ECON 2301 Exam #1 Review
Two key groups participate in markets.
-A household consists of all the individuals in a home. -Frims are suppliers of goods and services. We can use a simple economic model called the circular-flow diagram to see how participants in markets are linked.
Why is economics considered to be a "Social Science?"
-It applies the scientific method to the study of the interactions among individuals. -It is based on studying the actions of individuals. -It considers human behavior long dash—particularly decision-making behavior.
Economic profit is equal to a firm's revenues minus its costs, both explicit and implicit.
. Accounting profit is larger than economic profit.
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include...?
1.Omitted variable 2. Reverse Casuality
Which of the following events would cause the supply curve to increase from Upper S1 to Upper S3?
A decrease in the price of inputs.
A price ceiling is a legally determined maximum price that sellers may charge.
A price floor is a legally determined minimum price that sellers may receive.
One of the most important differences among health care systems in different countries is how people pay for the health care they receive. Which of the following countries has a single - payer health care system?
Canada
Positive analysis
Concerned with "What is"
Normative analysis
Concerned with "What ought to be"
Which of the following is not an example of an externality LOADING... ? An externality is not created by
Consuming a pair of Gap jeans.
____________ is the study of the choices people make to attain their goals, given their scarce resources.
Economics -POSITIVE Analysis, which measures the costs and benefits of different courses of actions
In the diagram to the right, when demand decreases a surplus develops at the original price.
Equilibrium price will fall and equilibrium quantity will fall as a new equilibrium is established.
In the table below, fill in the missing blanks to complete the summary of the effects of changes in demand and supply on equilibrium price and quantity.
Exhibit 3B-5
Height is considered by many to be an indicator of health. Which of the following describes a portion of the trend in height in the United States? (Exhibit 5A-4)
Height decreased between 1830 and 1890 due to a lack of clean drinking water in cities.
The overall mortality rate in the United States decreased by more than 25 percent between 1981 and 2009. Which of the following is not a cause of this decline? The decline in the mortality rate is due to all of the following except a decline in deaths due to
Kidney Disease
Which of the following is true of the management structure of corporations in the United States?
Members of the board of directors who are outside directors do not have direct management role in the firm and Large corporations are legally owned by shareholders who do usually not directly manage the firm.
Productive efficiency
Occurs when a good or service is produced at the LOWEST possible cost
Allocative Efficiency
Occurs when production is in accordance with consumer preferences
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls...
Scarcity
Opportunity Cost
The highest valued alternative that must be given up to engage in an activity. EX: Giving up going to the movies so you can study for an upcoming exam
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiative?
The policies are consistent with economic incentives.
In the diagram to the right, marginal benefit is greater than marginal cost at output level Upper Q1.
This output level is considered economically inefficeint
The pie chart to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is
U.S. Automobile Industry Market Share U.S. 50% Japanese 25% European 10% Korean 15%
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
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.
A sole proprietorship is..
a firm owned by a single individual and not organized as a corporation.
A black market is
a market in which buying and selling take place at prices that violate government price regulations.
Economic efficiency is
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
In the diagram to the right, when supply increases
a surplus develops at the original price
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.
In general, the term "ceteris paribus" means
all else equal.
The principal-agent problem occurs when
an agent pursues his own interests rather than the interests of the principal who hired him.
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing.
On the diagram to the right, a movement from A to B represent a
change in quantity demanded.
In the diagram to the right, point Upper C indicates an
efficient result.
Equilibrium price will fall
equilibrium quantity will rise as a new equilibrium is established.
In the diagram to the right, point A provides the _____, point B the _____, and point C the _____.
equilibrium price; market equilibrium; equilibrium quantity
Spending on health care has been growing faster than the economy as a whole for at least the past several decades. What has caused this trend? Health care as a proportion of GDP has been increasing because
expensive medical equipment has been invented.
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.
entrepreneur
is someone who operates a business, bringing together the factors of production —labor, capital, and natural resources —to produce goods and services.
Subtracting the value of a firm's liabilities from the value of its assets leaves its
net worth.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (ACA). Which of the following is true of the legislation? The ACA
provides tax credits to low-income individuals and small businesses with 25 or fewer employees.
What can health insurance companies do to minimize problems associated with asymmetric information such as adverse selection or moral hazard? To deal with asymmetric information, insurance companies can
require policyholders to pay coinsurance
Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are an adverse selection and moral hazard. Which of the following is an example of adverse selection adverse selection?
sick people being more likely to purchase health insurance than healthy people.
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.
stock, bond
Equity is
the fair distribution of economic benefits.
Health care spending per person in the United States is higher than in other countries, even taking into account the relatively high-income levels in the U.S. However, this has not necessarily resulted in better health outcomes. All of the following health indicators are less favorable in the United States than in Japan except
the mortality ratio for cancer.
How do externalities affect markets? If a positive externalily in consumption is present in a market, then...
the private benefit from consumption will be different than the social benefit from consumption.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
According to the law of supply,
there is a positive relationship between price and quantity supplied and as the price of a product increases, firms will supply more of it to the market.
According to the law of demand,
there is an inverse relationship between price and quantity demanded.
Absent government regulations to guard against fraud, why might top managers deceive investors about the true financial condition of their firms? Top managers might want to deceive investors about the true financial condition of their firms _____
to inflate profits to keep the firm's stock price high and to hide liabilities that should be listed on balance sheets to increase the funds the firm can generate when it sells stock.
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls.
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.
A flow of funds from savers to borrowers through financial intermediaries such as banks is indirect finance
while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is direct finance.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?
The landmark legislation that helps guard against inflated profits and hidden liabilities on balance sheets to protect against financial scandals is the
Sarbanes-Oxley Act of 2002.
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
false: decreases in price affect the quantity demanded, not demand.
