Test 1 Study Guide
suppose during a year an economy produces $6 trillion of consumer goods, $1 trillion of investment goods, $2 trillion in government services, and has $3 trillion of exports and $2 trillion of imports. GDP would be
$10 trillion
Ceteris Paribus, which of the following will most likely cause an inward shift of the production possibilities curve
A decrease in the size of the labor force
currently, the US economy is best described as
a service economy
assume a price elasticity of demand of 0.50. if the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10%, the quantity demanded will
increase by 5%
Ceteris Paribus, when a firm increases the price of its product, total revenue will
increase if the price elasticity of demand is inelastic
a market
is any place (physical or digital) where goods are bought and sold
According to the law of demand, a demand curve
is downward sloping
the change in total output that results from one additional unit of input is the
marginal physical product
Maximum total utility is achieved where:
marginal utility equals 0
which of the following best represents the law of diminishing marginal utility
marginal utility of a good eventually declines as more of it is consumed in a given time period
GDP is the sum of consumption, investment, government purchases, and
net exports
the value of output produced in the US in current prices measures
nominal GDP
a news wire article in the text indicates that north korea is expanding its middle programs, and at the same time it is running out of food. if north korea is on its production possibilities curve and reduces food production so that it can increase the size of its military, this is an example of
opportunity costs
country A and country B both recorded an increase in real GDP of 5% per year from 1980-2012. during this time, the population for country A grew at 6% per year and the population for country B grew at 4%. which of the following is true during this period
per capita GDP decreased for country A only
which of the following is a determinant of supply
prices of the factors of production
total revenue minus total cost equals
profit
price elasticity if demand shows how
quantity demanded responds to price changes
in economic theory, utility refers to the
satisfaction obtained from a good or service
the term externalities refers to
some costs and benefits of a market activity born by a third party
marginal cost is equal to
the change in total cost divided by the change in output
which one of the following generalizations is not correct
the demand for necessities is relatively elastic
a market shortage occurs when
the market price is below equilibrium
the maximum output that can be produced from a set of inputs is measured by
the production function
per capita GDP will always rise when
the rate of economic growth exceeds the rate of population growth
the market demand for a particular good indicates
the total quantities buyers are willing and able to purchase at alternative prices, ceteris paribus
Economists make a distinction between changes in quantity demanded and changes in demand
to distinguish a movement along a demand curve from a shift of the demand curve
average total cost is defined as
total cost divided by the quantity produced
the amount of utility obtained from the entire consumption of a good is know as
total utility
Adam Smith was a proponent of the doctrine of laissez faire
true
all economies must decide what to produce, how to produce it, and who gets the output
true
capital includes the machinery and buildings used to produce goods and services
true
If one variable increases when the other one increases, then the drawn curve is
upward sloping
costs of production that change with the rate of output are
variable costs
costs of production that do not change with the rate of output are
fixed costs
GDP can be found by
adding the monetary value of all final goods and services produced during a given period of time
which of the following provides the best example of the law of supply
an increase in price entices suppliers to produce more
Ceteris Paribus, the demand curve for a good will shift to the right in response to
an increase in tastes or preferences for the good
Ceteris Paribus, when technological change allows a smaller amount of a resource to be used in producing any combination of two goods, there will be
an outward shift of the production possibilities curve
suppose the price elasticity of demand for tacos is 0.80. if the price of tacos increases by 10%, then the quantity demanded of tacos should (ceteris paribus)
decrease by 8%
If more of an input factor is used, while holding other inputs constant, a firm will eventually experience
diminishing returns
a mixed economy is one that relies solely on market signals to allocate goods and services
false
