Macro Exam 1

What are the basic assumptions in economic studies?

-People are rational. -People respond to economic incentives. -People make decisions based on the analysis of marginal benefit and marginal cost.

What contributes to the fact that there are unlimited wants in the society?

-People pursue better lives, which means they have the desire to consume more goods and services. -Larger populations as a result of greater longevity and better living leader to stronger needs for goods and services.

select all choices that are correct statements regarding economics.

-The core issue in economics is scarcity. -Economics studies how individuals and businesses make choices to attain their goals with the limited resources they have. -Economics is a social science.

what is bad about centrally planned governments

-lack efficiency -governments may not have sufficient information, adequate infrastructure, or even incentives to make best economic decisions

The term "limited means" in economics is a result of:

-limited labor to perform production. -limited natural resources available for production. -limited technology that determines productivity. -limited capital to fund production.

in a mixed system

-the government interacts directly with both consumers and firms in the matters of taxation, subsidy, social benefits, regulations -the government also indirectly interacts with them in the factor markets as an employer or user of production factors and in product markets as a main buyer of goods and services

centrally planned economies

-type of economics in which the government decides how the resources will be used - state ownership and top-down decision making are the characteristics of this type of economics

market economies

-use markets to allocate resources -private ownership and bottom-up decision making are the characteristics of market economies

unlimited wants arise from

1. people want to live a better life and a better life often means higher consumption of goods and services 2. the ever growing global population means that the economy as a whole has stronger needs for goods and services

questions they have to ask to cope with scarcity

1. what goods and services to produce 2. how to produce those goods/services -how to divide the products/services among the population

Specify the steps in economic modeling.

1.Decide what assumptions to use. 2.Formulate a statistically testable hypothesis. 3. Collect economic data to test the hypothesis. 4.Revise the model if needed. 5.Use the result to explain economic questions

Which of the following statements are correct?

A. Scarcity arises due to the conflict between unlimited wants and limited means. B. Because of scarcity, economies have to determine what to make, how to make, and for whom to make. C. The core issue in economics is scarcity.

Which of the following statements are correct?

A. Specialization is the allocation of resources and labor to production in which a firm has the comparative advantage. B. Comparative advantage is the situation where a firm has to give up less (lower opportunity cost) to produce an output. C. Production possibilities frontier (PPF) is the collection of all possible outputs that require the full use of resources. D. Absolute advantage is the situation where a firm can use the same resources input to produce more output.

When the demand curve shifts to the right, what does it mean?

A. Demand is stronger.

Which of the following is a condition for a perfectly competitive market?

A. There are many buyers and sellers. B. There is no barrier to enter or exit the market. C. Products are identical.

The law of demand states that, else being the same, _______.

A. the lower the price, the more quantity consumers are willing to pay for.

When the supply shifts to the right and the demand curve remain the same, what happens to the market equilibrium?

B. Equilibrium price is lower and equilibrium quantity is higher.

When conducting basic market analysis, we often assume that we have a perfectly competitive market. This setting requires a number of conditions. Which of the following are required conditions?

B. There are many sellers. C. There is no barrier for buyers and sellers to enter or exit the market. D. Market participants (buyers and sellers) know what other participants are doing. E. There are many buyers.

a type of economy in which the government decides how the available resources will be used in production.

Centrally planned economy

When the supply curve shifts to the right, what does it mean?

D. Supply is stronger.

When overall production technology improves, _______.

PPF shifts outwards to the right

In an economy where the government is small and rarely intervene market activities is called:

a market system

4. Products that are complementary to each other and consumed together.

complements

in product markets

consumers spend money to consume products and services and business firms offer those products and services to the market in exchange for business revenue

Economics is a natural science.

false

True or False In product markets, households contribute production factors such as labor, land, technology, and entrepreneurship in exchange for income in the forms of wages, rent, royalty, and profits.

false

true or false In a competitive market, sellers determine the market price because they produce the product.

false

true or false At equilibrium, every seller makes a profit.

false

The problem of scarcity forces people to make choices among products because people:

have more needs and wants than resources.

people are rational

in the senses that they always make decisions based on their best interest with the information at hand

in factor markets

individuals as owners of the production factors contribute these factors these factors in exchange for income and businesses hire these factors to organize their production

A point below the Production Possibilities Frontier (PPF) is:

inefficient but attainable

6. Products that people buy less when they have a higher income.

inferior goods

While working for Pepsico, after examining the data closely, Jim noticed that when the price of a can of Mountain Dew increased, the number of cans of Mountain Dew sold decreased. He correctly reports that there is a(n) _______ relationship between the price of a Mountain Dew and the number of cans of Mountain Dew sold.

inverse/negative

economic model

is a simplified version of reality

economies have limited outputs due to

limited natural resources, capital labor, and technology

a type of economy in which market participants (buyers and sellers) jointly determine what and how to produce through market mechanism and the government is absent from the decisions.

market economy

A situation where quantity demanded is equal to quantity supplied at a particular price and the market is clear.

market equilibrium

a type of economy that uses both markets and government intervention to make economic decisions.

mixed system

Products that people buy more when they have a higher income.

normal goods

optimal decisions are made at the margin

people consider the additional benefit (marginal benefit) and the additional cost (marginal cost) of acquiring one more unit of something to decide their action

people respond to economic incentives

people will adjust their behavior when the economic reward or penalty is strong enough

A study shows that a student's GPA increases by 0.1 points per 100 hours the student uses for learning. The relationship between GPA and study hours is:

positive

possible possibilities frontier

represents all of the optimal combinations

A situation where quantity demanded is higher than quantity supplied.

shortage

optimal production

situation where maximum output is achieved, given constrains of inputs

The gains from trade is that:

specialization brings up the total production of goods and services without fundamental breakthroughs in technology.

economics

studies how individuals and businesses manage their limited resources and make choices to attain their goals

macroeconomics

studies the economy as a whole to figure out how it functions, and how governmental policies influence the economy

3. Products that serve similar functions and from which people choose one or another.

substitutes

A situation where quantity demanded is lower than quantity supplied.

surplus

comparative advantage

the ability to produce a good at a lower opportunity cost

absolute advantage

the ability to produce the most output with the same amount of input (most productive)

scarcity

the conflict between unlimited wants and the limited means to satisfy those wants

A tradeoff is:

the giving-up of production of a good for another.

Else the same, when price goes up, quantity demanded decreases, and when price falls, quantity demanded increases.

the law of demand

2. Else the same, when price falls, quantity supplied decreases, and when price goes up, quantity supplied increases.

the law of surplus

A country's total production is constrained by the size and quality of its labor force, its natural resources, financial capital, and technologies.

true

A firm's total production is constrained by the size and quality of its employees, its physical assets, financial capital, and technologies.

true

A market is a place where buyers and sellers get together and exchange goods, services, and money.

true

An individual's total consumption is constrained by his/her income and assets.

true

Economics is a social science that studies how individuals, firms, and the government interact with other to deal with the problem of scarcity.

true

Economics is a social science.

true

In factor markets, firms hire necessary production factors to organize production.

true

In factor markets, households contribute production factors such as labor, land, technology, and entrepreneurship in exchange for income in the forms of wages, rent, royalty, and profits.

true

In product markets, firms sell their products in exchange for business revenue.

true

Scarcity arises because unlimited human wants exceeds the limited means to satisfy them.

true

Scarcity is the core issue in economics.

true

true or false In a competitive market, buyers and sellers jointly determine the market price.

true

true or false Monopoly, duopolies, and oligopolies are imperfect competition because in these types of markets limited number of firms are significantly large and have dominant power.

true

true or false At equilibrium, the market is clear, meaning that there is no over supply or shortage.

true

true or false At market equilibrium, quantity demanded is equal to quantity supplied.

true

true or false When quantity supplied is equal to quantity demanded, the market is at equilibrium because the amount of output is equal to the number of products consumers are willing and able to buy.

true

mixed systems

use markets to allocate resources with various degrees of government involvement

product market

where goods and services are consumed

factor markets

where necessary production elements such as labor, materials, capital, and technology are employed to conduct economic activities