Macroeconomics Unit 1

Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of additional hours the tailor shop is open as shown in the table to the right. He would have to hire a worker for those hours at a wage rate of​ $18 per hour. What is​ Julius's marginal cost if he decides to stay open for three hours instead of two​ hours?

$18

The Stogie​ Shop, a cigar store in the​ mall, sells hand−rolled cigars for​ $10.00 and machine−made cigars for​ $2.50 each. What is the opportunity cost of buying a hand−rolled ​cigar?

4 machine made cigars

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn ​$200,000 next year playing for a minor league baseball​ team, ​$700,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year. The opportunity cost of the​ student-athlete returning to college next year is

700,000

In your economics​ class, you scored a 66 on the first​ quiz, a 83 on the second​ quiz, and an 71 on the third quiz. Your average quiz grade is__ On the fourth quiz, you cored an 78. Did the fourth quiz raise your everage?

73.3/yes

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

Economics

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

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

Consider the following economic​ agents: a. the government b. consumers c. producers ​Who, in a modern mixed​ economy, decides what goods and services will be produced with the scarce resources available in that​ economy?

Government, Consumers and Producers

Microeconomics is most likely to include the study of

Household choices

Which of the following is a microeconomic​ question?

How does Fiat decide on the price of the 500 Pop​ model?

Which of the following is a microeconomic​ question?

How will Apple decide on a selling price for the​ iPad?

Which of the following is a positive economic​ statement?

If the price of gasoline​ rises, a smaller quantity of it will be bought.

Suppose Apple is currently selling 2,000,000 iPods per year. ​ However, managers at Apple are considering whether to increase production by 200,000 iPods. One manager explains that after increasing production by this​ amount, total profit would be​ $100 million. Given this​ information, should Apple increase production by 200,000 iPods​?

Information about the additional revenue earned and the additional cost incurred from producing 200,000 additional iPods is required to answer this question.

Which of the following is not a step economists follow when developing an economic​ model?

Make value judgments to be proven or disproven.

Suppose a t−shirt manufacturer currently sells​ 5,000 t−shirts per week and makes a profit of​ $10,000 per week. A manager at the plant​ observes, "Although the last 400 t−shirts we produced and sold increased our revenue by​ $4,000 and our costs by​ $4,800, we are still making an overall profit of​ $10,000 per week so I think​ we're on the right track. We are producing the optimal number of t−​shirts." Using marginal analysis​ terminology, what is another economic term for the incremental cost of producing the last 400 t−​shirts?

Marginal Cost

Suppose a cigar manufacturer currently sells​ 1,500 cigars per week and makes a profit of​ $3,000 per week. The plant foreman​ observes, "Although the last 500 cigars we produced and sold increased our revenue by​ $7,500 and our costs by​ $7,000, we are only making an overall profit of​ $3,000 per week so I think we need to cut back on production. Using marginal analysis​ terminology, what is another economic term for the incremental cost of producing the last 500​ cigars?

Marginal cost

Which of the following contributes to the efficiency of​ markets?

Markets promote competition and voluntary exchange.

Which of the following statements is​ correct?

Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient.

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

No

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

North Korea

Which of the following is motivated by an equity​ concern?

Some U.S. colleges have cut back on merit scholarships since these programs siphon money from need−based ​programs, thus harming lower−income students with greater financial need.

Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away​ 1,000 tickets to the football game against your​ school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first​ 1,000 students who show up at the​ department's office at 10 a.m. the following Monday.

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

Which of the following statements about the idea that people are rational is​ correct?

The idea assumes that consumers and firms use all available information as they act to achieve their goals.

Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. Part 2 What is the opportunity cost of spending more money to find a cure for heart​ disease?

The reduction in funding for research to cure other diseases.

​Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1​ hour, he can mow 3 lawns or trim 6 bushes. Part 2 ​

Tom's PPF is a straight line. Part 3 ​Tom's PPF intersects the​ graph's axis for mowing lawns at 12 and intersects the​ graph's axis for trimming bushes at 24. ​(Enter your responses as whole​ numbers.) Part 4 ​Tom's opportunity cost of mowing lawns in terms of trimming bushes is 22 trimmed bushes per mowed lawn. ​(Enter your response rounded to two decimal​ places.)

Which of the following best describes​ scarcity?

Unlimited wants exceed the limited resources available.

Which of the following is a macroeconomic​ question?

What determines the minimum​ wage?

Trade−offs force society to make choices when answering what three fundamental​questions?

What goods and services to​ produce; how will these goods and services be​ produced; and who receives​ them?

The three economic questions that every society must answer are

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

Fast food restaurants produce a range of menu items such as​ hamburgers, chicken​ sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of​ items?

What to​ produce?

A production possibilities frontier​ (PPF) is

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Productive efficiency means that

a good or service is produced at the lowest possible cost.

The term​ "market" in economics refers to

a group of buyers and sellers of a product and the arrangement by which they come together to trade.

If a firm is productively and allocatively​ efficient, it earns _____ if it is not it

a profit/suffers a loss

The primary difference between absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

What does the term​ "marginal" mean in​ economics?

an additional or extra

Economic models

are simplified versions of reality

Productive efficiency is achieved when firms produce goods and services

at the lowest cost

The production possibilities frontiers depicted in the diagram to the right illustrate

both the labor force and capital stock increasing.

A market is a group of _____ of a good or service and the institution or arrangement by which they come together to trade.

buyers and sellers

How are economic resources allocated in a market​ economy?

by the decisions of households and firms interacting in markets

Societies organize their economies in two main ways to answer the three questions of​ what, how, and who. A society can have a _______ economy in which the government decides how economic resources will be allocated. Or society can have a _______economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned/market

The basis for trade

comparative advantage

The new production possibilities frontier will indicate that with the technological​ advance, more

consumption goods

the governement seeks to protect intellectual property rights by granting

copyrights and patents

Consumers, firms, and government

decide(s) what goods and services will be produced.

​Suppose, in an effort to prevent the population from​ declining, Italy begins offering new mothers extended periods of paid family leave from work​ and, consequently, the birthrate per woman increases. If​ so, then this could best be characterized as an example of people responding to

economic incentives

is someone who operates a​ business, bringing together the factors of production—​labor, ​capital, and natural resources—to produce goods and services.

entrepreneur

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

every choice involves an opportunity cost.

Allocative efficiency means that

every good or service is produced up to the point where marginal benefit is equal to marginal cost.

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

extra or additional

In economic​ terminology, the inputs used to make goods and services are referred to as

factors of production.

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

false

Centrally planned economies allocate resources based on decisions by_____ while market economies answer these questions through decisions made by ______

government/households and firms

Suppose an increasing number of school districts across the country find themselves with too few teachers at a time of rising enrollments and calls for improved outcomes in terms of student performance. A​ market-based remedy for this emerging mismatch between the availability of teachers and school​ districts' needs would likely emphasize Part 2

higher compensation to elicit both a larger quantity of teacher services and a greater reliance by districts on​ non-traditional instruction methods.

Microeconomics is the study of

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

What goods and services will be​ produced, how the goods and services will be​ produced, and who will receive the goods and services are​ determined:

in centrally planned economies by the government. in market economies by the decisions of households and firms interacting in markets.

In the​ circular-flow diagram showing how a market system​ works

income flows to firms through product markets.

Suppose the economy whose PPF is shown on the right experiences economic growth. ​1.) Use the​ 3-point curved line drawing tool to show how growth affects the​ trade-offs the country faces between producing ships and food. ​2.) Use the point drawing tool to draw and label a point on the new PPF that shows the economy producing more of both goods. Label this point​ 'B'. Carefully follow the instructions above and only draw the required objects. Part 2 Which of the following may have caused the shift you have​ drawn? ​(Check all that​ apply.)

increase in stock, tech and force

`On the diagram to the​ right, movement along the curve from points A to B to C illustrates

increasing marginal opportunity costs.

The revenue received from the sale of an additional unit of a product

is a marginal benefit to the firm

The cost incurred from the production of an additional unit of a product

is a marginal cost to the firm

Positive analysis

is concerned with what is

Economics is a social science because

it considers human behavior—particularly ​decision-making behavior. it applies the scientific method to the study of the interactions among individuals. it is based on studying the actions of individuals.

The decision about what goods and services will be produced in a centrally planned economy is made by

lawmakers in the government deciding on what will be produced.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

When Dr. Goldfinger decides on the companies in which he will​ invest, a​ ________ issue is being addressed.

microeconomic

Examining the most efficient way to reduce air pollution is most likely an issue in

microeconomics

A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to_________ while the latter ensures it of

minimize production costs/ample revenues

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

mixed

This is

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

When economists develop models designed to explain the choices people​ make, they generally assume that

people are rational

Economics is about, , which measures the costs and benefits of different courses of action

positive analysis

The Scottish philosopher Adam Smith argued in 1776 that

prices would do a better job of coordinating the activities of buyers and sellers than guilds could.

The primary difference between product markets and factor markets is that

product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial ability.

The study of economics arises due to

scarcity

Consider a production possibilities frontier ​(PPFLOADING...​) that shows the​ trade-off between the production of cotton​ (on the​ y-axis) and the production of soybeans​ (on the​ x-axis). Part 2 What effect would improved fertilizers have on the initial production possibilities​ frontier? Part 3 If fertilizers improve​, then the PPF will

shift out along both axes. This will indicate that more of both goods can be produced.

Suppose an economy has a typical bowed PPF with ships on the​ y-axis and food on the​ x-axis. Further suppose that the economy is currently at point​ A, which lies on the​ PPF, directly in the middle between the​ x- and​ y-axis. Now, suppose that the economy experiences economic growth. Show how growth affects the​ trade-offs the country faces between producing ships and food and indicate a point on the new PPF that shows the economy producing more of both goods. Part 2 As a result of​ growth, the​ country's PPF will

shift out along both axes.

Consider the production possibilities frontier that shows the​ trade-off between the production of cotton​ (on the​ y-axis) and the production of soybeans​ (on the​ x-axis). Part 2 Suppose that genetic modification makes soybeans resistant to​ insects, allowing yields to increase. Part 3 If a genetic modification makes soybeans resistant to​ insects, then the PPF will Part 4

shift out along the soybean axis, indicating mroe soybeans can be produced

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Suppose a technological advance occurs that affects the production of consumption goods but not capital goods. If a technological advance occurs that affects the production of consumption goods but not capital ​goods, then the production possibilities frontier will

shift outward along the consumption goods axis.

A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for​ short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of​ "beds" it offers at its nursing homes. Part 2 Given the changes to​ Medicare, if the marginal benefit of offering an additional bed is ​$2,000 and the marginal cost is ​$1,000 per​ bed, then the corporation

should offer additional beds

Economic models​ are:

simplified versions of reality designed to analyze​ "what is" to explain human decision making in any context.

Which of the following are examples of intellectual​ property?

software, ideas for new products, books and films

The production possibilities frontiers depicted in the diagram to the right illustrate

technological advances in the tank industry.

One of the great benefits of trade is

that it makes it possible for society to become better off by increasing its consumption.

Macroeconomics​ examines:

the economy as a​ whole, such as how rapidly the economy grows.

Equity is

the fair distribution of economic benefits.

Opportunity cost is

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

Opportunity cost is defined as

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

Economists believe that an activity should be continued up to the point where

the marginal benefit from the activity is equal to the marginal cost.

In a free​ market, the actions people take are largely determined by

the motivation of financial reward.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives,

the policies are consistent with economic incentives.

Property rights are

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

A number of political leaders have expressed concern about the​ nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that

the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value.

Economists assume that people are rational in the sense that

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

Which of the following generates allocative efficiency in a market​ economy?

voluntary exchange between buyers and sellers

Normative analysis is concerned with

what out to be

A free market exists

when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

How should policymakers determine the amount of money that should be allocated for research curing heart​ disease? They should base their decision on Part 5

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