AP Macroeconomics Quiz 1

Determining what to produce in a society with unlimited wants and scarce resources

What represents a fundamental economic problem?

1. Tastes and Preferences 2. Number of Consumers 3. Price of Related Goods 4. Income 5.Future Expectations

5 Shifters of Demand

I and II

Which of the following represents a natural resource? I. Coal II. Forest III. College Text Book

c. measles

Which of the following would not satisfy an economist's definition of the concept of scarce resources? a. time b. freshwater c. measles d. currency e. livestock

Since all resources are scarce, improving productivity allows us to produce more stuff with fewer resources.

Why do businesses and countries want to improve their productivity?

Sacarcity

Which fundamental economic concept forces producers and consumers to make trade-offs?

price will increase and quantity will increase.

When the demand curve shifts to the right and the supply curve does not shift, we can expect

price will increase and quantity is indeterminant.

When the demand curve shifts to the right and the supply curve shifts to the left, we can expect the following outcome

Law of Increasing Opportunity Cost

As you produce more of any good, the opportunity cost will increase.

I, III, and IV

Which of the following choices is/are part of the basic economic questions? I. What should be produced? II. When should it be produced? III. How should it be produced? IV. Who gets what is produced?

a. capital

Which of the following is a factor of production? a. capital b. rent c. interest d. money

Price level fluctuations over time

Which of the following is not representative of major macroeconomic goals?

Normative Statements

includes value judgements (what ought to be)

I and II

Which of the following are capital goods? I. Cash register used at the local breakfast diner II. Microphone used at a fast food drive thru window to take orders III. Money

I and III

Which of the following are examples of capital-intensive goods? I. Automobiles II. Landscaping III. Machinery

I and II

Which of the following are examples of land-intensive goods? I. Wool II. Meat III. Agricultural Equipment

Ceteris paribus

"all other things held constant.";when assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts; a shift means that at the same prices, more people are willing and able to purchase that good

price

Amount buyer (or consumer) pays.

Positive Statements

Based on facts. Avoids value judgements (what is).

Income

The incomes of consumer change the demand, but how depends on the type of good.

Marginal

additional

allocate

distribute

Utility

satisfaction

investment

the money spent by businesses to improve their production

Economics

the science of scarcity; the study of choices

cost

Amount seller pays to produce a good.

Law of Diminishing Marginal Utility

-Utility = Satisfaction -We buy goods because we get utility from them -states that as you consume anything, the additional satisfaction that you will receive will eventually start to decrease. -In other words, the more you buy of any good the less satisfaction you get from each new unit consumed.

Normal Goods

Ex: Luxury cars, seafood, jewelry,homes

Inferior Goods

Ex: Top Ramen, used cars, used clothes

Comparative Advantage

The producer with the lowest opportunity cost.

consumer goods

created for direct consumption

Substitutes

goods used in place of one another

Terms of Trade

the agreed upon conditions that would benefit both countries; both countries can benefit from trade if they each have relatively lower opportunity costs.

1. land 2. labor 3. capital 4. entrepreneurship

the four factors of production

Complements

two goods that are bought and used together

Scarcity

we have unlimited wants but limited resources.

a greater quantity supplied than quantity demanded.

A price floor above equilibrium will result in

rent

In economics, payment for land resources is referred to as

The Demand Curve

-a graphical representation of a demand schedule. -is downward sloping, showing the inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis)

physical capital

Any human-made resource that is used to create other goods and services.

human capital

Any skills or knowledge gained by a worker through education and experience.

below the equilibrium price.

A price ceiling is represented on a graph as a binding point

capital goods

created for indirect consumption

marginal analysis

making decisions based on increments (aka thinking on the margin)

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

4 Key Assumptions

1. Society has unlimited wants and limited resources (scarcity). 2. Due to scarcity, choices must be made. Every choice has a cost (a trade-off). 3. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest." 4. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice. 5. Real-life situations can be explained and analyzed through simplified models and graphs.

5 Key Economic Assumptions

Productivity

A measure of efficiency that shows the number of outputs per unit of input.

There will be an unknown change in equilibrium price and the equilibrium quantity will increase

A new machine is invented that is extremely efficient at creating staplers. At the same time, the price of paper clips increases. What will happen to the equilibrium quantity and price of staplers?

I, II, and III

A planned economy can also be referred to as: I. Authoritarian socialism II. Communism III. Command economy IV. Traditional

marginal benefit outweighs marginal cost

A rational, self-interest consumer will decide to purchase a good when

quantity demanded is greater than quantity supplied

A shortage in a market will occur when

The supply will decrease, the demand will increase, and the equilibrium price will rise.

After a celebrity is seen sporting a wearable fitness device, everyone decides to try one. Meanwhile, the price of palladium, an important component in electronics, increases. Based on this information, what can we expect to happen in the market of wearable fitness devices?

Equilibrium price would decrease and the equilibrium quantity would increase.

All else equal, an increase in the supply of bacon affect equilibrium price and quantity in which of the following ways?

land

All natural resources that are used to produce goods and services.

Trade-offs

All the alternatives that we give up when we make a choice.

Entrepreneurship

Ambitious leaders that combine the other factors of production to create goods and services.

labor

Any effort a person devotes to a task for which that person is paid.

Sacarcity

Economists consider the choices people must make as originating from

How both variable M and variable N affect each other absent the context of variable P

Explanation of how economists apply the Latin phrase "ceteris paribus"

There is an unknown change in the equilibrium price of peanuts and the equilibrium quantity of peanuts is decreasing.

Fewer young people are choosing to go into peanut farming as more of them move to large cities and go to college. At the same time, fewer companies are buying peanuts to use in their products as they become more aware of peanut allergy problems. What is most likely happening in the market for peanuts?

a rightward shift of the demand curve.

Given a price below equilibrium for any given good or service, we would expect

The supply of bacon would increase, the demand for bacon would decrease, and the price of bacon would fall.

Ham and bacon both come from pigs (from different parts of the pig). If the price of ham increases at the same time as the global population shrinks, what would happen to the market for bacon?

labor and entrepreneurship

Human capital falls within what categories of factors of production

People moving into the city will be unable to find an apartment.

If a major city imposes a price ceiling on rent payments for apartments, what will most likely occur?

downward pressure on pricing.

If a supplier sets the price of a product above the equilibrium price, we would expect

The price will decrease and the change in quantity will be unknown.

If coffee tables suddenly go out of style at the same time as paper becomes less expensive, what will happen to the equilibrium price and quantity of coffee table books?

The change in equilibrium price will be unknown and the equilibrium quantity will decrease.

If the demand for pianos decreases at the same time as the supply of pianos decreases, what will happen to equilibrium price and quantity?

X and Y are substitute goods.

If the demand for product X shifts to the right as the price of product Y increases, then

The equilibrium price will increase and the change in equilibrium quantity is unknown.

If the demand for sweaters increases at the same time as the supply decreases, what will happen to the equilibrium price and quantity?

The Income Effect

If the price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more.

The Substitution Effect

If the price goes up for a product, consumer buy less of that product and more of another substitute product (and vice versa).

there is a surplus of the product.

If the quantity supplied is greater than the quantity demanded, then

The equilibrium price will decrease and the change equilibrium quantity will be unknown.

If the supply of apples increased and the demand for apples decreased, what would happen to equilibrium price and quantity?

The equilibrium price will decrease but the change in the equilibrium quantity is unknown.

If the supply of cat food increases and the demand for cat food decreases, how will the equilibrium price and quantity be affected?

The change in equilibrium price will be unknown and the equilibrium quantity will increase.

If the supply of coffee increases at the same time as the demand for coffee increases, what will happen to the equilibrium price and quantity of coffee?

reducing the price of the good and increasing the quantity demanded.

In a competitive market, the economy will automatically correct a surplus by

a structure that allows consumers and producers to exchange goods or services

In economics, a 'market' refers to

markets and government

Production decisions in a mixed economy are made by

I

Resource scarcity is represented in which of the following scenarios? I. There is a fixed amount of trees in the world II. Developed countries experience increased amounts of noise pollution III. Hardcover books are no longer in demand

Constant Opportunity Cost

Resources are easily adaptable for producing either good

Textbook definition of economics

Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.

Macroeconomics

Study of the large economy as a whole or economic aggregates.

limitless wants with limited resources

The basic economic problem is the existence of

Price of Related Goods

The demand curve for one good can be affected by a change in the price of another related good.

marginal cost equals marginal benefit.

The optimal allocation of resources to produce robots will occur when

utility

The overall happiness or satisfaction obtained from consuming a good is known as

Absolute Advantage

The producer that can produce the most output OR requires the least amount of inputs (resources)

an increase in price, but an unknown change in quantity.

The simultaneous increase in demand for oil and decrease in supply of oil will cause

Law of Demand

There is an inverse relationship between price and quantity demanded.

1. Change in resource quantity or quality 2. Change in Technology 3. Change in Trade (allows more consumption)

Three shifters of the PPC

market equilibrium

What fundamental concepts occurs when buyers and sellers are engaged in voluntary exchange?

Price level changes over a given year

What is a good example of the study of Macroeconomics?

How does a decrease in business taxes impact capital investments?

What is an example of a macroeconomic question?

An increase in the price of cheese (an input for cheeseburgers).

What would cause the equilibrium price of cheeseburgers to increase and the equilibrium quantity of cheeseburgers to decrease?

shortage

When quanity demanded is greater than quantity supplied, we would expect a(n)

quantity will increase and price will be indeterminant.

When the demand curve shifts to the right and the supply curve shifts to the right, we can expect the following outcome

price will increase and quantity will decrease.

When the supply curve shifts to the left and the demand curve does not shift, we can expect

I, II, and IV only

Which of these statements is true about a perfectly competitive market that is in equilibrium? I. Everyone who wants to purchase the good at the market price can find one. II. Everyone who wants to sell the good at the market price can find a buyer. III. Deadweight loss exists in the market . IV. The market is allocatively efficient.

The law of demand is the result of three separate behavior patterns that overlap: 1. The Substitution effect 2. The Income effect 3. The Law of Diminishing Marginal Utility

Why does the law of demand occur

production possibilities curve

a model that shows alternative ways that an economy can use its scarce resources.

Demand

different quantities of goods that consumers are willing and able to buy at different prices

1. Take The Initiative 2. Innovate 3. Act as the Risk Bearers So they can obtain profit. (Profit = Revenue - Costs)

entrepreneurs:

Opportunity cost

most desirable alternative given up when you make a choice

Economists identify the payment for entrepreneurship to be

profit