HCM 402 Midterm
After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:
a shift of the demand curve for beef to the left
changes in weather patterns are increasing administrative costs for insurance companies. these added costs often exceed the amount of the premiums coming in and claim payments going out. to address this problem, insurance companies typically
build up the amount of their reserves
in countries like __ the command economy predominates
cuba and north korea
the law of ________________________________________ explains why people and societies rarely make all - or - nothing choices
diminishing marginal utility
the law of ___________________________________________ explains why people and societies rarely make all - or - nothing choices
diminishing marginal utility
the circular flow diagram of economic activity is a model of the
flows of goods, services & payments between households and firms
in the ___ households receive goods & services & pay firms for them
goods & services market
the longer the time period considered, the more elasticity of supply tends to
increase
Economic Theory
is a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation.
Market
is the interaction between potential buyers and sellers
What is demand based on?
needs and wants, ability to pay
Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.
positive statements
total number of units purchased at the price
quantity demanded
price elasticity of demand is defined as:
the percentage change in quantity demanded divided by the percentage change in price
when consumers and businesses have greater confidence that they will be able to repay in the future, __________
the quantity demanded of financial capital at any given interest rate will shift to the right
If new manufacturers enter the computer industry, then (ceteris paribus):
the supply curve shifts to the right
If cola and iced tea are good substitutes for consumers, then it is likely that:
their cross price elasticities are greater than zero
When quantity demanded decreases in response to a change in price:
there is a movement up along the demand curve
scarcity exists because of
unlimited wants and limited resources
a perfectly elastic supply curve is
A horizontal line, which means that any price decrease drops the quantity supplied to zero; the elasticity value is infinity
Why is there scarcity?
Because our unlimited wants exceed our limited resources
in countries like __________ the command economy predominates
Cuba and North Korea
Are markets always in equilibrium?
No, but if there is no outside interference, they tend to move toward equilibrium.
which of the following is most likely a topic of discussion in macroeconomics?
a decrease in the unemployment rate
regardless of how many services are provided, a health maintenance organization provides health care and is paid __________ per person enrolled in the plan
a fixed amount
If U.S. auto manufacturers cut the prices of their vehicles to sell a greater quantity, buyers may assume that the lower price implies _____________ compared to foreign manufactured vehicles.
a lower quality
The term "ceteris paribus" means that:
all variables except those specified are constant.
The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.
allocative efficiency
the choice on a production possibilities set that is socially preferred, or the choice on an individuals budget constraint that is personally preferred, will display
allocative efficiency
Specialization
allows workers to focus on the parts of the production process where they have an advantage. Workers who specialize in certain tasks often learn to produce more quickly and with higher quality
Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:
andy's demand for beer to increase
Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine:
both the equilibrium price and quantity will rise
The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
budget constraint
the slope of the __________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good
budget constraint
in a market - oriented economy, the amount of a good that is produced is primarily decided by the interaction of
buyers and sellers
in a market oriented economy the amount of a good that is produced is primarily decided by the interaction of
buyers and sellers
________________ have incentives to create mechanisms that will allow them to make mutually beneficial transactions even in the face of _________
buyers and sellers; imperfect information
The nature of demand indicates that as the price of a good increases:
buyers desire to purchase less of it
Marginal thinking is best demonstrated by:
choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.
economic models like the ___ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories
circular flow diagram
a 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. it appears that:
cross-price elasticity of demand for soda is -3
Specialization
can lead to an increase in overall production
specialization
can lead to an increase in overall production
The labor ____________ curve(s) will shift _______________ if there is an increase in productivity or an increase in the demand for the final product.
demand; right
In the first chapter of Wealth of Nations, Smith introduces the idea of the ________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers
division of labor
in the first chapter of the wealth of nations, smith introduces the idea of the ___ which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.
division of labor
a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines
economics of scale
regardless of whether you are looking through microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn't change
economy
when economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ________
elastic
If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________
excess demand
a ______ arrangement exists when medical care providers are paid according to the services they provide
fee - for - fee service
economies of scale
for many goods, as the level of production increases, the average cost of producing each individual unit declines
in the ___________, households receive goods and services and pay firms for them
goods and services market
in a command economy the __ either makes most economic decisions itself or at least strongly influences how the decisions are made
government
with regard to the provision of health insurance in the US, which of the following is regarded as a way of addressing moral hazard and adverse selection problems?
greater government involvement
a buyer confronted with ____________ will often believe that the price being charged reveals something about the _________ of the product
imperfect information; quality
the presence of __________ in transactions involving goods can easily cause a ___________ if the result is only a relatively small number of buyers and sellers communicating enough information so that they can agree on a price
imperfect information; thin market
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.
inelastic
Which of the following best describes a monetary policy tool?
interest rates
because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea and Canada to take full advantage of specialization
international trade
the opportunity cost of an action:
is a subjective valuation that can be determined only by the individual who chooses the action.
Market economy
is an economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand
Traditional economy
is typically an agricultural economy where things are done the same as they have always been done.
Scarcity implies that:
it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.
in the ______________________, households work and receive payment from firms
labor marker
in the ___ households work & receive payment from firms
labor market
when nations desire a healthy macroeconomy, they typically focus on three goals, one of these being
low inflation
If a firm faces ________________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.
lower costs of production
a 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume
macaroni is an inferior good and price elasticity of supply is infinite
in a __ most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers & sellers
market-oriented economy
the basic difference between macroeconomics and microeconomics is
microeconomics concentrates on the behavior of individual consumers & firms while macroeconomics focuses on the performance of the entire economy
the basic difference between macroeconomics and microeconomics is that
microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets)
What do an optician and a lawyer share in common?
need for a valid occupational license from government regulators
the demand curve for a typical good has a
negative slope because some consumers switch to other goods as the price rises.
Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.
normative statement
The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.
opportunity set
the model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the ___________________, a diagram which shows what choices are possible
opportunity set
______________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling
price floors
if the demand curve for a life saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to
rise and the equilibrium quantity to stay the same
The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.
sunk costs
the lesson of ________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options
sunk costs
A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ .
supply curve to the right
As the __________ substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left.
technology
macroeconomics topics do not usually include
the profit maximizing decisions of an individual manufacturer
Whenever there is a shortage at a particular price, the quantity sold at that price will equal:
the quantity supplied at that price
A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
the supply curve
According to the law of supply,
there is a direct relationship between price and quantity supplied
Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel?
there is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel
if macroeconomies looks at the economy as a whole, it focuses on which of the following?
unemployed people
the general pattern that consumption of the first few units of any good tends to bring a higher level of ________ to a person than consumption of later units is a common pattern
utility
the "law of supply" functions in labor markets; that is, a higher ________ for labor leads to a higher quantity of labor supplied
price
what a buyer pays for a unit of the specific good or service
price
The demand curve shows the relationship between:
price and quantity demanded on a graph
When demand is inelastic
consumers are not very responsive to changes in price.
a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines
Economies of Scale
When __________________, a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.
costs of production to fall
a _______ is a promise to fix or replace the good, at least for a certain period of time
warranty