ECON 104 FINAL EXAM Penn State York Part 1

Shifts in the Supply Curve 3.) Weather & other "Acts of God"

- adverse event --> decrease in supply (flood, earthquake) -Beneficial event --> increase in supply (good rain)

Shifts in the Demand Curve 5.) change in the expected future price

- expect higher price in the future --> increase in demand - expect lower prices in the future --> decrease in demand now

Trading and PPF

- in absence of trade a country must consume goods & services -the PPF shows the combos of goods a country can produce - w/ trade a country can consume outside the PPF -trade lets you consume more than production can create beyond the capacity

Shifts in the Demand Curve 4.) change in the # of potential buyers

- more buyers --> increase demand - less buyers --> decrease demand

Matthew and Emma can make 16 toys each if they devote 8 working hours in a day. Further, Matthew can repair 4 cars and Emma can repair 2 cars, if they devote 8 working hours in a day. What is the opportunity cost of repairing one car to Emma?

8 toys

Which of the following doesn't change demand?

Fall/change in price

market supply schedule

a chart that lists how much of a good all suppliers will offer at different prices

sunk cost

a cost that has already been committed and cannot be recovered

Which of the following results in a decrease in the demand for labor?

a decrease in the firm's product price

Which of the following would cause a movement along the demand curve?

a decrease in the number of sellers

A graph of the prices and corresponding quantities demanded of a good or service is called

a demand curve.

Anthracite coal found underground in Pennsylvania is an example of

a land resource.

market

a place or service that enables buyers and seller to exchange goods and services

impossible

a point outside the productions possibilities curve is considered ___ to produce

consumpution goods

all the non-capital goods & services that are produced

the amount that people want to purchase at the market price =

amount available for sale at the market price

Shifts in the Demand Curve 1.) change in the tastes/preferences

away --> decrease in demand in favor --> increase in demand

increase in demand

bigger quantities demanded at every possible price

Investors =

borrowers = demanders

Macroeconomics

deals w/ entire national economy - looks at total production of goods & services - including gross domestic product & economic growth - concerned w/ inflation rate, a measure how the average price of all goods & services has changed - explain what effects the overall level of employment & unemployment in the economy

2008 Financial Crisis

decrease in the demand for financial capital as borrowers became more pessimistic about their ability to pay back loans - increase in the supply of financial capital households reduced their spending & save more

As technology that is a substitute for low-skill labor becomes available, the _________ curve for low-skill labor will shift to the________.

demand; left

In the market for financial capital, borrowers are the ________ and lenders are the ________.

demanders; suppliers

Shifts in the Supply Curve 4.) change in the expected future price

expect higher price in the future --> decrease in supply now expect lower price in the future --> increase supply now

Suppose that there is a price ceiling in the market for butter. Removal of this price ceiling on butter would result in

farmers supplying more butter to the market.

Labor

human input workers -limited amount b/c # of people is limited to the population

marginal benefit

is the additional benefit obtained from consuming one or more unit of a good or service

marginal cost

is the additional cost of obtaining one or more unit of a good or service

supply

is the willingness & ability of firms to offer goods and services for sale in a market

increase supply =

larger quantities supplied at each and every price

unlimited wants

people want more goods & services than they already have

subsititution

people will switch their purchases towards goods whose price has risen towards relatively less expensive goods

How are they produced?

minimizes costs

financial capital

money used to buy the tools and equipment used in production

Excess supply causes

prices to fall

excess demand causes

prices to rise

Land

raw materials & natural resources ex: coal, oil, tin, land home sits on, water, air

decrease in demand =

smaller quantities demanded at each and every price

decrease in supply =

smaller quantities supplied at every possible price

Economics

study of economy of the production, exchange & consumption of goods and services

Which of the following is the best example of opportunity cost?

the Thai food that you gave up when you chose to eat pizza.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer ex: Lebron James can mow the lawn in 2 hrs. --> opportunity cost = $20,000 Neighborhood kid: 4 hrs --> opportunity cost = $36 (comparative advantage)

absolute advantage

the ability to produce a good using fewer inputs than another producer ex: Lebron James can mow the lawn in 2 hrs. (absolute advantage) Neighborhood kid: 4 hrs.

If resources are used more efficiently in the production of electricity as a result of an improvement in technology,

the supply of electricity would increase.

opportunity cost

the value of the next best alternative - value of what is given up when choosing a particular action

demand graphically quantity demanded

the whole curve of the graph is a single point on the curve

Resources are scarce because

there are not enough resources available to produce the goods and services necessary to satisfy people's unlimited wants.

law of demand

there is a negative relationship btw price & quantity of demanded decrease P --> increase Qd, increase in P --> decrease Qd, inverse relationship

Shifts in the Supply Curve 5.) Change in the # of producers

more sellers --> increase in supply less sellers --> decrease in supply

financial market

move funds btw saves and investors

Consider a demand curve for watermelons. Which of the following movements will be observed if the price of watermelons decreases at a point in time?

there will be a movement down along the demand curve

who gets the goods & services that are produced?

those who have income

Scarcity

unlimited wants but limited resources - forces people to make choices

In economics, scarcity means

not having sufficient resources to produce all the goods and services we want.

productive efficiency

not possible to produce more of both goods

A point inside the production possibilities frontier is

where unemployment of resources is occurring

Shifts in the Labor Supply #1

1.) # of workers increase in workers --> increase n supply of workers decrease in workers --> decrease in supply of workers

factors of production

1.) Land 2.) Labor 3.) Capital

Alternatives to the market

1.) Standing in line 2.) preferred customers 3.) rationing by coupon 4.) black market

Shifts in the Labor Demand #1

1.) demand for output increase in demand for output --> increase in labor decrease in demand for output

Shifts in PPF

1.) increase in the quantity of resources 2.) improvement in technology (swings out PFF) - money does not shift PPF

Shifts in the Labor Demand #3

3.) technology: substitute or complement complement --> helps in labor --> increase in labor demand substitute --> decrease in demand --> decrease in labor demand

Shifts in the Labor Demand #4

4.) # of Companies more companies --> increase in labor demand less companies --> decrease in labor demand

Shifts in the Labor Demand #5

5.) Government regulations - G.R requires more regulations --> increase in demand for educated --> decrease in trained nurse

Which of the following will not cause a decrease in the demand of bananas?

A.) consumers income falls B.) price of apples falls C.) price of bananas rises D.) monkeys die in zoos C.) price of bananas rises (this shows demand along the demand curve)

command economy

An economic system in which the government controls a country's economy.

Traditional Economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

market economy

Economic decisions are decentralized & resources are owned by private individuals

What do economists mean by the phrase "resources are scarce"?

Resources are scarce because there are a limited amount of resources available on Earth. For example, there is a limited amount of labor resources and this is because of the population. This forms the concept of scarcity where people have unlimited wants but limited resources.

Suppose that the price of pumpkins falls. What happens in the market for pumpkin pies?

The equilibrium price falls and the equilibrium quantity rises.

The market supply curve is found by

adding up the quantities that producers in a market are willing and able to offer for sale at each price.

If the price of mozzarella cheese (an ingredient in making pizzas) decreases due to a major technological breakthrough in the dairy industry, there would be

an increase in the supply of pizza.

Suppose an economy produces only guns and butter. The production possibilities curve for guns and butter is concave. If this economy devotes all of its resources to the production of guns and is operating efficiently, it is able to produce 240 guns. If this economy continues to operate efficiently, it can also produce 200 guns and 20 tons of butter. If this economy decides to increase butter production to 40 tons, then gun production will

be less than 160 guns.

capital goods

buildings, factories, machinery, etc

demand curve shifts in response to change in...

business consumer confidence

movement along the demand curve =

change in the quantity demanded 1.) change in the price of the good in question

movement along the supply curve =

change in the quantity supplied 1.) change in the price of the good in question

Individuals acting in their own rational self-interest

choose options that give them the greatest amount of satisfaction.

Demand for financial capital

comes from borrowers

Shifts in the Demand Curve 3.) Change in the price of related goods

complements (- relationship) - price of hotdogs decreases --> quantity of hotdogs increases --> demand of hotdogs increase -price of pencils increases --> people start writing more w/ pens instead of pencils --> demand for easers decreases substitutes (+ relationship) - price of coffee increase --> people drink less coffee --> demand for tea increases -price of white American cheese decreases --> people buy more white American --> decrease in demand for yellow American cheese

What goods & services are produced & what quantities?

consumer demands

The ________ is the amount of a product at which the quantity demanded and quantity supplied are equal at a certain price.

equilibrium quantity

Trade-off

give up some of one good to obtain another good

Shifts in the Supply Curve 1.) Change in the costs of production

higher costs --> decrease in supply lower costs --> increase in supply

Shifts in the Supply Curve 2.) New technology

improvement in tech --> increase in supply

a change in wage results

in a movement along the demand curve

Concave PPF

increasing opportunity cost - has to be less than what was given up originally

price ceilings

is a legal maximum price - creates a shortage of the good

price floor

is a legal minimum price that buyers must pay for a product - creates a surplus of a good

Equilibrium

is a situation in which there is no tendency for change - the market will be in equilibrium when there is no reason for the market price of the product to rise or fall

A point lying outside or above the production possibilities frontier

is not achievable at this time for this nation, given its current resources.

unlimited quantities of resources=

limited resources of goods and services

demand schedule

list of the quantities demanded @ every possible price - amounts that buyers are willing & able to purchase at each price

Microeconomics

looks at the production, exchange, & consumption of goods & services at the level of an individual producer of the good - deals w/ the behavior of the individual entities make up -ex: Harley Davidson production choices

In a ________ economy, the wants of the consumers and the profit motive of the producers will decide what will be produced

market

attainable

points inside the PPF

Law of Supply

positive relationship btw the price & quantity supplied

Supply Curve

shifts in the demand curve have no effect in the supply curve

product possibilities frontier

shows the maximum combos of two goods an economy can produce w/ existing resources & technology

Shifts in the Supply Curve 6.) Changes in prices of related goods

substitutes in production (- relationship) - price of strawberry milk decreases -> less profitable to sell strawberry milk --> supply of chocolate increase - price of cupcakes increases --> more profitable to bake cupcakes --> decrease in muffins supply joint products (+ relationship) - price of beef increase --. more dead cows --> supply of leather increases -price of lumber decreases --> less profitable --> supply of sawdust decreses

Technology & wage inequality

technology as a substitute for low-skill labor and a complement to high-skill labor

marginal opportunity cost

the amount of one good (guns) that must be given up to obtain one additional unit of good (butter) -gave up/ gained

price

the amount paid for a specified quantity & quality of a good or service

Correct ways to say demand statements

the fall in the price of coffee has caused the quantity demanded to increase - the fall in price of coffee has no effect on the demand for coffee

market demand schedule

the market demand schedule found by adding up the quantity demanded @ each price over all the buyers

allocative efficiency

the mix of goods being produced is the mix that society desires

When consumers and businesses have greater confidence that they will be able to repay any funds they borrow in the future,

the quantity demanded of financial capital at any given interest rate will increase.

Shifts in the Labor Demand #2

2.) Education & training of workers better educated --> increase in output --> increase in demand less educated --> decrease in output --> decrease in demand

Shifts in the Labor Supply #2

2.) Required education more rules --> less supply less rules --> more supply

Consider the market for bananas. Discuss how an increase in the price of apples would effect the supply and demand for bananas and the equilibrium price and quantity of bananas.

Since bananas and apples are both in the fruit market there can be seen as substitutes for one another. When viewing the demand for bananas as the price increases on apples people would be less interested in buying apples so the quantity demanded for bananas would increase. This will cause the demand curve to shift to the right. Then as we view the supply for bananas since apples have increased in price it is seen as more profitable to sell apples the supply of bananas would decrease. The supply curve would shift to the left causing the price of bananas to increase as well. (substitutes in production)

Explain why markets are in equilibrium at the price at which the quantity supplied is equal to the quantity demanded.

When markets are at an equilibrium means that where the wants of consumers and the wants of producers come to an agreement at a certain price they will pay for the good or service. It is a situation where there is no tendency for change. The price doesn't fall or rise. This is where the amount of the quantity demanded is equal to the amount producers want to sell at the quantity supplied.

demand curve

a graph of the demand schedule

Shifts in the Demand Curve 2.) Change in income

- normal goods (+ relationship) - increase income --> increase demand - decrease income --> decrease demand inferior goods (- relationship) -increase income --> decrease demand - decrease income --> increase demand ex: potatoes, ramen

Economy w/ economic growth affect the PPF

- the whole PPF curve moves outwards for both goods

Prices provide

-incentives -means of rationing scarce supplies - signaling mechanisms

Shifts in the Labor Supply #3

Government policies: (a) rules setting qualifications (b) subsidies for education 7 training, (c) relative desirability of working versus not working a desire to work --> increase in supply less desire --> decrease in supply b paying people way to career --> increase in supply not paying people way to a career --> decrease in supply

Matthew and Emma can make 16 toys each if they devote 8 working hours in a day. Further, Matthew can repair 4 cars and Emma can repair 2 cars, if they devote 8 working hours in a day. When these two individuals engage in trade, it would be advantageous for both if

Matthew specializes in car repairing and Emma specializes in the production of toys.

The table below represents the output per hour (using equivalent amounts of resources) of tobacco and bricks in Pennsylvania and New Jersey. Tobacco (pounds)Bricks (pounds) Pennsylvania 6 24 New Jersey 12 96 ________ has the absolute advantage in producing tobacco and ________ has the absolute advantage of producing bricks.24

New Jersey; New Jersey

productive inefficiency

a situation in which it is possible to increase the amount produced of some good, without decreasing the amount produced of any other good (in such cases the society will be producing a combination of outputs below its PPF).

A graph of the prices and quantities supplied of a good or service at each of those prices is called

a supply curve.

A price above the equilibrium price causes

a surplus to develop and drive prices down.

supply schedule

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

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms - one person's spending is another person's income - households --> spending goods and services on firms - households provide --> labor services to firms --> firms give wages (income) - firms provide --> goods & services to households

supply curve shifts in response to...

changes in how much income households choose to save rather than spend - savings decrease --> supply shifts left --> interest rates increase --> decrease supply - savings increase --> supply shifts right --> interest rates decrease --> increase supply

demand

is willingness & ability of buyers to purchase goods and services

The production possibilities frontier in the figure above indicates that

it is possible to produce more of good X without sacrificing some of the good Y only if production is occurring at a point inside the PPF such as point C.

Labor Markets

labor demand curve shows the number of workers employers whish to hire at any given wage, everything else the same -use the supply and demand to look at the labor market

savers =

lenders = suppliers

The exhibit above shows how supply and demand might shift in response to specific events. Suppose the technology for producing automotive gasoline improves. Which panel best describes how this will affect the market for sports utility vehicles, a complement of automotive gasoline?

panel (a) - D1 shifts to the right and makes a new demand curve called D2

The exhibit above shows how supply and demand might shift in response to specific events. Suppose the technology for producing automotive gasoline improves. Which panel best describes how this will affect the market for automotive gasoline?

panel (b) technology improves the supply of gasoline, supply curve shift s to the right

The exhibit above shows how supply and demand might shift in response to specific events. Suppose a winter frost destroys one-third of the nation's orange crop. Which panel best describes how this will affect the market for oranges?

panel (c) supply decrease shifts to the left because the frost killed crops

The exhibit above shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for used furniture, an inferior good?

panel (d) demand decreases shifts to the left because inferior goods would be purchased less with an increase in income

If people have unlimited wants, this means that

people always want more goods and services than they have or can purchase with their incomes.

gains from trade

people can get more of what they want through trade than they could if they tried to be self-sufficient

rational self-interest

people make choices that will give them the greatest amount of satisfaction

investment

purchases of new capital

Concave PPF curve =

resources are specialized (resources are not equally well suited to produce both goods) --> increasing opportunity cost --> Concave PPF

We generally expect a production possibilities frontier to bow outward away from the origin (to have a concave shape) because

resources are specialized.

Psychologists argue that it seems to people that the Internet has made the number of choices individuals have infinite. This means that

scarcity continues to exist because resources have not become unlimited.

excess demand

when quantity demanded is more than quantity supplied (shortage)

excess supply

when quantity supplied is more than quantity demanded (surplus)