Economic Thinking

Given X = 22+10-((5/25)*100), X is ________.

12

In figure 2, the relationship between altitude and air density ________ at altitudes above 10,000 meters.

continues to fall

If Stan's Shoemaker Shop practices the division of labor and employees concentrate on one step of the shoe-making process, this will likely result in

greater production output.

What are the factors of production?

land, economic capital, labor, entrepreneurship

If an economist is trying to predict the outcome from particular causes and effects, what is the best tool(s) for her to use in order to test out her economic model?

mathematical functions

Macroeconomic policies that focus on credit and interest rates or controlling the money supply are called

monetary policies

Macroeconomic policies that focus on banking and interest rates or controlling the money supply are called

monetary policies.

Raising public transportation fares ________.

reduces the opportunity cost of driving one's car.

y-axis

the vertical line on a graph, commonly represents price (p) on graphs in economics

Given X = 52+27-((3/15)*100), X is ________.

59

variable

a quantity that can assume a range of values

economic goods

goods or services a consumer must pay to obtain; also called scarce goods

x-axis

the horizontal line on a graph, commonly represents quantity (q) on graphs in economics

Suppose that the equation given above applies to you and that you currently study 2 hours per week and attend class on average 3 out of 3 possible hours per week. Your previous semester's GPA is 2.0. If you are intent on getting a 4.0, how many more hours per week do you need to study?

3.5 hours Equation: 4.0 = .5X + .25(3) + .25(2) 4.0 = .5X + .75 + .5 5.5 = X 5.5 - 2 = 3.5 more hours

Sam wants to improve his GPA. to earn a 4.0 this semester. His prior GPA was a 2.75. Imagine that there is an equation that says his new GPA could be calculated based on the number of hours he spends studying, his class attendance, and his prior GPA. Written as an equation, it is Grade = (0.50 x hours spent studying) + (0.25 x class attendance hours) + (0.25 x prior GPA). Sam plans to attend class for 4 out of 4 hours each week. Use the equation to determine approximately how many hours per week Sam needs to study to earn a 4.0.

4.6 hours the equation looks like 4.0 = .5X + .25(4) + .25(2.75)

Consider the equation x=3. How would this be represented in an XY graph and what does it say about the relationship between X and Y?

A single point (X=3) on the X axis and a vertical line upwards from that point that says X is not dependent upon Y.

How would the equation x=0 and y=5 be represented in a XY graph, and what does it say about the relationship between X and Y?

A single point y=5 on the Y-axis has a horizontal line to the right from that point. This graph indicates that y is not dependent upon x.

An economy is composed entirely of two equally sized farms A and B producing both eggs and milk. Farm A is better at producing eggs than Farm B which is better at producing milk. Then in order to maximize output, Farm A should

Abandon the production of milk to fully specialize in the production of eggs and then trade with Farm B for milk

In figure 3, the unemployment rate ranges from a low of around 4% in the early 1970s to a high of around 10% in the late 2000s. Given this information, which of the following statements is likely to be true?

At any time beyond the late 2000s it is unlikely that the unemployment rate will fall out the 4-10% range.

Candice is using the circular flow diagram to identify a particular aspect of her economic theory for her Macroeconomics class. The actions she took was to use the circular flow diagram, apply math functions to predict economic actions, and identified the economic aspects and associations used in the model. What action has Candice forgotten to take with her model?

Candice forgot to explain the assumptions she used to simplify the model.

Functions are often described as cause and effect in economics. In an economics function, if the variable is on the right-hand side and is doing the explaining, it represents a(n) ________?

Cause

Every day, 500 airplanes in San Francisco incur an additional 30 minutes of airport delays when flying into or out of the airport. In Chicago, the delays amount to 15 minutes for 1,400 airplanes. If the price of time is $20/hour in San Francisco and $15/hour in Chicago, which airport incurs the largest opportunity cost?

Chicago

A key feature of some economic models is linearity, or whether the variable of interest changes in constant proportion with another associated variable (meaning they exhibit a linear or constant straight line relationship) or whether the change in the variable is not a constant proportion but varies more or less depending on the level of the associated variable (meaning they have a non-linear or curved line relationship). Which of the following is the most effective way for an economist to support such a relationship?

Conduct behavioral experiments and make quantitative observations that indicate the form of the relationship.

In order to calculate an economic equation to understand its economic implications, what must one remember to do?

Follow the correct order of operations.

In figure 6 Graphs a-c, the one that shows the relative progression of the US population in the over 65 category is ________.

Graph c

The most important macroeconomic goals are the following:

Growth in the standard of living Low unemployment Low inflation

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? What combination of goods and services will best fit their needs and wants, given the budget they have to spend? What determines the quantity to be produced by a firm? What determines what prices a firm will charge?

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

Macroeconomic topics can be impacted by which of the following microeconomic topics?

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

Suppose two countries A and B possess the exact same amount and quality of land, labor, capital and entrepreneurship. Can we say that each country therefore produces the exact same level of output?

It cannot be determined with the information given.

There are four productive resources (resources have to be able to produce something), also called factors of production:

Land, Economic capital, labor & Entrepreneurship

Take a stab at this question (you'll need to do some multiplication). Every day, 500,000 drivers in Los Angeles incur an additional 30 minutes of traffic delays when commuting by car to their jobs. In Boston, the delays amount to 45 minutes for 200,000 drivers. If the price of time is $15/hour in Los Angeles and $25/hour in Boston, which city incurs the largest opportunity cost?

Neither. Both incur the same opportunity cost. Costs in Los Angeles = 0.50 x 500,000 drivers at $15/hour implies a cost of $3,750,000. In Boston, 0.75 hours x 200,000 at $25 per hour implies the same $3,750,000.

You read about a traveling situation in which some airport passengers seem to get a "fastpass" through security and move seamlessly through the boarding process, while others wait in long lines. In this example, the travelers who move quickly through the boarding process are probably

People who value their time and convenience more than those waiting in long lines and therefore willing to pay additional fees for the privilege of avoiding them.

Order of Operations

Simplify inside parentheses and brackets. Simplify the exponent. Multiply and divide from left to right. Add and subtract from left to right.

Identify the macroeconomic issue among the following statements.

The average cost of producing electricity nationally is rising.

How would the equation where x=3 and y=4 be represented in a XY graph, and what does it say about the relationship between X and Y?

The beginning point y=4 on the Y axis has a horizontal line straight to the right, X-axis has a vertical line straight up from x=3. With the two points on the graph, there is an intersection point where the x and y will cross each other.

Suppose you have determined that the quantity demanded of eggs depends on their price and the income of consumers. Prior to quantifying these relationships using a mathematical model you want to be sure of their directional relationships. Which statement is likely to be true?

The sale of eggs falls when prices rise but increase when consumer income rises.

Solve for x in the following equation: x = 4 + 10 * 7

X = 74

Solve for y in the following equation: y = (2 + 10)/8

Y = 1.5

circular flow diagram

a diagram indicating that the economy consists of households and firms interacting in a goods-and-services market and a labor market

goods and services market

a market in which firms are sellers of what they produce and households are buyers

function

a relationship or expression involving one or more variables

An equation where Y=6 could be represented on a graph where Y is on the vertical axis and X is on the horizontal axis as

a single point (Y=6) and a horizontal line rightwards from that point.

Labor

any human service—physical or intellectual. Also referred to as human capital.

Land

any natural resource, including 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. Note the distinction between financial capital (which is not productive) and economic capital (which is). While money isn't directly productive, the tools and machinery that it buys can be.

In figure 1, the slope of the line indicates that for every 1" increase in length for American children, weight rises

by .68 pounds The slope is constant and calculated as the rise/run or 19 pounds/ 28 inches which is 0.68 pounds per inch of length.

Which of the following can be classified as a free good in the production process? Calculus Education/skills natural gas

calculus

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

climate

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

Government expenditures on public schools is classified as ________ policy.

fiscal

free goods

goods or services that a consumer can obtain for free because they are abundant relative to the demand

Use the information you just read in the text to think about the following scenario. The computer software industry is more likely to achieve economies of scale if it is located

in or close to large cities with large numbers of technology workers.

Consider again the total cost curve shown above. Its shape indicates that total costs rise as quantity produced rises at an ________ rate.

increasing

slope of zero

indicates that there is no relationship between two variables; when one variable changes, the other does not change

negative slope

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

positive slope

indicates that two variables are positively related; when one variable increases, so does the other, and when one variable decreases, the other also decreases

If a graph data line indicates that there is a zero slope, this means there

is a constant relationship between x and y.

economic model

is a simplified version of reality that allows us to observe, understand, and make predictions about economic behavior

If Mikael decides to go out with his friends instead of studying for his biology test, what is the opportunity cost?

less preparation for his biology test

Economic policy decisions taken by individual states within the U.S. are classified as ________ decisions.

macroeconomic

Congress must vote whether to increase the government budget so as not to shut down the government this year. The vote passed and the budget ceiling has been increased to keep the government running. This is an example of what type of policy?

macroeconomic fiscal policy

If an economist is trying to predict the impact of a tax cut on economic activity in the U.S., what is/are the best tool(s) for her to use in order to test out her economic model?

mathematical functions

The best way to determine the direction and magnitude of the relationship between the price of some good and the demand for it is ________.

mathematically

In a world of scarcity, it is impossible to

meet all society's wants.

What is NOT included in economic capital?

money

Which is NOT an example of economic capital? money machinery buildings and equipment tools

money

If trade between nations is prohibited,

nations will be unable to specialize in what they are good at and therefore end up consuming less.

One important use of algebraic modeling of economic behavior is to determine the direction of the relationship between two economic variables—say the quantity of X that is purchased and the price paid for X. If, as the price of X rises, the quantity of purchases fall, the relationship can be said to be ________.

negative

If Kendrick decides to watch t.v. instead of going to the gym, the ________ is a missed workout.

opportunity cost

If all else remains constant and the values of two variables move in the same direction it indicates a

positive slope relationship.

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

predict outcomes.

Once a model of reality is constructed around certain assumptions, it can be tested to determine its value in

predicting outcomes.

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.

Financial capital, like money, is simply a tool. Once financial capital is converted to economic capital (invested), it produces a resource that is

productive

line graph

shows a relationship between two variables: one measured on the horizontal axis and the other measured on the vertical axis

bar graph

shows data as vertical bars; the height of different bars are used to compare quantities

Entrepreneurship

the ability of someone (an entrepreneur) to recognize a profit opportunity, organize the other factors of production, and accept risk.

microeconomics

the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and businesses

macroeconomics

the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

slope

the change in the vertical axis divided by the change in the horizontal axis

The ________ simplifies the economy into two groups, firms and households, and allows us to make predictions about economic behavior.

the circular flow diagram

productive resources

the inputs used in the production of goods and services to make a profit: land, economic capital, labor, and entrepreneurship; also called "factors of production"

labor market

the market in which households sell their labor as workers to businesses or other employers

intercept

the point on a graph where a line crosses the vertical axis or horizontal axis

opportunity cost

the value of the next best alternative

division of labor

the way in which the work required to produce a good or service is divided into tasks performed by different workers

Scarcity is a condition that is everywhere and always, since it is based upon two assumptions that reflect permanent universal conditions. The assumptions are that more output will satisfy more wants and

the world has limited productive resources.

time series

type of line graph in which the horizontal axis shows time and the vertical axis displays another variable. Thus, a time-series graph shows how a variable changes over time

pie graph

used to show how an overall total is divided into parts. A circle represents a group as a whole and slices of this circular "pie" show the relative sizes of subgroups. Also called a pie chart

What combination of model characteristics are frequently used in the most effective models?

useful and simple

economies of scale

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

specialization

when workers or firms focus on particular tasks for which they are well suited within the overall production process

Fiscal policy

which involves government spending and taxes, is determined by a nation's legislative body. For the United States, this is the Congress and the executive branch, which establishes the federal budget.

Monetary policy

which involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation's central bank. For the United States, this is the Federal Reserve.

Given the following two equations, solve for x: y = 3 + 4 x y = 10

x = 1.75

Given the following two equations, solve for y: x = 7 y - 5 x = 2

y = 1

Smith's theory of the division and specialization of labor implies that a worker skilled in engineering will

yield economic output that is sub-optimal if she were employed in something other than engineering-type functions.