Exam 1 for Macroeconomics
Refer to the diagram. If this is a competitive market, price and quantity will move toward:
$40 and 150, respectively.
Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:
$60.
Refer to the table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be:
$8 and 60 units.
Refer to the table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be:
$9 and 60 units.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be:
0F and 0C, respectively.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then
0F represents a price that would result in a shortage of AC.
A nation can produce two products: tanks and autos. The table below is the nation's production possibilities: Refer to the above table. In moving from combination C to B, the opportunity cost of producing 100 more autos is:
1 unit of tanks
Refer to the diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is:
2, 4, 6, and 8 units of bread.
determinants of supply
A change in resource prices, A change in technology, A change in the number of sellers, A change in taxes and subsidies, A change in prices of other goods, and A change in producer expectations
Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing?
A only
Which of the diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software?
A only.
Who compares the benefit vs the cost?
A rational person
Refer to the above graph. All of the following development would allow a movement from point C to a point outside the production possibilities curve, except:
A reduction in unemployment of resources
The Demise of Command Systems
Command system was a failure, in Soviet Union, Eastern Europe, and China, The coordination problem Sets output targets for all goods, and the incentive problem is No adjustments for surplus or shortage.
Change in prices of related goods
Complementary good and substitute good.
A budget line is a graph that shows the various combinations of two products that a:
Consumer can buy with a given amount of money income.
Who Will Get the Output?
Consumers with the ability and willingness to pay will get the product and Ability to pay depends on income.
Refer to the above production possibilities curves. Curve (a) is the initial curve for the economy. If the economy's production possibilities then shift to curve (b), then:
Point N would indicate some unemployment or underemployment of resources.
Refer to the diagram for athletic shoes. The optimal output of shoes is:
Q2.
market equilibrium
Equilibrium occurs where the demand curve and supply curve intersect, Equilibrium price and equilibrium quantity, Surplus and shortage, Rationing function of prices, Efficient allocation.
A reduction in the unemployment rate will cause the nation's production possibilities curve to shift outwards.
False
A decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and automatically returns the price of X to its initial level.
False.
A reduction in the unemployment rate will cause the nation's production possibilities curve to shift outwards:
False.
Producing a good in the least costly way is known as allocative efficiency.
False.
Refer to the diagram. Given production possibilities curve a, point Y indicates that society is failing to use available resources efficiently.
False.
Refer to the diagram. Given production possibilities curve a, the combination of civilian and war goods indicated by point X is unattainable to this economy.
False.
Surpluses drive market prices up; shortages drive them down.
False.
Refer to the above graph. Which of the following movements would indicate a reduction in unemployment?
From point F to point H
Refer to the four graphs above. Select the graph above that best shows the changes in demand and supply in the market specified in the following situation: In the market for music CDs sold in stores, if more consumers switch to music-downloads from the Internet, and the cost of making music CDs decreases because of technological improvement in production.
Graph C.
How Will the System Progress?
Technological advance, Creative destruction, and Capital accumulation.
Refer to the above production possibilities curves. Curve (a) is the current curve for the economy. Focusing on curve (a), point N suggests that the economy currently produces:
Less goods for the future than at point P
How Will the Goods Be Produced?
Minimize the cost per unit by using the most efficient techniques, Technology, and Prices of the necessary resources.
Use of Money
Money makes trade easier, Medium of exchange, without money, and people would have to barter.
Ali decides to attend the one-hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Ali's opportunity cost of attending the review session is? Is it free?
No, it isn't free, the opportunity cost is the $10 he could have earned at his job.
The Five Fundamental Questions
What goods and services will be produced? How will the goods and services be produced? Who will get the goods and services? How will the system accommodate change? How will the system promote progress?
A government tax per unit of output reduces supply.
True.
What is opportunity cost of attending MS State?
When everything costs roughly $20,000 a year to go to college, you can receive at an average of over $50,000 after college at your job, but when, if you didn't go to college, it would only be roughly $27,500 a year at a job.
Change in quantity supplied
a movement along the supply curve that occurs in response to a change in price
Refer to the diagram. A price of $60 in this market will result in:
a surplus of 100 units.
Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by:
an increase in incomes if the product is a normal good.
the budget line
attainable and unattainable combinations. trade-offs and opportunity costs.
pitfals to sound economic reasoning
biases, fallacy of composition, and post hoc fallacy (correlation not causation).
A shift to the right in the demand curve for product A can be most reasonably explained by saying that:
consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
(Consider This) At fast-food restaurants:
decisions entail comparisons of marginal costs and marginal benefits.
Rational Decisions
decisions that will make people better off, not worse off.
Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will:
decrease, quantity demanded will increase, and quantity supplied will decrease.
If products A and B are complements and the price of B decreases, the:
demand for A will increase and the quantity of B demanded will increase.
Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:
demand has increased and equilibrium price has decreased.
If competitive industry Z is making substantial economic profit, output will
expand in industry Z, as more resources will move to that industry.
social needs vs. private needs
government can increase effectiveness of a market system.
externalities
government may be needed to alleviate market failures.
Which of the following is not a typical characteristic of a market system?
government ownership of most property resources
A market is in equilibrium:
if the amount producers want to sell is equal to the amount consumers want to buy.
Refer to the table. In relation to column (3), a change from column (2) to column (1) would indicate a(n):
increase in demand.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):
increase in the price of complementary good Y.
A demand curve:
indicates the quantity demanded at each price in a series of prices.
marginal analyisis
marginal benefit vs marginal cost (marginal means extra).
generalizations
models that represent reality.
Refer to the budget line shown in the diagram. If the consumer's money income is $20, the:
price of C is $4, and the price of D is $2.
A decrease in the demand for recreational fishing boats might be caused by an increase in the:
price of outboard motors.
Characteristics of the Market System
private property, freedom of enterprise, freedom of choice, self-interest, competition, markets and prices.
The law of supply indicates that, other things equal:
producers will offer more of a product at high prices than at low prices.
(Consider This) The assertion by economists that "there is no free lunch":
remains true even for goods given away free by firms.
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and potatoes are a consumer substitute for bread, we would expect the price of wheat to:
rise, the supply of bread to decrease, and the demand for potatoes to increase.
Refer to the diagram. A decrease in demand is depicted by a:
shift from D2 to D1.
A country can achieve some combination of goods outside its production possibilities curve by:
specializing and engaging in international trade.
Rationing Function of Prices
the ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent
macroeconomics
the study of the entire economy or a major aggregate of the economy.
microeconomics
the study of the individual consumer, firm, or market.
change in supply
the supply curve shifts at same price and quantity supplied is different for each curve.
Refer to the diagram. A decrease in quantity demanded is depicted by a:
move from point y to point x.
change in quantity demanded
movement along the demand curve showing that a different quantity is purchased in response to a change in price.
In a competitive market economy, firms select the least-cost production technique because
to do so will maximize the firms' profits.
possible government failure
too much regulation
marginal (extra) benefit vs marginal (extra) cost
totally worth it - MC < MB or that's not worth it - MC > MB.
Capitalism gets its name from the fact that capital resources are mostly
treated as private property.
Refer to the diagram. The combination of computers and bicycles shown by point G is:
unattainable given currently available resources and technology.
A positive statement is one that is:
objective and is based on facts.
scientific method
observe > formulate a hypothesis > test the hypothesis > accept, reject, or modify the hypothesis > continue to the hypothesis, if necessary.
Refer to the diagram. The equilibrium price and quantity in this market will be:
$1.00 and 200.
Refer to the diagram. A surplus of 160 units would be encountered if the price was:
$1.60.
The Invisible Hand
1776 Wealth of Nations by Adam Smith, Unity of private and social interest, Virtues of the market system which is Efficiency, Incentives, and Freedom.
A nation can produce two products: tanks and autos. The table below is the nation's production possibilities: Refer to the above table. The total opportunity cost of three units of tanks is:
350 units of autos
A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule: Refer to the above table. Which of the following output-combinations is unattainable:
4 steel and 55 wheat
Refer to the budget line shown in the diagram. If the consumer's money income is $20, which of the following combinations of goods is unattainable?
4 units of C and 6 units of D.
Refer to the above graph. The selection of which point on the production possibilities curve is most like to result in the largest increase in economic growth over time?
A.
Refer to the diagram. Other things equal, which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of PP3 rather than PP2?
A.
Horizon Life
After a couple of years cost is recovered and benefits start increasing. Other benefits include higher mobility, access to better working conditions. Skilled workers find jobs easier than unskilled workers. Lower probability to be fired during recession, etc.
When do we apply economics?
Always
Which of the following will cause the demand curve for product A to shift to the left?
An increase in money income if A is an inferior good.
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
An increase in supply.
law of increasing opportunity cost
As more of a particular good is produced, its marginal opportunity costs increase.
A point or combination that is on the production possibilities curve is:
Attainable and resources are fully employed.
A point inside the production possibilities curve is ____ while a point outside the curve is ____.
Attainable; unattainable
How the System Deals with Risk
Business owners and investors face risk, Losses due to input shortages, Changes in consumer tastes, Natural disasters that affect the supply chain, Employees and suppliers have security, paid whether the firm makes a profit or not.
How the System Deals with Risk
Business risks are restricted to owners, Attracts needed inputs, Focuses attention on owners personally responsible for outcome, Will encourage prudent decisions, Manage risk well and the owners will prosper.
Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research?
C only.
Determinants of Demand
Change in consumer tastes and preferences, change in the number of buyers, and change in income which is normal goods and inferior goods.
How Will the System Change?
Changes in consumer tastes, Changes in technology, and Changes in resource prices
When resources are scarce
Choices must be made.
Refer to the above graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods?
D.
In which of the following instances is the effect on equilibrium price dependent on the magnitude of the shifts in supply and demand?
Demand rises and supply rises.
Refer to the four graphs above. In which graph would the indicated shifts cause equilibrium quantity to definitely rise, but the effect on price is indeterminate?
Graph A
Which is one of the five fundamental questions that need to be dealt with in any economic system?
How will goods and services be produced?
production possibilites model
Economic model that shows different combinations of two goods that an economy can produce, Full employment, Fixed resources, Fixed technology, 2-good economy, and consumer and capital goods.
What Will Be Produced?
Goods and services that create a profit, Consumer Sovereignty, "Dollar votes", method for consumers to determine which goods will be produced, and determines which products and industries survive or fail.
The Circular Flow Model
Households, Businesses, Sole proprietorship, Partnership, Corporation. Product market and the resource market and the real flow and the money flow.
Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?
How is the output to be produced?
Laissez-Faire Capitalism
Ideal economy, "Keep the government from interfering with the economy", Power of government just needed to, protect private property from theft, provide a legal environment for contract enforcement, people interact in markets to buy and sell.
People/Firms make decisions with some desired outcome in mind is called?
Imperfect Information
A nation can increase its production possibilities by:
Improving labor productivity
A nation can produce two products: tanks and autos. The table below is the nation's production possibilities: Given the production possibilities schedule above, a combination of 3 tanks and 350 autos:
Is attainable but entails some unemployment or inefficient use of society's resources.
A point outside (to the right of) the production possibilities curve of a nation:
Is not attainable for this nation.
How does human specialization contribute toward increasing an economy's output?
It exploits the differences in abilities.
Which of the following statements about the right to private ownership is false?
It weakens the incentive to maintain the property that one already owns.
what are the 4 categories of economic resources?
Land (natural resources i.e. water, oil, minerals, etc.), Labor (workers), Capital (i.e. Machines, tools, etc. Investments), Entrepreneurial ability (i.e. innovating ideas).
Technology and Capital Goods
Market systems reward individuals and businesses, Advanced technology and capital goods are encouraged with Specialization, Division of labor, and Geographic specialization.
A nation can produce two products: tanks and autos. The table below is the nation's production possibilities: Refer to the above table. According to the production possibilities schedule, a combination of 4 tanks and 650 autos is:
Not attainable because the nation does not have sufficient resources.
What do we need to give up in order to get something else?
Opportunity cost
law of demand
Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. The explanations are that the price acts as an obstacle to buyers, the law of diminishing marginal utility, and income effect and substitution effect.
law of supply
Other things equal, as the price rises, the quantity supplied rises and as the price falls, the quantity supplied falls. Explanation of Price acts as an incentive to producers and at some point, costs will rise.
price floor
Prices are set above the market price and Chronic surpluses
Productive efficiency
Producing goods in the least costly way, using the best technology, Using the right mix of resources
allocative efficiency
Producing the right mix of goods and the combination of goods most highly valued by society
Consumers express self-interest when they:
Seek the lowest price for a product.
Price ceiling
Set below equilibrium price, Rationing problem, and Black markets.
Economic systems
Set of institutionalized arrangements, coordinating mechanism, differences in systems exist by degree of decentralized use of markets and prices in decision-making and degree of centralized government control.
A movement from one point to another along the production possibilities curve would imply that:
Society is producing a different combination of outputs.
social science
Something that is concerned with making optimal choices under conditions of scarcity.
international trade
Specialization and Increased production possibilities
Supply
Supply schedule or a supply curve, Amount producers are willing and able to sell at a given price, Individual supply and Market supply.
Which of the following would most likely increase the demand for gasoline?
The expectation by consumers that gasoline prices will be higher in the future.
marginal benefit is decreasing.
The marginal benefit of an extra unit of a good/activity is going down as more is hold or have of that good/activity.
marginal cost is increasing.
The marginal cost of an extra unit of a good/activity is going up as we hold or have more of that good/activity since more is giving up to do it.
Refer to the above graph. Which of the following statements about combination G is true?
The nation may not be able to produce combination G, but it can consume that combination if it specializes and trades.
Scarcity
When unlimited wants is greater than limited resources.
A surplus of a product will arise when price is:
above equilibrium with the result that quantity supplied exceeds quantity demanded.
A person should consume more of something when its marginal:
benefit exceeds its marginal cost.
things that equal assumption
ceteris paribus and graphical expression
Refer to the diagram. Points A, B, C, D, and E show:
combinations of bicycles and computers that society can produce by using its resources efficiently.
Firms are motivated to minimize production costs because
competitive pressures in the market will drive out higher-cost producers.
production possibilities curve
concave shape and economic rationale.
If the demand for steak (a normal good) shifts to the left, the most likely reason is that:
consumer incomes have fallen.
normative economics
economic statements that involve value judgements.
positive economics
economics statements that are factual
The competitive market system
encourages innovation because successful innovators are rewarded with economic profits.
Who faces scarcity?
everyone
changes in consumer expectations
future prices and future income
The market system is an economic system that
gives private individuals and institutions the right to own resources used in production
Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will:
increase, quantity demanded will decrease, and quantity supplied will increase.
market system
is a mix of decentralized decision making with some government control, Systems found in much of the world, Private markets are dominant force, Private ownership of resources, Self-interested behavior.
Refer to the diagram. The combination of computers and bicycles shown by point F:
is attainable but implies that the economy is not using all its resources.
A normative statement is one that:
is based on value judgments.
command system
known as socialism or communism, Government ownership of resources, Decisions made by a central planning board, and in North Korea, Cuba, and Myanmar.
the economizing problem
limited income and unlimited wants.
Markets may be
local, national, international
(Consider This) Free products offered by firms:
may or may not be free to individuals but are never free to society.
If consumer incomes increase, the demand for product X:
may shift either to the right or left.
"Macroeconomics is the part of economics concerned with individual units such as a person, a household, a firm, or an industry." This statement is:
positive but incorrect.
What if we created a legal market for human organs?
positive effects are Increase the incentive to donate and eliminate the persistent shortage of eyes, livers, hearts, kidneys, etc. or negative effects of Diminishes the special nature of life by commercializing it, the market would leave out the poor and uninsured, and increases the cost of medical care.
Positive vs. Normative Statements
positive statements can be confirmed or refuted, normative cannot.
The demand curve shows the relationship between:
price and quantity demanded
Government Set Prices
price ceilings and price floors
A decrease in the price of digital cameras will:
shift the demand curve for memory cards to the right.
If products C and D are close substitutes, an increase in the price of C will:
shift the demand curve of D to the right.
Refer to the diagram. An improvement in technology will:
shift the production possibilities curve from PP1 to PP2.
Refer to the diagram. A price of $20 in this market will result in a:
shortage of 100 units.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then:
supply has decreased and equilibrium quantity has decreased.
demand
the amount consumers are willing and able to purchase at a given price.
opportunity cost
the decision to engage in one activity means forgoing some other activity. Usually that decision involves the two most important alternatives.
(Consider This) An exception to the advice "go to college, stay in college, and earn a degree" occurs when:
the opportunity cost of attending college is extraordinarily high.
In the figure are two linear production possibilities curves for countries Alpha and Beta. We can conclude that:
the opportunity cost of shelter is greater in Alpha than it is in Beta.
By an "increase in demand," economists mean that:
the quantity demanded at each price in a set of prices is greater.
Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:
will be 4 units of bicycles.