video games swimming with friends Listen to music All of the above
A
Profit can be defined as the difference between the sales revenue of a business firm and the opportunity cost of the resources required to produce the goods supplied by the firm. difference between a company's income and direct monetary costs of production. difference between the price of a product and the consumer's valuation of the good. amount of total revenue earned by the firm minus its payments to stockholders.
A
Q10 If a surplus exists in a market we know that the actual price is above equilibrium price and quantity supplied is greater than quantity demanded. above equilibrium price and quantity demanded is greater than quantity supplied. below equilibrium price and quantity demanded is greater than quantity supplied. below equilibrium price and quantity supplied is greater than quantity demanded.
A
Q14 If there is a simultaneously an increase in demand and an increase in supply, we would expect An increase in equilibrium price and an increase in equilibrium quantity. A decrease in equilibrium price and an increase in equilibrium quantity. An increase in equilibrium price and a decrease in equilibrium quantity. A decrease in equilibrium price and a decrease in equilibrium quantity
A
Q2 When economists say the demand for a product has increased, they mean the demand curve has shifted to the right. price of the product has fallen, and consequently, consumers are buying more of it. cost of producing the product has risen. amount of the product that consumers are willing to purchase at various prices has decreased.
A
Q6 When economists say the supply of a product has decreased, they mean that the supply curve has shifted to the left. the product price has decreased, and as a consequence, suppliers are producing less of the product. producers are now willing to sell more of this product at each possible price. the supply curve has shifted to the right
A
Q9 If the demand for a good is relatively inelastic, this means that consumer purchases of the good are not very sensitive to the price of the good. highly sensitive to the price of the good. unrelated to the price of the good. unaffected by changes in the income level of consumers
A
The income and living standard of a country will generally improve when I.property rights are protected. II. jobs are protected. iii. banks are protected. I only II only I and II II and III
A
The law of comparative advantage indicates that if a group of individuals wants to maximize their joint output, then each good should be supplied by the low opportunity cost producer. the person with the lowest wage rate. the person that can accomplish the task most rapidly. the person with the most advanced technical knowledge.
A
To be considered scarce, an economic resource must have alternative uses. have durable qualities. have been originally a free good. come from the ground.
A
When economic losses are present in a market, firms will tend to exit from the market. raise their prices, because higher prices always lead to larger profits. lower their prices, regardless of cost, so they can capture more of the market. increase output.
A
Which of the following is a major implication of the invisible hand concept? When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. Prosperity cannot be achieved unless the selfish nature of people can be changed. Competition is harmful to the health of an economy because it results in wasteful duplication. Government-operated firms tend to have lower costs than private sector firms.
A
Which of the following is most important if you want to achieve high earnings? Ability to provide others with things that they value highly. Ability to identify and undertake actions where you can benefit at the expense of others. Willingness to exploit workers and consumers. Willingness to work hard even if you are not productive.
A
Which of the following was an unintended consequence of the subsidies and mandated expansion in output of gasoline produced from corn-based ethanol? higher food and grain prices. a reduction in the demand for battery powered automobiles because of the low prices of gasoline produced from ethanol. sharply lower prices for feed grains because of a reduction in the demand for corn. a substantial reduction in crude oil prices because of the low-cost production of gasoline from ethanol.
A
Which of the following would lead to an increase in the demand for fast food in your local community? An increase in your local community's population. A decrease in average consumer income in your local community. A more research substantiating that fast food is very bad for your health. A decrease in the average price charged by sit-down restaurants in your local community.
A
Which of the following would most likely cause the demand curve for hamburgers to decrease? A drop in the price of hot dogs. An increase in the price of hamburgers. A drop in the price of hamburgers. A technological advance that reduces the cost of making frozen hamburger patties.
A
Which of the following would most likely increase the supply of beef? Lower prices of grains used to feed cattle. Lower prices for chicken, a substitute for beef. New medical research suggesting that beef causes more serious health problems than was previously thought. An increase in the cost of transporting beef products to the consumer market.
A
What is market equilibrium?
A state in which the forces of supply and demand are in balance. Occurs where the demand curve intersects the supply curve. In market equilibrium: all trades that generate more benefit than costs are undertaken (because of the equilibrium cost) No trades where costs exceed benefits are undertaken The combined area of consumer and producer surplus is maximized The market equilibrium is economically efficient. Efficient: no excess supply or excess demand Excess supply: quantity supplied > quantity demanded Known as a surplus, if your warehouse is full because no one is buying, price is to expensive Excess demand: quantity demanded > quantity supplied Known as a shortage Consumers, there isn't enough supplied (hurricane and water)
What are resources? What are human resources? What is physical resoucrces? What is natural resources? What is Capital?
An input used to produce economic goods Human- the collective skills, knowledge, or other intangible assests of individuals that can be used to create economic value for the individuals their employers of their community investment in human capital that pays off in terms of higher productivity. Physical- is a factor or production machinery, buildings, computers Natural- is anything that people can use whcih comes from natural enviornment air, water, wood, oil, iron Capital: human made resoucres used to produce other goods and services.
Each point on the demand curve indicates the demand for the product. the quantity demanded at that price. the amount that people need. the amount people want to buy at different income levels.
B
If the Midwest experiences a severe drought that damages the corn crops, we should expect the supply of corn will increase and the price of corn will fall. supply of corn will decrease and the price of corn will rise. demand curve for corn will decrease and the price of corn will fall. demand curve for corn will increase and the price of corn will rise.
B
If the cost of producing butter increases, what will happen to the equilibrium price and quantity of butter exchanged? Price quantity Increase Increase Increase Decrease Decrease Increase Decrease Decrease
B
If the price of a good is below the equilibrium price, suppliers will find inventories building; they will cut output and raise prices. suppliers will find inventories being depleted. They will increase production and raise prices. the demand curve will shift down until an equilibrium is established at the existing price. the supply curve will shift up until an equilibrium is established at the existing price.
B
If the price of a good or service is higher than the equilibrium price excess demand is likely to push prices lower. producers are likely to produce more than consumers are willing to purchase. consumers will want to purchase more than producers are willing to produce. excess supply is likely to push prices higher.
B
In a free market economy, current consumption, saving and investment decisions are controlled largely by the government. shape the future course of the national economy. are necessarily controlled by big businesses. require protection from foreign forces if individuals desire wealth accumulation.
B
In economics, secondary effects refer to the value of the goods that an individual must give up as the result of choosing an alternative. indirect effects that often result from an action or policy change. immediate and highly visible intended consequences of an action or policy change. value of a good derived by the consumer.
B
Losses and business failures illustrate why government subsidies are necessary if resources are going to be allocated efficiently. will help redirect resources away from unproductive projects. reflect that buyers value the product highly relative to costs. indicate that sellers are producing the commodity at the lowest possible cost
B
Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans. This argument is correct because a higher minimum wage will increase total income which will stimulate aggregate demand and employment. incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities. correct because most minimum wage workers are household heads trying to earn enough to support their family. incorrect because the government has too big a deficit to pay for the increase in the minimum wage.
B
P1Q6 Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that A. The opportunity cost of growing oranges is higher in florida than in georiga b. Georgia has a comparative advantage in producing peaches C. Florida has a compartive advantage in producing peaches D. total output will expanded when geroiga allocates more resources to producing oranges and florida allocated more resourfces to producing peaches
B
P1Q8 Which of the following is true? Large corporations earn profits, while smaller firms realize losses. Profits attract businesses to productive projects, while losses discourage them from undertaking unproductive activities. Profits indicate that businesses are over-charging customers, while losses suggest that they should raise customer prices. If corporations want to increase profits, they will always be able to do so by either increasing product prices or reducing employee wages
B
Q1 Which of the following best explains the source of consumer surplus for good A? Many consumers pay prices that are greater than the market price of good A. Many consumers would be willing to pay more than the market price for good A. Many consumers think the market price of good A is greater than its cost. Many consumers think the demand for good A is elastic.
B
Q13 If Georgia experiences a late frost that damages the peach crop, we should expect the supply curve for peaches to shift to the right and the price of peaches to fall. supply curve for peaches to shift to the left and the price of peaches to rise. demand curve for peaches to shift to the left and the price of peaches to fall. demand curve for peaches to shift to the right and the price of peaches to rise
B
Q4 If air travel and bus travel are substitutes an increase in the price of bus travel will decrease the demand for air travel. a decrease in the price of bus travel will decrease the demand for air travel. an increase in the price of bus travel will generally have no effect on the demand for air travel. an increase in the price of bus travel will shift the demand curve for air travel to the left
B
Q5 If coffee and cream are complements, an increase in the price of coffee will cause the demand for cream to increase. the demand for cream to fall. the demand for coffee to fall. no change in the demand for cream; only quantity demanded would be affected
B
Q8 If the demand for a good is relatively elastic, this means that consumer purchases of the good are not very sensitive to the price of the good. highly sensitive to the price of the good. unrelated to the price of the good. unaffected by changes in the income level of consumers
B
Suppose the government spends $10 billion subsidizing firms producing electricity with wind turbines because these firms are high cost producers. Will the subsidies lead to economic growth and higher income levels? Yes, because more people will be employed by the firms producing electricity with wind turbines. No, the turbines are an inefficient form of producing electricity and therefore the subsidies will increase the opportunity cost of supplying it. Yes, because the government will be able to finance the subsidies without reducing private sector output. Uncertain, higher income levels will be achieved if the employment of the firms producing electricity with the wind turbines expands; if not, incomes will fall.
B
The demand curve for a good Indicates the relationship between the price of the good and the price of other goods. indicates the quantities of the good that people are willing to purchase at various prices. illustrates the quantity producers will provide at alternative prices. is determined primarily by the cost of producing the good.
B
The equilibrium price of a good or service is the price at which the current quantity supplied by producers is equal to the potential output. at which the quantity supplied by producers is equal to the quantity demanded by consumers. at which all consumers can afford to purchase units of a good or service as long as they provide them with any value. fixed by the government so that producers do not over produce and consumers do not over purchase.
B
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources only if buyers and sellers really care, personally, about economic efficiency. even when each market participant cares only about their own self-interest rather than about the overall efficiency of resource use. even if business firms fail to produce goods efficiently. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.
B
When equilibrium is present in a market, there is generally either a shortage or a surplus. quantity demanded equals quantity supplied. quantity demanded exceeds quantity supplied. quantity supplied exceeds quantity demanded
B
When rent controls fix the price of rental housing below the market equilibrium, tenants can expect lower rent and higher quality housing. lower rent and lower quality housing. higher rent and a shortage of rental housing. higher rent and a surplus of rental housing
B
When resources are allocated by markets, profits and losses provide information about which products are priced too high and which are priced too low. which resources are being used productively and which resources should be allocated to other uses. which industries need to be subsidized and which need to be subject to additional regulation. which businesses should be taxed more heavily and which should be subsidized.
B
When the government finances a shovel-ready project through taxes or borrowing, this will result in lower taxes or interest rates, which will reduce private sector employment. higher taxes or interest rates, which will reduce private sector employment. lower taxes or interest rates, which will increase private sector employment. higher taxes or interest rates, which will increase private sector employment.
B
When two countries produce those goods for which each has the lowest opportunity cost, and then trade for those each could produce only at a high cost, they are trading according to their absolute advantage. comparative advantage. production possibilities. demand advantage.
B
Which of the following is the primary source of high earnings in a market economy? a willingness to engage in actions where you gain at the expense of others the ability to provide others with things that they value highly a willingness to exploit workers and consumers a willingness to work hard even if you are not productive
B
Which of the following popular expressions best reflects the idea of marginalism? Anything worth doing is worth doing to the best of one's ability." "What are you going to do for me next?" "There is no such thing as a free lunch." "The best things in life are free."
B
Which of the following statements reflect sound economic reasoning? Foreign competition will reduce the wealth of Americans. If it is more economical to acquire a good through trade than by self-production, it makes sense to trade for it. If domestic production of a good will employ lots of people, the good should be produced domestically. Higher tariffs will increase the total volume of international trad
B
Q12 If the demand for a good decreased, what would be the effect on the equilibrium price and quantity? Price would increase and quantity would decrease. Price would decrease and quantity would decrease. Price would increase and quantity would increase. Price would decrease and quantity would increase.
B quantity demand goes down because nobody wants it so they would lower the price to sell more
Q15 (MA) An increase in the number of students attending college would tend to decrease the demand for college professors. increase the demand for college professors. decrease the number of college professors employed. increase the number of college professors employed. increase wages of college professors. decrease wages of college professors
B D could also be correct
#2 There is no such thing as a free lunch What is opportunity cost?
Because resources are scarce, trade-offs must be made. Even if it is free, there is still some option that was available that you passed on Opportunity Cost: The highest valued alternative that must be sacrificed when choosing an option ex. an hour of your time ex. how you spend your next $10 Also known as, "implicit costs," because they are costs indirectly(incidentally) associated with an action.
A Senator stated, "The main goal of government policy is to create jobs. Economic progress depends on more jobs—period."This statement is True. Jobs create income and income improves our standard of living. True. In most recessions, governments must create jobs to increase consumer income. False. Production of goods and services people value, not just jobs, is the key to improving living standards. I only II only III only II and III
C
A highly charitable person, such as Mother Theresa, will be influenced by changes in benefits, but not costs. changes in costs, but not benefits. both changes in benefits and costs. neither changes in benefits nor costs.
C
According to the law of supply, as the price of a good increases, buyers will buy more of the good. buyers will buy less of the good. sellers will produce more of the good. sellers will produce less of the good
C
Consider the supply of orange juice. If the price of orange juice rises, which of the following occurs? Producers of orange juice decrease the quantity of orange juice that they produce. Producers of orange juice go out of business, and the supply of orange juice shifts to the left. Producers of orange juice increase their production of orange juice. Producers of orange juice are satisfied with their revenue and leave production unchanged.
C
Higher standards of living are the result of an increase in the general level of prices. trade restrictions that favor domestic industries over foreign competition. an increase in the availability of goods and services that people value. government subsidies that expand employment
C
If a business is earning an economic profit in a competitive market, it is price gouging its customers. exploiting it workers. producing goods and services that are valued more highly than the resources required to produce them. producing goods and services in a market that is characterized by high entry barriers.
C
If a business is losing money on the goods it is producing, this indicates that the business is producing the goods at the lowest possible cost. the resources used to produce the goods are too expensive and need to be subsidized in order to be used productively. the resources would be used more productively producing other things. the consumer values the goods highly relative to costs.
C
If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen? The quantity of milk demanded will increase. The quantity of milk supplied will decrease. There will be a surplus of milk. There will be a shortage of mil
C
P1Q3 The economizing problem is essentially one of deciding how to make the best use of limited resources to satisfy limited wants. unlimited resources to satisfy limited wants. limited resources to satisfy virtually unlimited wants. unlimited resources to satisfy unlimited wants.
C
P1Q7 Websites, such as Craig's List and eBay, function as middlemen by increasing the costs associated with matching sellers and buyers. decreasing the volume of internet trade. increasing the efficiency in matching sellers and buyers. increasing the amount of time it takes for buyers to locate sellers
C
Profits and losses play an important role in helping to signal to government which businesses are suffering losses so that they can be subsidized. consumers decide which products they value the most by looking at each firm's profit. direct businesses toward productive projects and away from ones that are unproductive. ensure that the total profits in the economy exactly equal the total losses.
C
Q16 If the government imposes a price floor on the market for milk, which of the following will most likely happen? The quantity of milk demanded will increase. The quantity of milk supplied will decrease. There will be a surplus of milk. There will be a shortage of milk
C
Q7 When economists say the quantity supplied of a product has increased, they mean the supply curve has shifted to the left. supply curve has shifted to the right. price of the product has risen, and consequently, suppliers are producing more of it. price of the product has fallen, and consequently, suppliers are producing less of it.
C
The demand curve for gasoline is downward sloping. If the price of a gallon of gas falls from $4.00 to $3.75 per gallon,] the demand for gas will fall. the demand for gas will rise. a larger quantity of gas will be demanded. a smaller quantity of gas will be demanded
C
The law of demand refers to the decrease in price that can be expected as more units of a product are demanded. increase in price that results from an increase in demand for a good of limited supply. inverse relationship between the price of a good and the quantity demanded. increase in the quantity of a good available when its price increases.
C
The primary benefit of voluntary trade is that it increases tax revenue. it allows developers to put land to better use through eminent domain. people on both sides of the trade are made better off. the prices of goods and services rise.
C
Voluntary trade promotes economic progress because it moves goods, services and resources from people who value them more to individuals who value them less. encourages individuals to become self-sufficient. makes larger outputs possible as a result of specialization. benefits buyers at the expense of sellers.
C
When a shortage of a good is present due to a price ceiling, the amount supplied will be greater than the amount demanded. the quality of the good will generally improve. non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. the demand for the product will increase and, thereby, eliminate the shortage.
C
When competition is present and property rights protected and enforced, market prices will discourage profit-seeking business firms from producing efficiently. direct entrepreneurs toward production of goods that are inferior in quality. encourage self-interested individuals to develop skills that are expected to be valuable in the future. always decrease.
C
When individuals increase their personal wealth through production and exchange, they reduce the wealth of others. must rely heavily on government intervention and regulation. increase the wealth of others. must be selfish and greedy.
C
When individuals increase their personal wealth through production and exchange, they reduce the wealth of others. must rely heavily on government intervention and regulation. increase the wealth of others. must be selfish and greedy.
C
When policymakers impose price controls, they are usually following the advice of mainstream economists. usually improve the efficiency of economic activity. distort the signals that normally guide the allocation of resources. demonstrate a willingness to sacrifice fairness in order to improve efficiency.
C
Which of the following best describes the system of social coordination called "the invisible hand," which was first described by Adam Smith Central planners direct both the output of producers and the consumption of purchasers. Consumers decide how to produce the most important goods and services. Prices direct suppliers toward production of goods that generate profits, and consumers to purchase goods that improve their well-being. Producers control the price, output, and quality of goods and services.
C
Which of the following is most important for the achievement of higher income levels and living standards? an increase in total employment increases in government spending that create jobs production of additional goods and services that people value highly relative to the cost of their production restriction of imports that expand employment in the protected industries
C
Which of the following would most likely increase the supply of gasoline? Lower prices of gas at the pump. Lower housing prices. A major oil boom in North Dakota. A fire destroys main refineries.
C
When the equilibrium price of a product is present the consumers will benefit from the exchanges, but the producers will experience losses. the producers will profit from the exchanges at the expense of consumers. the value of the products to the consumers will exceed the costs of the resources required for their production. neither consumers nor producers will benefit from the exchanges.
C all the other 3 dont make sense they arent equal to each other
Individuals economize and respond predictably to positive incentives, but not negative incentives. negative incentives, but not positive incentives. both positive and negative incentives. neither positive or negative incentives
C when you know somethings good you act accordingly when you know somehtings bad you act accordingly
Demand vs. quanitiy demanded
Change in quantity demanded: A movement along the curve Caused by a change in the price of that good *Increase in quantity demanded: movement down the curve (to the right) decrease in price *Decrease in quantity demanded: movement up the curve (to the left)increase in price Change in demand: a shift of the curve Caused by a change in anything that affects demand other than the price of the good Increase in demand: curve shifts right Decrease in demand: curve shifts left
Supply vs quantity supplied
Change in quantity supplied: a movement along the curve Caused by a change in the price of that good Increase in quantity supplied: Movement up the curve (to the right) (increase in price) Decrease in quantity supplied: Movement down the curve (to the left)(reduction in price) All along the same curve/line in response to fluctuation in price. Change in supply: A shift of the curve **********Caused by a change in anything that affects supply other than the price of the good Increase in supply: curve shifts right Decrease in supply: curve shifts left
Which of the following statements about incentives is true? Understanding how people respond to incentives helps government planners organize the economy. Changing one incentive can result in several unseen effects. Fair-minded people who care about others will not be affected by incentives Emphasizing incentives ignores altruistic nonmonetary values.
Changing on incentive
#4 Voluntary Trade Promotes Economic Progress What is the law of comparative advantage?
Coercion: someone will devote resources to make worse if you dont comply A. Because the value of a good or service is subjective(based on or influenced by personal feeling, tastes, or opinions), voluntary trade moves goods from people who value them less to people who value them more B.Trade makes larger output and consumption levels possible because it allows us to specialize in what we do best The Law of Comparative Advantage: individuals, economies, and nations should produce that which they can make at a lower opportunity cost and trade for everything else. ex. Should Jimbo Fisher clean his own house? ex. Who should mow the lawn? C. Specialization makes it possible for firms to achieve lower per-unit costs by adopting mass production methods.
What is a consumer surplus?
Consumer surplus: The difference between the maximum amount consumers would be willing to pay and the amount that they actually pay. Consumer surplus is the area below the demand curve but above the price.
Does voluntary exchange create wealth? No, exchange merely shuffles the existing supply of goods and services among people. No, if one person gains, the other party must lose an equal amount. Uncertain, it will increase wealth if it creates more goods and services; otherwise it exerts no impact on the wealth of people. Yes, exchange makes it possible for the trading partners to gain more value from the existing supply of goods and it also makes larger output levels possible.
D
If the construction of a high speed rail project creates benefits of $20 billion while the cost is $45 billion, this indicates the project should be undertaken if it is favored by a majority of voters. will increase the welfare of society. should be undertaken even if it is opposed by a majority of voters. should not be undertaken.
D
P1Q12 Economic progress comes primarily through central planning. imposition of trade barriers. government investment in heavy industry. entrepreneurial action directed by competitive markets.
D
P1Q5 According to economic reasoning, when should you take an action? the total benefits are less than the total costs. the additional costs are greater than the additional benefits. the additional costs are the same as the additional benefits. the additional benefits are greater than the additional costs
D
Q3 When economists say the quantity demanded of a product has decreased, they mean the demand curve has shifted to the left. demand curve has shifted to the right. price of the product has fallen, and consequently, consumers are buying more of it. price of the product has risen, and consequently, consumers are buying less of it.
D
Susan is trying to decide whether to quit her $20,000 per year job so she can return to college next year as a full time student. If she goes to college next year, her books and supplies will cost $500, tuition will cost $3,000, and her other expenses (transportation, housing, and food) will increase by $2,000. What is Susan's opportunity cost of attending college next year? 3,000 3,500 5,500 25,500
D
The basic principles of economics are important only to professional economists. complex and difficult to understand. necessarily abstract. reflective of common sense.
D
The income and living standards of a nation will increase when jobs are protected and total employment expands. the prices of goods and services increase. the imports of goods and services fall. the availability of goods and services that people value increases.
D
When the government funds a project that will create jobs, the funds for the project are essentially free, because the project originated in the government sector. will leave private sector output and employment unchanged. will generate additional tax revenues that will pay for the project will have to be either taxed or borrowed from the private sector.
D
Which of the following actions has an opportunity cost? Taking a morning run Buying a smartphone Enjoying a beautiful rainbow All of the above
D
Which of the following is true of exchange? Exchange is a zero sum activity; if one party gains, the other must lose an equal amount. The exchange value of a good is determined by the cost of the resources required to produce the good. The total output that trading partners are able to produce is not influenced by whether they trade with each other. Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage.
D
Which of the following is/are a source of economic progress? I. Improvements in technology II. A legal system that protects individuals and markets III. Improvements in human capital I only II only I and II I, II, and III
D
Which of the following would most likely shift the supply curve to the left for Wii video games? An increase in the price of Wii video games. A decrease in the price of computer chips used to make Wii games. A decrease in the demand for Wii games. An increase in the price of electronic components used to produce the Wii games.
D
Which of the following would reduce the transaction costs of exchange? legislation that prohibits the activities of middlemen government licensing of sellers increasing tariffs and quotas improvements in technology that make it easier to identify potential sellers
D
Why is voluntary exchange an important source of economic prosperity? It moves goods from people who value them less to people who value them more. It makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. It makes it possible to produce a larger output as a result of gains from division of labor and specialization. All of the above are correct.
D
P1Q11 Why is voluntary exchange an important source of economic prosperity? It moves goods from people who value them less to people who value them more. It makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. It makes it possible to produce a larger output as a result of gains from division of labor and specialization. All of the above are correct.
D B C are speciliaztion examples eg. amazon
Q11 Which of the following is true of the interaction of supply and demand? As the price increases, the quantity demanded and the quantity supplied will increase. As the price increases, the quantity demanded and the quantity supplied will decrease. As the price increases, the quantity demanded increases and the quantity supplied will decrease. As the price increases, the quantity demanded will decrease and the quantity supplied will increase. As the price increases, neither the quantity demanded nor quantity supplied will change.
D supply and demand are not effected by prices
Substitute goods
Example: (A)______beef , (B)__chicken If the price of (A)________went up, the (demandN/quantity demanded*Y) of (A)____________ would (riseN/fallY*) and consumers would purchase (more/less*) (A)_______________beef. The (*demandY/quantity demandedN) for (B)____________ chicken would (rise*Y/fallN), causing the demand curve to shift (right*Y/leftN).
Complement goods
Example: (A)_____tooth brush_____, (B)____tooth past ______ If the price of (A)______ _______ went up, the (demand/quantity demanded*Y) of (A)_____ ________ tooth brush (rise/fall*Y) and consumers would purchase (more/less*Y) (A)________________tooth brushes . The (demand*Y/quantity demanded) for (B)_____________ tooth paste would (rise/fall*Y), causing the demand curve to shift (right/Y*left).
Many outcomes are the result of human action but not human design
Examples: Who invented the English language? E.g. evolved organically Seating in class Early roads and pathways
The owners of the Cheesy Burger Restaurant must decide how many new employees to add to their existing number of workers. Based on the information below, how many workers should the owners add if a worker earns $9 per hour? 1=30 2=48 3=62 4=72 5=80 6=84 six workers because that increases total revenue the most from the initial level one worker because that worker increases average revenue the most four workers because the fifth costs more than that worker increases total revenue two workers because hiring more is risky
FOur workers
Labor demand
Firms demand labor 2. Labor demand curve is downward sloping because as wage decreases, firms will want to employ more people 1. workers supply labor 2. labor supply curve is upward sloping because as wage increase, people will want to work more
Which of the following is often referred to as the basic postulate of economics? Individuals act only out of selfish motives. Incentives matter; individuals respond in predictable ways to changes in personal costs and benefits. The accuracy of the assumptions is the best test of an economic theory. The value of a good is objective; it is equal to the cost of producing the good.
Incentives matter
12 key elements of economics #1 Incentives matter
Incentives matter: choice is influenced in a predictable way by changing incentives As an activity becomes more costly, people do it less. As an activity becomes less costly, people do it more. Side note: economists describe incentives as costs and benefits, but they are essentially the same thing
What is Elasticity
Inelastic: Changes in quantity are not sensitive to changes in price (inelastic curves are steeper). eg. something you need all the time, insulin diabetic needs it to live Elastic: Changes in quantity are sensitive to changes in price (elastic curves are flatter). e.g mcdonald loses dollar menu nobody would go there Elastic is stretchy! A force is applied and it is deformed, in an economic context that force is price.
#9 Production, Not Just Jobs, Provides the Source of High Living Standards
Key question
What is the law of demand ??
Law of demand: There is an inverse (negative) relationship between the price of a good and the quantity that buyers are willing to purchase Demand is a relationship between two numbers; quantity demanded is one of those numbers (price is the other) When the price goes down for milk, he quantity consumers buy will increase Results in a downward sloping demand curve *Note*: As price increases, quantity demanded decreases; as price decreases, quantity demanded increases Instead of using words, let's draw a picture of the relationship The height of the demand curve at any quantity shows the maximum price that consumers are willing to pay for an additional unit. Notice that when consumers have more of the good they value it less
#3 Decisions are made at the margin What is the Law of diminishing marginal utility?
Marginal Effect: Describes the effect of a change in the current situation. Marginal = Additional or incremental change When do you stop eating at a buffet? Doesn't cost you anything, stop when the marginal benefit is equal to 0 because it would cause you pain and you don't want it. As you continue to a given product, you will eventually get less addition utility (satisfaction) from each unit you consume Law of Diminishing Marginal Utility: as consumption increases, the marginal utility derived from additional consumption will eventually decline Why do top actors typically make more than top nurses and teachers? Harder to find a super star Cost-benefit analysis: when making a decision one compares the marginal benefits and the marginal costs To be economically efficient: 1. All actions generating more benefits than costs should be taken 2. No actions generating more costs then benefits should be taken This is why people will rationally choose to not be fully informed when making decisons ex. new car vs new pencil
#11 The "invisible hand" of market prices directs buyers and sellers toward activities that promote the general welfare
Personal self-interest directed by market prices is a powerful force promoting economic progress Prices and market order: 1. Prices communicate information to decision makers 2. Prices coordinate the actions of market participants 3. Prices motivate economic players
Price ceiling
Price ceiling: A legally established maximum price sellers can charge for a good or resource A price ceiling below market equilibrium price creates a shortage, quantity demand exceeds quantity supplied ex, in response to people trying to inflate prices after a disaster, ex. Generator A price ceiling above market equilibrium price does nothing,
Price floor
Price floor: A legally established minimum price buyers must pay for a good or resource A price floor above equilibrium price creates a surplus A price floor below equilibrium price does nothing The minimum wage is an example of a price floor. Raising minimum wage increased excess labor supply (unemployment)
The labor market
Price for labor is called the wage (W) Quantity of labor is called employment (E) Price is wage quantity is employment *Note: works just like the market for goods, only with a different name for price (wage) and quantity (employment)
Producer surplus
Producer surplus: The difference between the minimum price suppliers are willing to accept and the price they actually receive. Producer surplus is the area above the supply curve but below price.
#7 Profits direct businesses toward productive activities that increase the value of resources
Profit: An excess of sales revenue relative to the opportunity cost of production. A profit occurs only when the value of the good produced is greater than the value of the resources used for its production Loss: A deficit of sales revenue relative to the opportunity cost of production Losses are penalties imposed on those who produce goods that are valued less than the resources required for their production
#12 Too often long-term consequences, or the secondary effects, of an action are ignored
Secondary effect: the indirect impact of an action that may not be easily and immediately observable. ex. tattoos ex. hangovers ex. large cars, seat belts, air bags
The economic way of thinking indicates that individuals only focus on making money. always buy the cheapest product even if its quality is poor. always buy the highest quality product even if it is more expensive. seek the lowest cost method of achieving their objectives
Seek the lowest cost method
#6 Prices bring the choices of buyers and sellers into balance
Sellers prefer to sell things for higher prices Buyers prefer to buy things for lower prices Market prices brings these two conflicting forces into balance.
What is scarcity and what is economics and welfare?
The concept that there is less of something freely available from nature than people would like. Is not the same thing as poverty Scarcity necessitates rationing Rationing distributes scarce goods to people In a market economy price is mainly used to ration good Competition is good for scarcity. Welfare: economics is primarily concerned with allocations of goods and resources. eg. available resources. Economics is the scienve of how individuals make choices under scarcity
The supply curve The law of supply?
The law of supply: There is a direct (positive) relationship between the price of a good or service and the amount that suppliers are willing to produce Supply is a relationship between two numbers; quantity supplied is one of those numbers (price is the other) **Results in an upward sloping supply curve *Note*: As price increases, quantity supplied increase; as price decreases, quantity supplied decreases The height of the supply curve indicates the minimum price necessary to induce producers to supply that additional unit
#8 People Earn Income by Providing Others with Things They Value
The process by which some people become rich will make everybody richer. Ex. bill gates
What is utility ?
The subjective benefit or satisfaction a person expects from a choice of action
#1 incentives matter
This economic principle influences all people, but they can be subjective Students Politicians Altruists Criminals Individuals are rational: they try to get the most from their limited resources Greater benefit at least possible cost What is rational for one person may not be rational for everyone
Incentives matter only when people are greedy and selfish. only in a free market system. only in the private sector. to all human beings regardless of environment
To all human beings regardless of environment
#5 Transaction costs are an obstacle to trade
Transaction Costs: The time, effort, and other resources needed to search out and complete an exchange. Leaves a role for a middleman.... Middleman: A person who buys and sells goods or services or arranges trades. A middleman reduces transaction costs. Example: Driving half an hour to a grocery store to buy cheaper bananas vs. buying them at the campus stores.
Changes in both?
What happens if supply and demand both change at the same time? Suppose both decrease. The price and quantity would decrease a negative plus a negative equals a bigger negative
Linking the markets
When the demand for a product changes, the demand for the resources used to produce it will change in the same direction both increase
Another way to think about the difference between demand and quantity demanded
Why is the consumer buying more (or less)? Buying more because price fell is a change in quanitity demanded. Staying on the same demand curve because it's the same function just different qunaitiy. Any varable beside price changes, income changes you want to buy more stuff clothes etc, a change in demand has nothing to do with those products If price is the reason, then quantity demanded changes; move along the demand curve If any variable besides price is the reason, then demand changes; shift the demand curve
Another way to think about the difference between supply and quantity supplied
Why is the firm producing more (or less)? SO if the firm is making more or less because the price has changed it is a change in demand, but if it is any other factor changes the price then it would be a decrease or increase in supply. If price is the reason, then quantity supplied changes; move along the supply curve If any variable besides price is the reason, then supply changes; shift the supply curve
Which of the following are scarce? time for recreation clean air information all of the above
all the above
Which of the following would most likely shift the supply curve to the left for laptop computers? an increase in the price of laptop computers. a decrease in the price of computer chips used to make laptop computers. a decrease in the demand for laptop computers. an increase in the price of electronic components used to produce laptop computers.
an increase in price of electronic components used to
The U.S. government subsidizes the production of ethanol from corn and requires gasoline to contain a specific percentage of ethanol. What are the unintended consequences of this program? A. higher corn prices B. higher prices for cornbread and tortillas, products made from corn C. lower prices for gasoline because corn is a renewable resource A only B only A and B A, B, and C
third one which means A and B
