Unit 1 Economics

Assumptions for the PPC

1. Only two goods can be produced 2. Full employment of resources 3. Fixed Resources (Ceteris Paribus) 4. Fixed Technology

the 5 shifters (determinants) of supply

1. Prices/Availability of inputs (resources) 2. Number of sellers 3. Technology 4. Government action 5. Expectations for future profit

The 5 shifters of demand

1. Tastes and preferences 2. Number of consumers 3. Price of related goods 4. Income 5. Future expectations

Shifters of the PPC

1. change in resource quantity or quality 2. change in technology 3. change in trade

A leftward shift of the supply curve for computers could be caused by which of the following in the short run? A. A decrease in the number of computer manufacturers B. A decease in taxes on computer manufacturers C. A decrease in the price of computers D. A decrease in the price of components used to assemble computers E. An increase in the price of mobile devices, a substitute good

A

Any point along the production possibilities curve is A. attainable and efficient B. attainable yet inefficient C. unattainable and inefficient D. showing that resources are not being utilized to their full potential E. none of the above

A

Both of the economies of the fictional nations Reilly and Tanen have the same PPC. They both are operating at the same point on the curve. If Tanen discovers a new resource for production, the most likely result of the production possibilities curves would be A. Tanen's curve would shift to the right, whereas Reilly's would stay the same B. both Tanen's and Reilly's curves would shift to the right C. Tanen's curve would shift to the right, whereas Reilly's would shift to the left D. Tanen's curve would stay the same, whereas Reilly's would shift to the left E. none of the above

A

If there is a decrease in the price of the coffee beans used to make brewed coffee, how will this affect the equilibrium price and quantity of brewed coffee? A. Equilibrium price will decrease and equilibrium quantity will increase B. Equilibrium price will decrease and equilibrium quantity will not change C. Equilibrium price will decrease and equilibrium quantity will decrease D. Equilibrium price will increase and equilibrium quantity will decrease E. Equilibrium price will increase and equilibrium quantity will not change

A

In the simple circular flow model A. individuals and households are sellers of resources and demanders of products B. households are sellers of products and demanders of resources C. the GDP is represented by the number of households and businesses in the economy D. businesses are sellers of resources and demanders of products E. businesses are sellers of products and sellers of resources

A

Which of the following are considered leakages from the circular flow model? A. taxes and savings B. taxes and the price of capital goods C. savings and the price of natural resources D. taxes and interest rates E. interest rates and automatic stabilizers

A

normative statement

A claim that cannot be proven or disproven

positive statement

A factual claim that can be proven

If the wage rate of workers producing a good decreases, then which of the following will most likely occur? A. The demand curve will shift to the right. B. The supply of the good will increase. C. The quantity supplied of the good will decrease. D. Demand for the good will increase E. Quantity demanded for the good will decrease.

B

In the circular flow model, the factors of production A. are owned by businesses B. are owned by households C. are owned by a central government D. are only obtained through international trade E. are owned by central banks

B

Suppose countries Alphania and Betania produce electronics and apparel using identical resources. Which of the following is true if Alphania exports electronics to and imports apparel from Betania within a free-trade system? A. The opportunity cost of producing electronics is higher in Alphania than in Betania B. Betania has a comparative advantage in producing apparel, and Alphania has a comparative advantage in producing electronics. C. Alphania must be specializing in apparel, while Betania is specializing in electronics. D. Workers in Alphania can produce more apparel per hour than workers in Betania. E. Consumers in Betania buy more electronics than consumers in Alphania

B

To protect high-cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run? A. A decrease in domestic production of Y B. An increase in domestic production of Y C. An increase in foreign output of Y

B

What would cause the production possibilities curve to shift to the left? A. government investment in public education B. a hurricane that damaged several major cities C. an increase in the birth rate D. an increase in immigration E. government investment in highways, airports, and other infrastructure

B

Both Luca and Sarah can weed the garden and walk their dog on Sunday morning. For every half hour of walking the dog, Luca can weed twice the amount of garden Sarah can. According to this information, A. Sarah walks the dog because she has absolute advantage in weeding the garden B. Luca walks the dog because he has comparative advantage in weeding the garden C. Luca weeds the garden because he has comparative advantage in weeding the garden D. Sarah weeds the garden because she has comparative advantage in walking the dog E. Sarah walks the dog because she has absolute advantage in walking the dog

C

If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur? A. Equilibrium price will increase. B. Equilibrium price will decrease. C. Equilibrium quantity will increase. D. Equilibrium quantity will decrease. E. Equilibrium quantity will remain the same.

C

The production possibilities curve is concave because A. as production of goods and services increases, the opportunity costs decrease B. taxes increase as the production of a good increases C. as production of goods and services increases, the opportunity costs increase D. both B and C E. both A and C

C

When a nation's output is located at a point on the production possibilities curve A. it has high unemployment B. it has moderate unemployment C. it has full employment D. it has low unemployment E. it has underemployment

C

Assume that pears and apples are substitutes. One day it is announced that many apples have dangerous pesticides, what happens to the pear market? A. Supply quantity decreases B. Supply quantity increases C. Demand quantity decreases D. Demand quantity increases

D

Which of the following will cause an outward shift of the production possibilities curve? A. cuts in funding in educational training for employees B. a decrease in a nation's birthrate, thus decreasing the labor force C. a natural disaster creating extreme limitations of a vital natural resource D. an increase in skilled workers E. none of the above

D

Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price? A. Price will decrease to eliminate the surplus and restore equilibrium. B. Price will decrease to eliminate the shortage and restore equilibrium. C. Price will increase to eliminate the surplus and restore equilibrium. D. Price will increase to eliminate the shortage and restore equilibrium. E. Price will remain constant, because supply will increase to eliminate the shortage.

D

Which of the following would cause a movement along the demand curve for chicken, a normal good, resulting in an increase in the quantity demanded? A. An increase in consumers' income B. An increase in the price of fish, a substitute good C. An increase in the price of barbecue sauce, a complementary good D. A decrease in the price of chicken E. A decrease in the number of consumers of chicken

D

What happens to demand as consumer's income decreases for a normal good?

Demand decreases

A country is said to have a comparative advantage over another country when which of the following occurs? A. One Country's PPC is shifted farther to the right compared to another country's PPC. B. When comparing each country's PPC, one country is operating at maximum efficiency and output. C. There is a higher degree of specialization and division of labor compared to another country. D. It can produce a good utilizing fewer resources per unit of output than another country. E. It can produce a good at a lower opportunity cost than another country.

E

It is beneficial for two countries to trade only when there is/are A. a mutually beneficial trade agreement B. increasing returns to scale C. decreasing returns to scale D. an absolute advantage in production between the two countries E. a comparative advantage in production between two countries

E

The circular flow model illustrates A. that workers, entrepreneurs, and owners of land and capital offer their services through product markets B. the structures of both command an capitalist economic systems C. that workers, entrepreneurs, and owners of land and capital offer their services through national agencies D. how the Federal Reserve buys and sells bonds to stimulate the economy E. that workers, entrepreneurs, and owners of land and capital offer their services through a resource market

E

Which of the following describes the law of supply? A. An increase in the price of a good will decrease the quantity demanded. B. The price of a good will increase if production input costs increase. C. An increase in taxes will decrease the supply of a good. D. An increase in the number of sellers will increase the supply of a good. E. An increase in the price of a good will increase the quantity supplied.

E

If labor costs rise in the automobile industry, which of the following will happen to car prices and the quantity of cars sold?

Price will increase and the quantity sold will decrease

If one-fourth of a nation's wheat crop is destroyed by a flood in a given season, then the price of wheat and the quantity sold will change in the short run in which of the following ways?

Price; increase, Quantity sold; decrease

when demand increases and supply decreases

Price; increases, Quantity demanded; indeterminant

when demand and supply both decrease

Price; indeterminant, Quantity demanded; decrease

When demand and supply both increase

Price; indeterminant, Quantity demanded; increase

A simultaneous increase in both the demand for and the supply of a good in a market will lead to which of the following changes in the equilibrium price and quantity of the good?

Price; indeterminate, Quantity; decrease

Why does constant opportunity cost occur?

Resources are easily adaptable between both products

why does increasing opportunity cost occur?

Resources are not easily adaptable between both products

Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good?

Supply; no change, Demand; decrease

The invisible hand

The concept that society's goals will be met as individuals seek their own self-interest

transfer payments

When the government redistributes income (ex: welfare, social security)

In a command economy prices are determined by...

a central planning committee

"ceteris paribus"

all things held constant

What causes a shift in the demand curve to increase quantity demanded? (assuming the product is a normal good)

an increase in consumer's income

in a mixed economy...

both the government and individuals are involved in the means of production

What causes a movement along the demand curve?

change in price

capital goods

created for indirect consumption

What role do individuals play in the product market?

demanders

what role do businesses play in the resource market?

demanders

Another word for shifter is...

determinant

Demand curve

downward sloping; negative relationship

consumer goods

goods produced for direct consumption

subsidies

government payments to a business

In a free market...

individuals own the means of production

Private sector

part of economy run by individuals and businesses

factor payments

payment for the factors of production (rent, wages, interest, and profit)

when demand decreases and supply increases

price; increases, quantity demanded; indeterminant

when there is a surplus, what happens to prices?

producers lower prices

when there is a shortage, what happens to prices?

producers raise prices

productive efficiency

products are being produced in the least costly way (any point on the PPC)

shortage

quantity demanded > quantity supplied

What happens when consumer's income increases for an inferior good?

quantity demanded falls

Surplus

quantity supplied > quantity demanded

leakages

situation in which capital, or income, exits an economy, or system rather than remaining with it (ex. savings, tourism, taxes, imports, etc.)

What role do businesses play in the product market?

suppliers

what role do individuals play in the resource market?

suppliers

in a market economy prices are determined by...

supply and demand

in a command economy...

the government owns the means of production

factors of production

the inputs used to produce goods and services

opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen.

public sector

the part of an economy that is controlled by the government.

product market

the place where goods and services produced by businesses are sold to households

resource (factor) market

the place where resources (land, labor, capital, and entrepreneurship) are sold to businesses

allocative efficiency

the products being produced are the ones most desired by society

Law of demand

there is an inverse relationship between price and quantity demanded

supply curve

upward sloping; positive relationship

golden rule of double shift

when both curves shift at the same time, one of the variables is said to be indeterminant