Microeconomics 2302 Chapters 1-5

Because total revenue and the price change in​ _________, the demand for home heating oil is​ ______.

the same direction​; inelastic

Economics

the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices

When the price of a resource used in production of a good​ rises, ______ and its price​ ______.

the supply of the good​ decreases; rises

In one​ hour, Sue can produce 60 caps or 18 jackets and Tessa can produce 60 caps or 24 jackets ​Sue's opportunity cost of producing a cap is____ jackets and​ Tessa's opportunity cost of producing a cap is___ jackets

0.3 & 0.4 (18÷60=0.3) (24÷60=0.4)

international finance

When the value of your import exceeds the value of your export, you must borrow from the rest of the world.

Law of market forces

When there is a surplus, the price falls; and when there is a shortage, the price rises.

comparative advantage

the ability of a person to perform an activity or produce a good or service at a lower opportunity cost than anyone else

Households and Firms

Pay taxes to Governments.

Obama drives up​ miles-per-gallon requirements Emissions from all new vehicles must be cut from 354 grams to 250 grams. To meet this new​ standard, the price of a new vehicle will rise by​ $1,300. ​ What is the opportunity cost of reducing the emission level by 1​ gram?

$12.50 of other goods and services (354-250=104) ($1,300÷104=$12.50)

income elasticity of demand formula

% change in quantity demanded / % change in income

price elasticity of demand Formula

% change in quantity demanded / % change in price

cross elasticity of demand formula

(% Change in Quantity Demanded) / (% Change in Price of Substitute or Complement)

The cross elasticity of demand for good A with respect to good B is 0.2. A 10 percent change in the price of good B will lead to a​ ______ percent change in the quantity of good A demanded. Goods A and B are​ ______.

2; Substitutes (0.2 x 10= 2)

change in quantity demanded

A change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same.

circular flow model

A model that shows the flow of goods and services and the interaction among households, businesses, and banks

Luxury Versus Necessity

A necessity has poor substitutes, so the demand for a necessity is inelastic. Food is a necessity. A luxury has many substitutes, so the demand for a luxury is elastic. Exotic vacations are luxuries.

Incentive

A reward or a penalty—a "carrot" or a "stick"—that encourages or discourages an action.

Trade-off

An exchange- giving up one thing to get something else.

exotic vacations

Are a luxury

Taxes and Transfers

Are direct transactions with governments and do not go through the "goods markets" & "Factors markets"

Capital goods​ _______.

Are goods that businesses and governments buy to increase productive resources to use during future periods to produce other goods and services

Consumption goods and services​ _______.

Are items that individuals and governments buy and use up in the current period

Time Elapsed Since Price Change (Supply)

As time passes after a price change, it becomes easier to change production plans and supply becomes more elastic. For some items (fruits) it is difficult or perhaps impossible to change the quantity supplied immediately after a price change. Manufactured goods also have an inelastic supply if production plans have had only a short period in which to change. As time passes, the elasticity of supply increases. Supply is extremely elastic for most manufactured items.

Which of the following statements is an example of price elasticity of supply​? A. A 20 percent discount at all Old Navy stores is drawing large crowds. B. The quality of fruits sold by Safeway is getting better. C. A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent. D. Farmers increase their supply of potatoes when the price of onions rises.

C. A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent.

An example of a consumption good and service is​ _______. A. an oil tanker B. a golf course C. a chocolate chip cookie D. a freeway

C. A chocolate chip cookie

An example of a capital good is a​ _______. A. smartphone ring tone B. haircut C. shopping mall D. treasury bill

C. Shopping Mall

In Party ​Ville, the price elasticity of demand for soda is 0.4​, the income elasticity of demand for soda is 0.3​, and the cross elasticity of demand for soda with respect to juice is 0.4. Soda and juice are​ ______. A. inferior goods B. complements C. luxury goods D. substitutes

D. substitutes

Choose the statement that is incorrect. A. Labor is the work time and work effort that people devote to producing goods and services. B. The quality of labor depends on how skilled people are. C. Human capital is the knowledge and skill that people obtain from​ education, on-the-job​ training, and work experience. D. Labor is often referred to as infrastructure capital. E. The quantity of labor increases as the adult population increases.

D. Labor is often referred to as infrastructure capital.

international trade

Exchanging goods and services between countries

If the price of juice increases by 15 percent with no change in the price of a can of soda​, the quantity of soda________by____ percent.

Increases;6 (0.4 x 15= 6)

When the price of a good increased by 6 ​percent, the quantity demanded of it decreased 3 percent. Demand for this good is​ ______.

Inelastic (percentage change in the quantity demanded is less than the percentage change in the price, so demand is inelastic)

Households &Firms in the U.S. Economy

Interact with other Households & Firms in other economies in 2 main ways: 1. international Trade 2. international finance

State and local governments

Major expenditures are to provide 1. goods & services 2. welfare benefits

Federal Government

Major expenditures provide 1. goods and services 2. social security and welfare payments 3. transfers to state & local governments

The following list gives examples of incentives that government policies use to influence behavior. A. Scholarships for academic excellence at state universities B. Heavier fines for speeding in school zones C. Longer prison sentences D. A congressional medal of honor Complete the table by classifying each item in the list as a​ "carrot" incentive or a​ "stick" incentive, and as a​ "monetary" incentive or​ "non-monetary" incentive.

Monetary Non-monetary Carrot: A D Stick: B C

Which points illustrate a​ tradeoff?

Only the points that are ON the line

Law of Demand

Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases.

Law of Supply

Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases.

production possibilities frontier

The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.

elasticity along a linear demand curve

Slope measures responsiveness. But slope and elasticity are not the same thing! Along a linear, straight-line demand curve, the slope is constant but the elasticity varies.

______ has a comparative advantage in producing caps. If Sue and Tessa specialize in producing the good in which they have a comparative​ advantage, ______.

Sue​; both Sue and Tessa gain

land

The "gifts of nature," or natural resources, that we use to produce goods and services.

In the graph draw a demand for homes curve​ (label it D0​), draw a supply of homes curve​ (label it S​), and put a point at the market equilibrium​ (label it​ 1). Now show the effect in the market for homes when home loans became harder to get. Draw a new curve and label it D1. Draw a point at the new market equilibrium. Label it 2. Draw an arrow along the curve to show the change in the quantity of homes supplied.

The Demand curve shifts to the left(decreases), & the new market equilibrium is at 200.

marginal benefit

The Marginal Benefit of something is what you are WILLING to give up to get one additional unit of it

Alabama food prices jump in May Alabama Farmers Federation announced that food prices in May will increase. In previous unprofitable​ years, farmers reduced their herds with the result that in 2009 meat production will fall.Steak is expected to rise by 56 cents to​ $8.40 a pound. Explain why the reduction of herds will lead to a rise in meat prices in May 2009.Draw a graph to illustrate. The graph shows the market for steak when the price of steak was​ $7.84 a pound. Draw a curve that shows the effect in May 2009 of the reduction of herds in previous years. Label it. Draw a point to show the market equilibrium in May 2009.

The Supply Curve will shift to the left(decrease), & the new market price for steak will be $8.40

availability of substitutes

The demand for a good is elastic if a substitute for it is easy to find. The demand for a good is inelastic if a substitute for it is hard to find.

Narrowness of Definition

The demand for a narrowly defined good is elastic. The demand for a broadly defined good is inelastic.

Entrepreneurship

The human resources that organizes labor, land, and capital to produce goods and services.

Time Elapsed Since Price Change

The longer the time that has elapsed since a price change, the more elastic is demand.

marginal cost

The marginal cost of something is what you MUST give up to get one additional unit of it.

Microeconomics

The study of choices that individuals and businesses make and the way these choices interact and are influenced by governments

The table shows the production possibilities of an island community. Choose the best statement. Possibility Fish Berries A 0 40 B 1 36 C 2 30 D 3 22 E 4 12 F 5 0

This community will waste resources if it produces 2 pounds of fish and 22 pounds of berries.

absolute advantage

When one person (or nation) is more productive than another—needs fewer inputs or takes less time to produce a good or perform a production task

perfectly inelastic demand

When the percentage change in the quantity demanded is zero for any percentage change in the price.

Elastic Supply

When the percentage change in the quantity supplied EXCEEDS the percentage change in price.

inelastic supply

When the percentage change in the quantity supplied is less than the percentage change in price.

perfectly inelastic supply

When the percentage change in the quantity supplied is zero for any percentage change in the price.

change in quantity supplied

a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.

change in demand

a change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes

change in supply

a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes

Rational Choice

a choice that uses the available resources to best achieve the objective of the person making the choice

inferior good

a good for which the demand increases as income falls and decreases as income rises

normal good

a good for which the demand increases as income rises and decreases as income falls

substitute in production

a good that can be produced in place of another good

substitute

a good that can be used in place of another good

complement

a good that is consumed with another good

complement in production

a good that is produced along with another good

price elasticity of demand

a measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers' plans remain the same.

price elasticity of supply

a measure of the responsiveness of the quantity supplied to a change in price

total revenue test

a method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same

A tradeoff occurs when we move from​ ______.

a point on the PPF to another point on the PPF

Proportion of Income

a price rise, like a decrease in income, means that people cannot afford to buy the same quantities of goods and services as before

Read the news​ clip, then answer the following question. The benefits from the new​ auto-emission standards include​ _______. Obama will drive up​ miles-per-gallon requirements: ​Obama's revision of​ auto-emission and​ fuel-economy standards will require automakers to boost fuel economy to 35.5 miles per gallon by​ 2016, notching up​ 5% each year from​ 2012, to limit the amount of carbon dioxide cars can emit.

a reduction in carbon​ emissions, which brings a decrease in the contribution of human activity to global​ warming, and cleaner​ air, which contributes to improved health

negative relationship

a relationship between two variables that move in opposite directions

positive relationship

a relationship between two variables that move in the same direction

The graph illustrates the market for tea. The initial equilibrium is at point A. After one or more​ changes, the new equilibrium moves to point B. You predict that the market for tea was influenced by​ _______.

a rise in household income and an increase in the number of plantations

self-interest

an individual's own personal gain

market

any arrangement that brings buyers and sellers together and enables them to get information and do business with each other

Which of the following events illustrates the law of​ demand: Other things remaining the​ same, a rise in the price of a good will​ ______.

decrease the quantity demanded of that good

As the market moves to its new​ equilibrium, the quantity supplied​ _______ and the quantity demanded​ _______.

decreases; increases

Normative

disagreements that cannot be settled by facts. they are turned on subjective values and cannot be tested.

price elasticity > 1

elastic

In the circular flow figure of the global economy on the​ right, the flows of the components manufactured in other countries appear as​ _______, and the flows of Dreamliner sales to foreign airlines appear as​ _______.

expenditure on U.S.​ imports; expenditure on U.S. exports

The functional distribution of income shows the distribution of income among​ ______ and the personal distribution of income shows the distribution of income among​ ______.

factors of​ production; households

The scientific method uses models to​ ______.

focus on those features of reality assumed relevant for understanding a cause and effect relationship

Does the decision to make a blockbuster movie mean that some other more desirable activities get fewer resources than they​ deserve? If you respond that​ ______, then your response is a​ ______ statement.

giving an activity fewer resources than it deserves cannot be​ measured; normative

Consumption goods and services

goods and services that individuals and governments buy and use in the current period

capital goods

goods that are bought by businesses to increase their productive resources

Profit (or loss)

income earned by an entrepreneur for running a business

wages

income paid for the services of labor

interest

income paid for the use of capital

rent

income paid for the use of land

households

individuals or groups of people living together

price elasticity<1

inelastic

food

is a necessity

The factor of production that earns the highest percentage of total U.S. income is​ ______. The income this factor of production earns is called​ ______.

labor; wages

A rational choice is​ ______.

made by comparing marginal benefit and marginal cost

factor market

market in which the services of factors of production are bought and sold

goods market

markets in which goods and services are bought and sold

Compared to the developing​ economies, the advanced economies have​ _______ human capital and​ _______ physical capital.

more; more

Arrows on Circular Flow Model

represents the flow of money

production possibilities

some goods can be produced at a constant (or very gently rising) opportunity cost. these goods have elastic supply

The table shows the demand and supply schedules for boxes of chocolates on an average week. The price of chocolates is​ $17.00 a box. Price Quantity D Quantity S 13.00 1,600 1,200 14.00 1,500 1,300 15.00 1,400 1,400 16.00 1,300 1,500 17.00 1,200 1,600 18.00 1,100 1,700 The​ ________ of chocolates is eliminated as the price of a box of chocolates​ _______.

surplus; falls

quantity demanded

the amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price

quantity supplied

the amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price

total revenue

the amount spent on a good and received by its seller and equals the price of the good multiplied by the quantity sold

opportunity cost

the best thing you must give up to get it

social interest

the choices that are best for society as a whole

During the recession of the late​ 2000's, many homeowners defaulted on their home loans. As a​ result, banks made it harder to people to borrow. In the market for​ homes, ______.

the demand for homes decreased. With no change in the supply of​ homes, the price of homes fell

Firms

the institutions that organize the production of goods and services

human capital

the knowledge and skills a worker gains through education and experience

We can be confident that the market for college education is competitive and that an increase in demand rather than the greed of college administrators is the reason for the ongoing rise in tuition for all of the following reasons except ​ _______.

the law of demand does not hold

equilibrium price

the price at which the quantity demanded equals the quantity supplied

Globalization

the process by which businesses or other organizations develop international influence or start operating on an international scale.

equilibrium quantity

the quantity bought and sold at the equilibrium price

demand

the relationship between price and the quantity demanded of a certain good or service

supply

the relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same

economic growth

the sustained expansion of production possibilities

Capital

the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services

labor

the work time and work effort that people devote to producing goods and services

Price elasticity = 1

unit elastic

unit elastic demand

when the percentage change in the quantity demanded equals the percentage change in price

elastic demand

when the percentage change in the quantity demanded exceeds the percentage change in price

inelastic demand

when the percentage change in the quantity demanded is less than the percentage change in price

Unit elastic supply

when the percentage change in the quantity supplied EQUALS the percentage change in price

perfectly elastic demand

when the quantity demanded changes by a very large percentage in response to an almost zero percentage change in price

market equilibrium

when the quantity demanded equals the quantity supplied - buyers' and sellers' plans are in balance

perfectly elastic supply

when the quantity supplied changes by a very large percentage in response to an almost zero percentage change in price

One winter​ recently, the price of home heating oil increased by 20 percent and the quantity demanded decreased by 2 percent. Use the total revenue test to determine whether the demand for home heating oil is elastic or inelastic. Total revenue​ ______ because the percentage increase in the price is​ ______ than the percentage decrease in the quantity demanded.

​Increases; greater