Econ 4 Midterm

factors that cause demand curve to shift

1. Income 2. Expected future prices 3. Taste/preferences 4. Demographics 5. Price of related goods

When creating a graph for your economics course, which axis is most commonly used to represent price (p)?

Price is most commonly represented on the y-axis.

fiscal policy

economic policies that involve government spending and taxes

In economics, functions often describe cause and effect. In an economic function, the variable being described on the left-hand side represents a(n) ________?

effect

What is a the typical result of a price floor?

excess supply

In a world of scarcity, we will never

meet all of society's wants.

Society gains advantages through trade because of its ability to

specialize resources to the uses where opportunity cost is minimized.

law of supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

Marginal cost is

the cost of obtaining or producing one more unit of something.

A competitive market is one in which

there is a large number of buyers and sellers.

economic model

a theory or simplified representation that helps explain and predict economic behavior in the real world

When the price of a particular good increases

demand for complementary goods falls.

The assumption of rational behavior:

helps economists explain how people behave in a way that will make choices in their own self-interest

If the total surplus in a market is $500, and there is has no government intervention, but the producer surplus is $200, consumer surplus is ________.

$300

A decrease in the quantity supplied can result from

a decrease in price.

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

Which of the following statements are true if you are comparing a market that is operating at a quantity lower than equilibrium (ie. a price floor) with the same market operating at the equilibrium quantity?

A market operating below equilibrium will transfer some consumer surplus to producers.

Which of the following will shift the supply curve to the left?

An increase in the price of inputs to production.

Identify which of the following microeconomic topics can have an impact on macroeconomic topics?

How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?

Which of the following statements reflects marginal decision-making?

If we double the order to a dozen cookies, we will pay only 15 percent more.

factorsof production

Land: actual land, but also trees, plants, livestock, wind, sun, water, etc. Economic capital: anything that's manufactured in order to be used in the production of goods and services. Labor: any human service—physical or intellectual. Entrepreneurship: the ability of someone (an entrepreneur) to recognize a profit opportunity, organize the other factors of production, and accept risk.

A local bank sponsors a charity run that raises funds for a non-profit building wells and schools in Mali, Africa. How would the use of the bank's funds for this fundraiser be justified when its goal is to maximize profit?

The money spent is worth the public relations boost it gives to the bank's image.

How does a production possibilities model differ from a budget constraint model?

The production possibilities model demonstrates diminishing returns.

This year the cost of iron used in manufacturing cars has increased by 15%. With the costs for manufacturing cars now up, what effect will this have on the car market?

This will decrease the quantity demanded.

Which is a true statement about marginal benefit?

To an individual, one good may have a larger marginal benefit than than another.

PPF

a model of the economy as a whole, which shows all possible combinations of goods products or services that a society could produce, given the resources it has available. (bowed outwards)

budget constraint

all possible combinations of goods that someone can afford, given the prices of goods and their fixed budget (or time) we have to spend. (straight line)

The theory of rational behavior is

an assumption that economists make to have a useful model for how decisions are made.

According to the law of demand, assuming other factors are held constant,

as the price of bread increases, the quantity of bread demanded will decrease.

Due to limits on our time, money, and effort, we are best off when we allocate things

by constantly assessing the opportunity costs of our choices.

Natural resources, or land, can include the fertility of the land, minerals below it, and what other aspects?

climate

Self-interest is not necessarily selfish, some say. In fact, self-interest likely includes an individual's consideration for

close friends and family.

productive efficiency

given the available inputs and technology, it's impossible to produce more of one good without decreasing the quantity of another good that's produced.

The slope of a budget constraint line is influenced by

how much one item costs compared to the cost of the other item.

negative slope

indicates that two variables are negatively related; when one variable increases, the other decreases, and when one variable decreases, the other increases

factors that affect the supply curve

input prices, technology, natural conditions, government policies.

What is NOT included in economic capital?

money

monetary policy

policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

When certain assumptions are used to create a model of reality, its value can be tested and determined by its ability to

predict outcomes.

If there is a greater quantity supplied than the quantity demanded, in other words, an excess supply of a good or service you are most likely dealing with a

price floor set above the equilibrium price.

If a technology change reduces a company's production costs, it will

shift the supply curve to the right.

________ are generally the result of price ceilings.

shortages

In order to satisfy as many wants as possible, it is necessary to achieve allocative efficiency,

since otherwise output may go to where it is less valued.

When there is an excess supply of goods

suppliers lower prices, which encourages consumers to demand more.

law of demand

the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant

Scarcity is imposed on individual households in the form of income and

the prices of the goods that a person may purchase.

In the case of an inverse relationship between two variables, all else remaining constant

the value of the two variables will move in opposite directions from each other.

In general, supply curves slope

upward from left to right

economies of scale

when the average cost of producing each individual unit declines as total output increases

allocative efficiency

when the mix of goods being produced represents the mix that society most desires