ECONOMICS EXAM

what is utility?

"The satisfaction one receives from a good"

Consider 2 points on the PPF: point A, at which there are 10 apples and 20 pears, and point B, at which there are 7 apples and 21 pears. If the economy is currently at point A, the opportunity cost of moving to point B is

3 apples; Slope= 10-7/20-21= 3/-1= -3

supply curve

A curve that shows the direct or positive relationship between price and quantity supplied.

If increasingly more units of good Y must be given up as each successive unit of good X is produced, then the PPF for these two goods is a

A downward-sloping curve that is bowed outward (increasingly means opportunity cost is not constant).

demand curve

A line that represents the inverse relationship between quantity demanded and price.

suppose the economy goes from a point on its production possibilities frontier (PPF) to a point below that PPF. Assuming that the PPF has not shifted, this would be due to

An increase in unemployment of some resources. (a loss of resources shifts the PPF inwards and unemployment moves point away from PPF)

Which of the following is an illustration of the law of increasing opportunity costs?

As more cars are produced, the opportunity cost of each additional car is greater than for the preceding unit.

Law of demand

As the price of a good goes up (down), the quantity demanded goes down (up).

Law of supply

As the price of a good rises (falls), the quantity supplied rises (falls), ceteris paribus

Which of the following pairs of goods would be most likely to be complements?

DVD's and DVD players

Good X is a normal good. If the average income of those who buy good X rises, the __________ curve for good X will shift __________ resulting in a(n) __________ in the equilibrium price of X and a(n) ___________

Demand; rightward; increase; increase

which of the following statements is true?

If scarcity did not exist, neither would a PPF (without scarcity, we can produce infinite quantities, there is no frontier).

Increasing (Slope increases as we move from y to x)

In a bowed-outward/concave PPF we assume the opportunity cost is

Constant (slope of a straight line is constant)

In a straight line PPF, we assume the opportunity cost is

these statements are true

In a world of efficiently used resources, More of one good necessarily means less of some other good // Efficiency implies that it is impossible to get more of one good without getting less of another.

PPF is bowed outward as a result of

Increasing opportunity costs

Productive efficiency implies that

It is impossible to obtain gains in one area without losses in another. (Moving from point A to point B can only be achieved by giving up pizzas to make cell phones) there is no waste of resources.

What does the slope of the PPF represents of producing one good?

Opportunity cost (The slope tells you how much of one good we must give up to produce another).

Through war, many of the factories in country 1 are destroyed and many of its people are killed. As a result, the country's

PPF after war has probably shifted to the left (inwards) compared to its PPF prior to the war

Unattainable

Points outside (or beyond) the PPF are

PPF/ Production Possibilities Frontier

Represents the possible combinations of two goods that can be produced when all resources are used efficiently

A decrease in the quantity of resources

Shifts the PPF leftward (inward)

An increase in the quantity of resources

Shifts the PPF rightward (PPFs expand with more resources and/or better technology).

There is a technological improvement in the production of good X. As a result, the ____________ curve for good X will shift _____________ resulting in a(n) _____________ in the equilibrium price of X and a(n) _____________

Supply; rightward; decrease; increase

Which of the following is a normative macroeconomics statement?

The central bank should increase the nation's money supply. (what should be)

Resource X (ex: lumber) is necessary to the production of good Y (ex: door frames). If the price of resource X rises,

The supply curve of Y shifts leftward (falls)

Which of the following will not shift a supply curve?

a change in the good's own price.

inflation

a general increase in the prices of goods and services, or an increase in the price level (CPI)

price index

a measure of the price level

An advance in technology causes

a rightward shift in the supply curve

At a price below the equilibrium price, there is

a shortage

At a price above the equilibrium price, there is

a surplus

price level

a weighted average of the prices of all goods in the economy

A vertical supply curve represents:

an independent relationship between price and quantity supplied.

If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are

an inferior good - income rises (falls), demand falls (rises).

The civilian non-institutional population consists of everyone in the population who is

at least 16 years of age, not in the armed forces, and not institutionalized.

Points inside (or below) the PPF are

attainable but productive inefficient

why do we study economics?

because we have unlimited wants and limited resources. (to satisfy the wants, we need goods and services).

Produced goods used as inputs for the production of other goods comprise the resource known as

capital.

as the price of paper rises, the demand for pence falls. Therefore, paper and pencils are

complements - Quantity demanded of X falls (rises) as price of Y rises (falls)

When economists speak of scarcity, they are referring to the

condition in which people's wants outstrip the limited resources available to satisfy those wants

Both country 1 and country 2 are located on their respective production possibilities frontiers (PPF) but country 1 produces twice the output that country 2 produces. It follows that

country 1's PPF lies further to the right than country 2's PPF

The cyclical unemployment rate is defined as the

difference between the actual unemployment rate and the natural unemployment rate

The law of supply states that price and quantity supplied are

directly related, ceteris paribus(all other things equal)

Resource X is necessary to the production of good Y. If the price of resource X falls, the equilibrium price of Y will __________ and the equilibrium quantity of Y will __________

fall; rise

The law of diminishing marginal utility helps to explain that

for a given period of time, the marginal satisfaction of consuming additional units of a good decreases with each additional unit.

Unemployment that arises as a result of the time it takes for unemployed people to locate a job utilizing their transferable skills is called

frictional unemployment

The law of demand states that price and quantity demanded are

inversely related, ceteris paribus(all other things equal).

Marginal benefit

is the benefit of consuming/producing one more unit

A market is said to be in disequilibrium if?

it exhibits either a surplus or a shortage

Nominal income

it is income nor adjusted for inflation

real income

it is nominal income adjusted for inflation

productive inefficiency implies that

it is possible to obtain gains in one area without losses in another. (points inside PPF are inefficient- there's waste of resources. when moving from point A to point B, we produce more phones without giving up pizzas).

what are the four broad categories of resources?

labor, land, capital, and entrepreneurship.

The physical and mental talents people bring to production processes comprise the resource called

labor.

Minerals, animals, water and forests are all considered to be the resource known as

land

Efficiency exists when

marginal benefits equal marginal costs

Costs connected to consuming an additional unit of a good are called

marginal costs.

An economy is productive efficient if it produces

maximum output with given resources and technology.

A price ceiling is a government-mandated

maximum price above which legal trades cannot be made

A price floor is a government-mandated

minimum price below which legal trades cannot be made

Opportunity cost is the __________ alternative forfeited when a choice is made.

most highly-valued

Unemployment caused by frictional and structural factors in the economy

natural unemployment

If the cyclical unemployment rate is negative, then the

natural unemployment rate is greater than the actual unemployment rate in the economy.

In order to be classified as unemployed, a person must

not have a job, have been actively looking for work within the past four weeks, and currently be available for work.

Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?

not in the labor force

It takes less time to buy groceries at a convenience store (such as a Stripes) than at a large, full-service grocery store. Which of the following persons is most likely to buy groceries at a convenience store?

one with high opportunity cost of time

job leaver

person employed in the civilian labor force force who quits his/her job

New entrant

person who has never held a full-time job for two weeks or longer and is now in the civilian labor force looking for a job

Job loser

person who was employed in the labor civilian labor force and was either fired or laid off

Reentrant

person who was previously employed, hasn't worked for some time, and is currently reentering the labor force

The civilian non-institutional population can be broken down into two groups:

persons not in the labor force and persons in the labor force.

Oil producers expect that oil prices next year will be lower than oil prices this year. As a result, oil producers are most likely to

place more oil on the market this year, thus shifting the present supply curve of oil rightward

Attempts to determine "what is" are part of __________ economics.

positive economics

The minimum wage is an example of a

price floor

A "decrease in the quantity demanded" means that

price has increased and consumers therefore want to purchase less of the good. Demand curve does not shift.

A price ceiling set below the equilibrium price will

result in a shortage of the good.

A price floor set above the equilibrium price will

result in a surplus of the good.

An increase in the number of buyers in a particular market will result in a

rightward shift in the demand curve

If the government legalized the purchase and sale of marijuana, the equilibrium quantity would ____________ and the price would ___________ if the supply of marijuana increased by __________ than the demand for marijuana increased.

rise; fall; more

The condition in an economy that makes a "rationing device" a necessity is the fact that

scarcity exists

Economic growth causes the PPF to

shift rightward

If people begin to favor science fiction novels to a greater degree than previously, the demand curve for science fiction novels

shifts rightward

The unemployment due to changes in the types of skills employers require is called

structural unemployment

As the price of good A rises, the demand for good B rises. Therefore, goods A and B are

substitutes - Prise of X rises, Quantity demanded of X rises; Price of X falls, Quantity demanded of X rises.

An economist says, "technological advances have the power to lower the prices of many of the goods we buy." Here is how this works:

technological advances lead to greater supply, which leads to lower prices.

Marginal cost

the cost of producing one more unit

A "decrease in demand" means that

the demand curve has shifted to the left.

The opportunity cost of attending college is

the highest valued alternative one forfeits to attend college.

The higher the opportunity cost of attending college,

the less likely an individual will go to college

"Full employment" is said to exist when the unemployment rate equals

the natural unemployment rate.

economics is defined as

the science of scarcity

microeconomics topic

the study of how prices are determined in the computer industry

In the context of economics, Entrepreneurship is

the talent for organizing the use of land, labor and capital.

Tobacco production is one of the more heavily subsidized industries in the United States. Suppose that as a result of intense lobbying from health-related concerns, congress repeals the tobacco firms' subsidies. Which of the following scenarios would likely occur?

the tobacco firms' supply curve would shift leftward, since it would now cost more to produce each level of output.

A person in the civilian labor force falls into one of two categories:

unemployed or employed.

opportunity cost

value of the forgone alternative

because of scarcity

we must make choices, there is competition, and we need rationing devices

Consumer price index (CPI)

weighted average of the prices of goods and services purchased by a typical consumer.

optimal choices are made

when marginal cost equals marginal benefit MC=MB