ECO2013 Exam 1

What is true about secure property rights?

- Property rights provide incentives for people to maintain and increase the value of the property they own. - By protecting private property​ rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.

What problems might African farmers have because they lack secure property​ rights?

- Without secure property​ rights, farmers in Africa may be reluctant to make the investments in their farms that would raise the​ farms' productivity. - Without secure property​ rights, it is harder for farmers to borrow because they cannot use their land as collateral. - Without secure property​ rights, farmers are not able to obtain funds by selling some of their land.

Which of the following would not shift the demand curve for a good or​ service? - a change in the price of a related good - a change in the price of the good or service - a change in income - a change in expectations about the future price of the good or service

- a change in the price of a related good

What factors may cause the PPF to shift outward?

- an increase in resources (labor/capital) - advancements in technology - improvement in institutions

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. - The price of Burger King's Whopper hamburger declines. This will cause - McDonald's distributes ​$1.00 off coupons. This will cause - KFC raises the price of a bucket of fried chicken. This will - The U.S. economy enters a period of decline in incomes. This will cause

- demand for​ McDonald's Big Mac hamburgers to decrease. - a movement along the demand curve for​ McDonald's Big Mac hamburgers. - shift the demand for McDonald's Big Mac hamburgers to the right. - demand for​ McDonald's Big Mac hamburgers to shift to the right if they are inferior goods.

What role do they play in the working of a market​ system? Private property​ rights:

- encourage a significant number of people to be willing to risk funds by investing them in business. - encourage firms to spend money on research and development.

Economics is a social science because

- it is based on studying the actions of individuals. - it applies the scientific method to the study of the interactions among individuals. - it considers human behavior—particularly ​decision-making behavior.

Indicate which of the following statements represent positive analysis and which represent normative analysis. - A​ 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. - The federal government should spend more on AIDS research. - Rising paper prices will increase textbook prices. - The price of coffee at Starbucks is too high.

- positive analysis - normative analysis - positive analysis - normative analysis

Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts:

- to make their decisions free of influence from people with powerful political connections. - to make their decisions free of intimidation by criminal gangs. - to make their decisions free of influence from other parts of the government. - to make their decisions based on the law.

In her spare time, Megan makes soaps and candles. If she can make 4 bars of soap in one hour or 12 candles, what is the opportunity cost of a bar of soap?

3 candles

How can a country gain from specialization and​ trade?

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

\Which of the following events would shift the supply of smartphones to the​ right?

A decrease in the price of inputs used to produce smartphones

What is a free market?

A free market is one where the government does not control the production of goods and services.

What is an inferior good?

A good for which demand decreases as income rises.

Which of the following is the correct definition of demand schedule?

A table showing the relationship between the price of a product and the quantity of the product demanded.

What do economists mean when they use the Latin expression ceteris paribus​?

All else equal.

Which of the following events would cause the supply curve to decrease from right to left? - Lower expected future prices. - A decrease in the price of inputs. - An increase in the price of inputs. - An increase in the number of firms in the market.

An increase in the price of inputs.

Why are models based on​ assumptions?

Because models have to be simplified to be useful.

In a market​ system, how does society decide what goods and services will be​ produced?

Consumers, firms, and the government determine what goods and services will be produced by the choices they make.

In a mixed economy, how does society decide what goods and services will be produced?

Consumers, firms, and the government determine what goods and services will be produced by the choices they make.

If the two countries specialize in producing one good and then engage in trade, who should produce grain? Grain - Country A: 400 tons - Country B: 330 tons Juice - Country A: 200 bales - Country B: 110 bales

Country B because it has a lower opportunity cost.

What is an entrepreneur?

Entrepreneurs operate businesses that produce goods and services.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system?

For markets to​ work, people must be free to pursue their​ self-interest.

Which of the following is a correct statement about a mixed​ economy? - In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources. - In a mixed​ economy, most economic decisions are made by the government but markets plays a significant role in the allocation of resources. - In a mixed​ economy, the government makes all economic decisions. - In a mixed​ economy, all economic decisions are made in markets.

In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

What does increasing marginal opportunity costs​ mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

Which of the following statements about positive analysis is correct? - Positive analysis can be used to determine whether policies are good or bad. - Positive analysis is concerned with what ought to be. - Positive analysis involves value judgements. - Positive analysis is concerned with what is.

Positive analysis is concerned with what is.

What is absolute advantage?

The ability to produce more of a good or service than competitors using the same amount of resources.

Select the variable that will cause the supply curve to​ shift: - The cost of raw materials - Consumer income - Prices of related goods - Population and demographics

The cost of raw materials

Suppose the equilibrium price and equilibrium quantity of gold both decrease. Which of the following would produce such a​ change?

The market demand curve for gold could have decreased.

What are the implications of this idea for the shape of the production possibilities​ frontier?

The production possibilities frontier will be bowed outward.

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Is it likely that the PPF in this situation would be a straight line or bowed out:

The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.

The demand for grapes is highest during summer and lowest during winter. Yet grape prices are normally lower in summer than in winter. What must be happening to the supply of grapes​, from winter to​ summer, for the equilibrium price to​ fall?

The supply increases more than the demand increases.

Why do entrepreneurs play a key role in a market system?

They bring together factors of production.

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfish."

This statement is based on the misconception that following your​ self-interest and being selfish are the same thing.

Which of the following best describes​ scarcity?

Unlimited wants exceed the limited resources available.

The three economic questions that every society must answer are

What goods will be​ produced, how will they be​ produced, and who will receive the​ goods?

According to the law of demand, there is an inverse relationship between price and quantity demanded. That​ is the demand curve for goods and services slopes downward.​ Why?

When the price of a good​ increases, consumers' purchasing power​ decreases, and they cannot buy as much of the good as they did prior to the price change.

Which of the following is the correct definition of demand​ curve?

a curve that shows the relationship between the price of a product and the quantity of the product demanded

What is the​ textbook's definition of a supply​ curve?

a curve that shows the relationship between the price of a product and the quantity of the product supplied

If hamburgers and hamburger buns are complement goods, an increase in the price of hamburgers would result in

a decrease in the demand for hamburger buns.

An unexpected frost in the orange groves of California would cause

a decrease in the supply of orange​ juice, increasing the equilibrium price.

A good for which demand increases as income rises is​ ________, and a good for which demand increases as income falls is​ ________.

a normal good; an inferior good

Which of the following is the correct definition of demand​ schedule?

a table that shows the relationship between the price of a product and the quantity of the product demanded

What is the​ textbook's definition of a supply​ schedule?

a table that shows the relationship between the price of a product and the quantity of the product supplied

If a surplus exists in a​ market, we know that the actual price is

above the equilibrium​ price, and the quantity supplied is greater than the quantity demanded.

Which of the following would cause a shift in the demand curve from left to right? - A decrease in income (inferior good) - An increase in the price of a substitute good - An increase in income (normal good)

all of the above

Macroeconomics includes the study of _.

alternating cycles of economic expansion and contraction

If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights?

an independent court system

If a shortage exists in a​ market, we know that the actual price is

below the equilibrium​ price, and the quantity demanded is greater than the quantity supplied.

With respect to consumption, individuals and countries _____

can, through​ trade, consume beyond their production possibilities frontiers.

In what ways does a free market economy differ from a centrally planned​ economy? Unlike a free market​ economy,

centrally planned economies have extensive government controls.

What is the basis for trade?

comparative advantage

You observe that when the price of houses decreases the demand for household appliances increases. Houses and household appliances are considered to be ______ goods.

complementary

Suppose the price of a complement to LCD televisions rises. What effect will this have on the market equilibrium for LCD​ TVs?

decrease and the equilibrium quantity will decrease.

After World War II in​ 1945, the United States experienced a​ "baby boom" as birthrates rose and remained high through the early 1960s. In​ 2011, the first members of the baby boom generation became older than 65. What effect will this have on the market for hospital facilities​? As the first baby boomers become older than​ 65, the

demand curve for hospital facilities will shift to the right.

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

In economic​ terminology, the inputs used to make goods and services are referred to as

factors of production.

Centrally planned economies allocate resources based on decisions by _____, while market economies answer these questions through decisions made by ______.

government;households and firms

Microeconomics is the study of

how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

The production possibilities frontier will shift outward _______.

if technological advances occur

What is the outcome of enforcing contracts and property rights in a market​ system?

increased economic activity

Whether carried out by an individual or a​ country, production beyond the production possibilities frontier _______.

is not physically possible.

A country that produces the maximum possible combination of two goods using all of the resources available in the economy _____.

is operating on its production possibilities frontier

The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ______ issue. However, to understand how much new machinery and equipment firms decide to​ purchase, one must analyze the incentives individual firms​ face, which is a ______ issue.

macroeconomic; microeconomic

"I was going to buy a taco and a drink, but the value meal with two tacos and a drink costs only $0.60 more and has one additional taco." This statement is an example of _ .

marginal analysis

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

In​ economics, the term capital refers to

physical capital, such as machinery, that is used to produce other goods.

_____ is concerned with what is, and _____ is concerned with what ought to be. Economics is about _______, which measures the costs and benefits of different courses of action.

positive analysis; normative analysis; positive analysis

According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity?

prices

Comparative advantage is the ability of an individual, a firm, or a country to

produce a good or service at a lower opportunity cost than other producers.

The difference between a change in supply and a change in the quantity supplied is that the latter is

produced by a change in the product's own price while the former is caused by a variety of variables other than the product's price.

The primary difference between product markets and factor markets is that

product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, capital, natural​ resources, and entrepreneurial ability.

A movement along the same demand curve is a change in ________.

quantity demanded

A production possibilities​ frontier:

shows the maximum attainable combinations of two goods that may be produced with available resources.

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity.

smaller

Goods and services that can be used for the same purpose are​ ________, and goods and services that are used together are​ ________.

substitutes; complements

One of the great benefits of trade is

that it makes it possible for society to become better off by increasing its consumption.

What is comparative advantage?

the ability to produce a good or service at a lower opportunity cost than other producers.

Macroeconomics is the study of

the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

Opportunity cost is

the highest valued alternative that must be given up to engage in an activity.

Prepping for a​ next-day exam over the course of an evening​ (and possibly into the wee hours of test​ day) poses increasing costs since ______.

the longer you choose to study will result in an increase in the number and value of foregone activities.

The law of demand is the assertion that

the quantity demanded of a product is inversely related to its price.

Private property rights​ are:

the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property.

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically,

the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

A production possibilities frontier will be bowed out instead of linear if

the trade-off between the two goods changes as you produce more of one good.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

In the following diagram, point G (outside of the PPF) indicates an

unattainable combination

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good _______.

will have a comparative advantage if it has a lower opportunity cost of producing that good.

We can show economic inefficiency:

with points inside the production possibilities frontier.

We can show economic​ efficiency:

with points on the production possibilities frontier.

Even if you are better at unloading the dishwasher than your​ spouse, you​ shouldn't always be the one to unload it because

you may be even better at some other household task and must consider the opportunity cost.