Econ Chapters 1-3

Future Amount =

Present Amount X (1 + Interest Rate)^Time

Which of the following could explain why an economy is operating inside its PPF?

The economy is in a recession.and The economy is productively inefficient.

Short Answer:a)What is the difference between a budget constraint and a production possibilities frontier (PPF)?b)Draw a generic budget constraint.c)Draw a generic PPF.d)What tends to happen to the PPF over time?

consider answers

Relative Price

conveys the trade off between two goods

Sunk Costs

costs that have already been incurred and cannot be recovered and should not affect decisions

Opportunity costs exist because

limited resources cannot satisfy all of the wants in society

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good

marginal analysis

Black Markets

markets where the buyers and sellers make transactions without the government's approval

Market Oriented Economy

most economic decisions about what to produce, how to produce and for whom to produce are made by buyers

Suppose there are only two goods: books and hamburgers. If the relative price of books falls, then the relative price of hamburgers

must rise

Division of Labor

refers to how the work required to produce a good or service is divided into a number of simpler tasks that are performed by different workers

Normative Statement

statement which describes how the world should be

Positive Statement

statement which describes the world as it is

Economies of Scale

the common pattern that as levels of production increases for many goods and services, the average cost of producing each individual unit declines

Time Value of Money

the cost of having to wait for repayment

Comparative Advantage

the goods in which a nation has its greatest productivity advantage or its smallest productivity disadvantage when measured in terms of opportunity cost

Utility

the level of satisfaction or pleasure that people receive from their choices

Budget Constraint

the limit on the consumption bundles that a consumer can afford

Labor Market

the market in which households sell their labor as workers to business firms or other employers

Financial Capital Market

the market in which those who save money provide financial capital and receive a rate of return from those who wish to raise money and pay a rate of return

Allocat

the particular mix of goods being produced represents the allocation that society desires

Rate of Return

the payment in addition to the original investment from those who have received financial capital to those who provided it

What determines the intertemporal budget constraint?

the quantity of income in the present and the interest rate

Intertemporal Budget Constraint

the trade off between present consumption and future consumption based on interest rate and the rate of return

intraindustry trade

trade between two countries of goods produced by the same industry

The concept of __________________, means that as the measure of output goes up, average costs of production decline—at least up to a point.

economies of scale

Consumption

goods and services purchased by consumers

The economic behavior of government is constrained by

limited budgets

In a case where there are two possible work activities and two workers, which of the following is true regarding comparative advantage?

Each person must have a comparative advantage in one activity, but not both

Benefits of intraindustry trade?

Economies of scale and specialization

Macroeconomics focuses on the behavior of economic agents such as the consumer, a business firm, or a specific market.

False

law of diminishing marginal utility

as a person receives more of a good, the marginal utility from each additional unit of the good is smaller than from the previous unit

Law of Diminishing Returns

as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline

From an economic context, select the correct definition of a market.

b. An institution that brings together buyers and sellers of goods or services.

What can cause a budget constraint to move?

changes in income and relative prices

What causes the intertemporal budget constraint to rotate?

changes in the interest rate

Globalization

Buying and selling in markets have crossed national borders to an increasing extent

To be as well off as possible, a nation should produce A.only those goods that its populace desires B.the good within its productive capabilities that commands the highest price in the world market C.the good that requires the fewest resources to produce D.whatever good it can produce at a cost lower than that incurred by other nations

whatever good it can produce at a cost lower than that incurred by other nations

Efficiency

when it is impossible to get more of something without experiencing a trade off of less of something else

Product Efficiency

when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

Compound Interest

when money accumulates and interest can be paid on the original amount and the interest accumulated

Absolute Advantage

when one nation can produce a product at lower cost relative to another nation

Intertemporal Choice

where decisions made today can affect choices facing individuals in the future

Define the law of diminishing marginal returns.Illustrate the law of diminishing marginal returns in an appropriate graph.

...

Suppose there are only two goods (bread and wine) and only two countries (England and Portugal). In England, the cost of producing 1 bottle of wine is 3 loaves of bread.a)What is the cost of producing 1 loaf of bread in England?b)Under what circumstances will England specialize in bread production and purchase its wine from Portugal? Explain.

...

What is the equation for the future value (FV) of a stream of payments, today?What is the equation for the present value (PV) of a future stream of payments?Assume r = 5%, t = 3, and PV = $1,000. Calculate the FV.

...

When most people want to know the cost of an item or service they look at the price tag. When economists want to determine cost, they go one step further. They use the idea of opportunity cost. Explain the concept of opportunity cost and illustrate with an example.

...

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below. Mexico: 3 hours one bushel of food and 6 hours one bolt of cloth. Japan: 9hours for food and 12 hours for cloth. What is the cost of producing 1 bushel of food in Mexico?

1/2 bolt of cloth.

Circular Flow Diagram

A diagram that illustrates the economy as consisting of households and firms interacting in a goods and services market, a labor market, and a financial capital market.

Select all of the items that are examples of a market. It is possible that more than one item should be selected. a. The New York Stock Exchange. b. A local farmer's market. c. The free-agent signing period in the NFL where players hoping to sign with a team interact with teams looking for additional players. d. Trader Joe's: a grocery store frequented by "foodie" types.

All are correct.

Columbia produces coffee with less labor and land than any other country, it therefore necessarily has:

An absolute advantage in coffee production

A market is

An institution that brings together buyer and sellers of goods and services

From an economic standpoint, what is the correct definition of a market?

An institution that brings together buyers and sellers of goods and services

Even though households may have unlimited wants, they have to allocate their spending carefully because they

C.have limited incomes

Consider the following information about production possibilities for the USA and France. The numbers in the table represent the number of hours it would take to produce one unit of the good. For example, it would take France 4 hours to produce a unit of wine, 4 hours to produce a unit of cheese. The US 8 hours for wine and 2 hours for cheese. Given the information in the table, which of the following statements is true?

France has the comparative advantage in wine and the USA has it in cheese.

What term is used to describe international trade of goods within the same industry?

Intra-industry trade

Can trade in food and cloth benefit Mexico and Japan? A.It cannot benefit Japan, because Japan cannot successfully compete with Mexico. B.It cannot benefit Mexico, because Japan is too small to be an effective trading partner. C.It can benefit both only if the people in Mexico and Japan have different tastes. D.It can benefit both if Mexico specializes in food and Japan specializes in cloth.

It can benefit both if Mexico specializes in food and Japan specializes in cloth

In countries like __________ the command economy predominates.

Libya and North Korea

Rank each of the following four statements with regards to whether the economic organizations in each statement are more market-oriented, (laissez-faire) or command-oriented (centrally planned). 1. The government makes all production/consumption decisions. 2. The government attempts to induce production/consumption decisions using monetary incentives. 3. Buyers and sellers make all production/consumption decisions. 4. The government regulates some production/consumption decisions.

Market Oriented: ^ 3. Buyers and sellers make all I production/consumption decisions. I 2. The government attempts to I induce production/consumption I decisions using monetary incentives. I 4. The government regulates some I production/consumption decisions. I 1. The government makes all ∨ production/consumption decisions. Command Oriented

In a __________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

Market-oriented economy

Which of the following statements is true? A.Mexico has a comparative advantage in production of food B.Japan has an absolute advantage in production of food. C.Mexico has a comparative advantage in production of cloth. D.Japan has an absolute advantage in production of cloth.

Mexico has a comparative advantage in production of food

The basic difference between microeconomics and macroeconomics is:

Microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy

The prices typically studied in microeconomics are

Relative prices

Interest Rate =

Risk Premium X Expected Inflation X Time Value of Money

What does the price of diesel fuel in KS have to do with the price of bread in Boulder, CO?

Since farmers in KS use diesel diesel fuel-powered equipment to plant, harvest, and transport grain, an increase in the price of fuel may increase in the price of fuel may increase the price of bread.

Command Economy

The government makes most economic decisions or at least strongly influences decisions

What is an economy?

The set of social arrangements that answers what is produced, how it is produced and for whom it is produced.

Gross Domestic Product

The size of total production in an economy

Economics are

The study of production, distribution and consumption of goods and services.

Economics studies 3 choices we make:

Which goods to consume How many hours to work How much to borrow or save

production possibilities frontier

a budget constraint for the economy as a whole

core competency

a business that focuses on one or few products

Kelly has received a $50 check from her Grandparents to help with her expenses at college. She has narrowed her choices of how to spend the money to three: a new backpack, a dinner out with a friend, a fleece vest. Of these she likes the vest best and the backpack least. What is her cost of buying the fleece vest?

a dinner out with a friend

Goods and Services Market

a market in which firms are sellers of what they produce and households are buyers

The statement that "clean air is a right" is

a normative statement

The statement that "health care should be free" is

a normative statement

Specialization

a particular small job allows workers to focus on the types of production where they have an advantage

Risk Premium

a payment to make up for the risk of not being repaid in full

The statement that "IBM's stock closed at $85" is

a positive statement

Inflation

a rise in the overall level of prices

Fiscal Policy

economic policies that involve government spending and taxes

real investment

expenditures on equipment to produce goods and services into the future

Why is economics nicknamed "the dismal science"? (Note: A relevant graph is required in order to receive full points)

find answer

Budget constraint is determined by what?

incomes and prices

market-oriented economy

individuals' economic lives are said to be interrelated with many other individuals and firms

A lender demands an interest rate in part to compensate for any expected _________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.

inflation

Monetary Policy

involves altering the quantity of money and thus affecting the level of interest rates and the extent of borrowing