ECON HW AND QUIZ CHPT 1-5, Quiz 4, Exam 1, ECON 1100 Final Exam, Microeconomics Exam one, Quiz 10, Quiz 8, Quiz 7, Quiz 6, Quiz 5, Chapter 6, Quiz 4, Chapter 5, Quiz 3, Chapter 4, Quiz 2, Chapter 3, UNT ECON 1100 EXAM 2: DADRES, Exams/Microeconomics/...

Ceteris Paribus

"All other things unchanged." ➕ In order to identify the relationship between two specific variables, other variables that might influence the relationship are assumed not to change. 🔺 Example: an analyst might assume that consumer income & other variables remain the same in order to focus on how a change in the price of gasoline affects consumption

Normative microeconomic statement

"Two large business firms that control a market should not be allowed to merge together"

The tax generates tax revenue of _____ and a deadweight loss of _____.

$128 ; $16

Based on the information in the graph below, the tax generates tax revenue of _________ and a deadweight loss of _________.

$128; $16

Suppose MR = MC = $3 at an output level of 2,000 units. If a monopolist produces and sells 2,000 units, charging a price of $6 per unit and incurring average total cost of $5 per unit, the monopolist will earn profit equal to:

$2,000.

When an $8 per unit tax is imposed on this market, producer surplus changes from _____ to _____.

$200 (1/2*40-20*20); $128 (1/2*40-24*16)

The price paid by customers after the tax is _____; after paying the tax, sellers keep ______.

$24 ; $16

Based on the information in the graph below, if there is a price ceiling of $5, then consumer surplus is equal to _______ and producer surplus is equal to ______.

$250; $50

Based on the information in the graph below, in free market equilibrium, total consumer and producer surplus is equal to _______.

$400

In free market equilibrium total consumer and producer surplus is equal to _____.

$400 ($200 + $200)

Based on the information in the table below, this firm has total fixed costs equal to Output (Q=TP) TVC TC 1 $40 $85 2 70 115 3 90

$45

Based on the information in the table below, this firm has total fixed costs equal to:

$45

The marginal benefit of the 60th unit is equal to _____ and the marginal cost of the 60th unit is equal to _____.

$5 ; $15

Suppose Frank left his $50,000 per year job to start his own consulting business. In his first year, Frank was hired by 6 clients that paid $10,000 each for his services. Frank spent $2,500 on a new laptop and printer and had $1,000 in other business-related expenses in his first year. In his first year, Frank had an accounting profit of ________ and an economic profit of ________.

$56,500; $6,500

The equilibrium price of a pumpkin in this market is:

$6 because the quantity supplied of pumpkins is equal to the quantity demanded of pumpkins at a price of $6 per pumpkin

The graph illustrates an unregulated, profit-maximizing monopolist that cannot price discriminate. Assuming the firm produces the profit-maximizing level of ouput, it will earn total revenue equal to _____ and pay total costs equal to _____.

$7,200; $6,000

inflation rate equation

(CPI Year 2 - CPI Year 1)/ CPI Year 1 x 100

CPI equation

(expenditures in the current year/expenditures in the base year) x 100

what are the components of GDP? Which is the largest?

-Personal consumption expenditures is the largest (C) -Gross private domestic investment (I) -Government consumption expenditures and gross investment (G) -Net exports (X-M)

why do some economists advocate a policy of laissez-faire?

-an economic policy that advocates government staying out of the business sector -theory that everything will even itself out in a completely free market - concept is similar to the idea of anarchy in that they are completely theoretical and go against human nature

When the price of a hotdog at the ballpark is $2.00, quantity demanded is 1,000. When the price of a hotdog at the ball park is $2.50, quantity demanded is 850. Using the midpoint formula, price elasticity of demand is approximately ____________, so an increase in the price of a hotdog __________ total revenue.

0.7; increases

Use the midpoint formula to calculate the price elasticity of demand coefficient for a product of quantity demanded is 30 when price is $3 & quantity demanded is 20 when price is $5

0.8

The opportunity cost of 1 car is:

1 boat for Country A and 2 boats for Country B

MPS

1-MPC

GDP vs GNP

1. Gross Domestic Product: The total value of goods produced and services provided in a country during one year. 2. Gross National Product: The total value of goods produced and services provided by a country during one year, equal to the gross domestic product plus the net income from foreign investments.

what causes demand shift

1. Tastes 2. Expectations 3. Preferences 5. price of related goods 6. Income

What causes supply to shift?

1. cost of production 2. production technology 3. number of sellers 4. taxes

Functions of the Federal Reserve Banks

1. issuing new currency 2. providing check- clearing services 3. holding depository institutions reserve accounts 4. making discount loans to banks 5. collecting data on business conditions within their district. 6. researching topics related to monetary policy

Functions of Money

1. medium of exchange 2. unit of account 3. store of value

causes of supply curve shifts

1. quantity or cost of inputs 2. Production of technology 3. price of other producible goods 4. number of sellers 5. expectations of sellers 6. taxes and subsidies 7. acts of nature

An increase in the price of a small town newspaper from $.70 to $.90 results in a decrease in sales form 2,880 to 1,920 per day. The price of elasticity of demand coefficient (using the midpoint formula) is ___________ for this newspaper

1.6

If a 10% increase in the price of a product results in a 5% decrease in the quantity demanded of the product, then the absolute value of the price elasticity of demand coefficient is _____ and demand is said to be ______.

1/2 ; inelastic

If a 20% increase in consumer income results in a 5% increase in the quantity of potato chips sold, then the income elasticity for potato chips is equal to

1/4 & potato chips are a normal good

This firm will produce ______ units of output and earn total revenue equal to _____.

100 ; $1,100

Assuming specialization and free trade and using the data in the previous question, if Country A imports 40 TV's and exports 80 wheat, consumption in Country A will be:

120 wheat and 40 TV's

If the quantity demanded of soda decreased by 15% when the price of soda increased by 15%, the price elasticity of demand for soda is _________, and the demand for soda is said to be ___________.

1; unit elastic

Based on the information in the table below, the opportunity cost of producing one clock in Spain is: Spain: Clock(4 Hours), Radio(2 Hours) Mexico: Clock(3 Hours), Radio(6 Hours)

2 Radios

If the quantity demanded of coffee decreased by 10% when the price of coffee increased by 15%, the price elasticity of demand for coffee is ——and the demand for coffee is said to be ——

2/3; inelastic

If there is a price ceiling of $5, then the quantity exchanged (bought and sold) in this market will be equal to _____.

20

Initially, assume Country A is producing and consuming 10 cars and 20 boats, while Country B is producing and consuming 20 cars and 40 boats. The two countries then decide to specialize according to comparative advantage and engage in trade. The potential gains from trade for both countries combined work out to be:

20 boats, to be divided between the two countries

Assume output was initially 100 wheat and 25 TV's in Country A and 40 wheat and 40 TV's in Country B. If both countries specialize according to comparative advantage, their combined production of wheat changes from 140 to _____ and their combined production of TV's changes from 65 to _____, based on the graphs below.

200; 80

If the marginal product of the fourth worker is 6, then the total output when four workers are hired is _____ and the marginal product of the fifth worker is _____.

24 ; -2

value marginal product of the second worker

25

If a 5% increase in the price of a product results in a 10% decrease in the quantity demanded of the product, then the absolute value of the price elasticity of demand coefficient is ___ and demand is said to be ____

2; elastic

abc manufactoring maximizes profit it will hire

4 workers and produces 375 units of outputs

As price falls from $12.50 to $7.50 ad quantity demanded increases from 160 to 240 units, the price elasticity of demand, calculated using the midpoint formula, is equal to:

40 percent divided by 50 percent, which is 0.8 so demand is inelastic

if Nick and Jesse specialize according to comparative advantage and produce efficiently, they will produce a combine total of:

6 hats and 8 shirts

Nick has to give up __________ hat(s) to produce 2 shirts, which means that the opportunity cost of 1 shirt is equal to ________ hat(s) for Nick

6;2

All of the following are examples of public good except

A bagel with cream cheese

which of the following will lead to a decrease in the demand for water skis?

A decrease in the price of knee boards (a substitute good)

Ceteris paribus, a decrease in the number of firms selling calculators will result in

A decrease in the supply of calculators

Which of the following would be expected to decrease the demand for textbooks?

A decrease on college enrollment

PPF assumes

A fixed amount of resources are used and there is a constant state of technology and rate of production is efficient

Inflation

A general and progressive increase in prices

price ceiling

A legal maximum on the price at which a good can be sold

price floor

A legal minimum on the price at which a good can be sold, example :min wage

Which of the following is an example of a positive externality

A lower crime rate in a neighborhood patrolled by a security company

Which of the following is an example of a positive externality?

A lower crime rate in a neighborhood patrolled by a security company

A demand curve can be interpreted as

A marginal benefit curve

A demand curve can be interpreted as:

A marginal benefit curve

A movement from a point inside the PPF to a point on the PPF is caused by

A more efficient use of available resources

Which of the following is NOT an example of government response to a market failure?

A privately-owned business that does not allow smoking

Which of the following is not an example of government response to a market failure

A privately-owned business that does not allow smoking

Which of the following is not an example of government response to a market failure?

A privately-owned business that does not allow smoking

Shortage

A situation in which quantity demanded is greater than quantity supplied

Surplus

A situation in which quantity supplied is greater than quantity demanded

Producer Surplus

Actual amount a producer receives for a product (market price) minus the minimum amount the producer is willing to accept in exchange for the product (marginal cost)

Marginal benefit (MB)

Additional benefit created when an action is taken, such as producing or consuming one or more unit of output

Marginal cost (MC)

Additional cost incurred as a result of the action, such as producing or consuming one more unit of output ▪️ it is optimal or efficient to continue an activity as long as the marginal benefit exceeds the marginal cost

Marginal Cost

Additional cost of producing one more unit of output; economic theory of production suggests that marginal cost increases as output increases (in the short run) because of the law of diminishing returns

The long run is a period for which

All inputs and all costs are variable

Marginal cost (MC) is:

All of the above

If the total cost of producing 2 units of output is $100 and the total variable cost of producing 2 units of output is $80, then:

All of the above are true

Marginal Cost curve

Also the Supply (S) curve in a perfectly competitive market, because it can be used to predict how many outputs a seller is willing & able to produce at each price, where price is determined by market forces.

Capitalism (market)

An economic system based on private ownership of capital. private property and decentralized decision making.

Ceteris paribus, when supply shifts to the left, there is

An increase and a decrease in consumer surplus

AD Curves shift effect on output

An increase in any of the components of aggregate demand shifts the AD curve to the right. When the AD curve shifts to the right it increases the level of production and the average price level. When an economy gets close to potential output, the price will increase more than the output as the AD rises

Ceteris Paribus, when supply shifts to the left, there is

An increase in price and a decrease in consumer surplus

Which of the following would best explain an increase in the demand for jeans?

An increase in the number of schools that allow students to wear jeans

According to the law of supply, an increase in the price of apples leads to

An increase in the quantity supplied of apples, ceteris paribus

Which of the following would lead to a decrease in the supply if desktop computers, ceteris paribus?

An increase in the wages paid to desktop computer factory workers

A downward-sloping line

An inverse (negative) relationship between two variables

medium of exchange

Any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter.

Fallacy of Division

Assuming that what is true of the whole is true for the parts.

In a perfectly competitive market, an individual firm sells output

At the price determined by the market forces of supply and demand

Midpoint formula

Average percentage change in quantity demanded divided by the average percentage change in price, given by the equation for e^D below. Q2-Q1/(Q2+Q1)/2 / P2-P1/(P2+P1) = %🔺QD/%🔺P

Total Surplus = Consumer Surplus + Producer Surplus

Because consumer surplus measures the net gain to buyers of participating in market transactions, and producer surplus measures the net gain to settlers of participating in market transactions, total surplus is the net gain to all market participants. Therefore, total surplus provide a good standard against which to judge different outcomes. Other things the same, an outcome that generates more total surplus is preferred to an outcome that generates less total surplus, and the most preferred outcome is the one that maximizes total surplus.

The fallacy of composition occurs when it is wrongly assumed that

Because some people benefit from certain government taxing & spending programs, all people must benefit from those programs

The fallacy of composition occurs when it is wrongly assumed that

Because some people benefit from certain government taxing and spending programs, all people must benefit from those programs

Scarcity exists

Because the wants & needs of society exceed the resources available to satisfy them

Scarcity exists

Because the wants and the needs of society exceed the resources available to satisfy them

Which of the following pairs of goods is most likely to have a cross elasticity greater than zero

Beef & chicken

The free rider problem refers to a situation in which

Benefits associated with public goods cannot be denied to users whether or not they are willing to pay for them

Loaded Terminology

Both Republicans and Democrats propose "stupid" economic policies

In the simple circular flow model

Business are demanders in resource markets and suppliers in product markets

The economic burden of a tax is borne mostly by

Buyers if demand is highly elastic

GDP equation

C+I+G+(X-M)

Demand Shifters

C- Consumers (more consumers, more demand; less consumers, less demand) R- Related good's price (substitute good- one good can replace the other good; or complement good- both goods are consumed together) I- Income (normal good- a positive relationship between income and demand; inferior good- a negative relationship between income and demand T- Tastes/ preferences (more popular, more demand; less popular, less demand) E- Expectations (expect price to be higher in the future, more demand now, less demand in the future)

Marginal utility

Calculated as the change in total utility divided by the change in quantity consumed (🔺TU/🔺Q).

Which of the following is an example of capital as a factor of production

Camera equipment used by a photographer employed by a magazine

Which of the following is an example of capital as a factor of production?

Camera equipment used by a photographer employed by a magazine

When new firms enter a competitive market their entry

Causes the market supply to increase; drive down the market price; draft on the profits of existing firms in the market

Which of the following is a positive microeconomic statement?

Ceteris paribus, consumers respond to an increase in the price of a product by decreasing quantity demanded

relationship between investment and interest rate

Changes in interest rates affect the public's demand for goods and services and, thus, aggregate investment spending. A decrease in interest rates lowers the cost of borrowing, which encourages businesses to increase investment spending

discretionary fiscal policy

Changes in taxes or spending that are the result of deliberate changes in government policy.

The economic argument supporting free trade is based on the principle of

Comparative advantage

Economic Systems

Comprised of the laws, traditions, institutions, & mechanisms that are designed to answer the basic economic questions of "what outputs to produce, how to produce the outputs, & who gets to consume the outputs?"

Two Country Example

Consider a simple example in which there are two countries, Island & Beachland, & that both can produce two outputs, food & clothing; production possibilities schedules for both countries are given below; assume that each country has constant opportunity cost resulting in linear PPFs ▪️assume Island desires to have some of each output & produces & consumes 60 food & 10 clothing as represented by point A on its PPF ▪️assume Beachland desires some food & some clothing & produces & consumes 10 food & 5 clothing as represented by point G on its PPF ▪️clearly Island has an absolute advantage in production of food & clothing: Island can produce more food & clothing than Beachland; How can Island gain from specializing & then trading with Beachland? Principle of comparative advantage can be applied to show how both countries can be made better off through specialization & trade ▪️which country has comparative advantage in production of food? ▪️for Island, 1 F = 1/2 clothing & for Beachland 1F = 1C; Island only has to give up 1/2 clothing to get 1 food while Beachland has to give up 1 clothing to get 1 food; Island has lower opportunity cost & therefore has comparative advantage in production of food & should specialize in production of food ▪️comparing opportunity costs reveals that Beachland has lower opportunity cost & comparative advantage in production of clothing ; Beachland only gives up 1 food to gain 1 clothing while Island must give up 2 food to gain 1 clothing; Beachland should specialize in production of clothing ▪️if each country specializes in output for which it has a comparative advantage & they trade with each other, both countries can be made better

Positive economics

Deals with statements about what is true, which can be tested against facts. ▪️Example : "many low-income families do not have health insurance."

Normative economics

Deals with statements of what should be & requires value judgements. 🔸Example: "government should do something to help low-income families obtain health insurance" Normative statement reflecting a view held by many, but not by everyone.

Microeconomics focuses on

Decisions & behaviors of individual households, firms, & markets

According to the law of demand, an increase in the price of gasoline, ceteris paribus, leads to

Decrease in the quantity demanded of gasoline

Ceteris Paribus, an increase in the supply of tortillas causes the equilibrium price of tortillas to ________and the equilibrium quantity of tortillas to_______

Decrease;increase

In the circular flow model, the household sector_____goods & services in_____markets

Demands / product

If marginal utility (benefit) declines as the quantity of a given output consumed increases, then the demand curve for that output will be:

Downward Sloping

If this economy is capable of producing on PPF2, production is efficient at point(s):

E and F

An outward shift of a production possibilities frontier illustrates that

Economic growth has occured

Consumer Behavior

Economic model of consumer behavior is based on the law of diminishing marginal utility, which says that as consumption of one good increases relative to other goods, the additional satisfaction gained from consuming yet another unit of that good eventually declines.

Circular Flow Model

Economy consists of two sectors & two markets ▪️business sector & household sector ▪️product market & resource market Scarce resources (factor or production/inputs) are exchanged in resource markets, & final goods & services, or outputs, are exchanged in product markets 🔺some goods & services produced in the business sector are exported to other countries & some goods & services are imported by the household sector from other countries 🔹country has trade surplus if value of exports exceeds value of imports 🔸country has trade deficit if value of imports exceeds value of exports

Any point on a production possibilites frontier represents

Efficient production

If the demand function is linear and downward-sloping, demand is

Elastic on the top portion, unit elastic in the middle, & inelastic on the bottom portion of the demand function

When output sells for a price that is higher than its marginal cost to the seller (the minimum price the seller is willing to accept), the seller

Enjoys a producer surplus

When is there neither a shortage or surplus in a market?

Equilibrium

Price elasticity of demand

Estimates by how much, in percentage terms, quantity demanded may decline as a result of a given percentage increase in price, & vice versa

how each monetary tool is used to pursue either expansionary or contractionary monetary policy?

Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases aggregate demand. ... It lowers the value of the currency, thereby decreasing the exchange rate. It is the opposite of contractionary monetary policy

Economics

Field of study with enormous practical application

Goods that are both non-rivial and non-excludable are

Free Goods

Scarcity

Fundamental economic problem 🔺 exists because there are not enough resources to produce everything people want & need

Net Domestic Product (NDP)

GDP minus depreciation

Normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower. Price remains constant.

Inferior goods

Goods for which demand tends to fall when income rises. Demand increases when income decreases

Market economies are characterized by all of the following EXCEPT

Government control of capital

What are the following is not a characteristic of a perfectly competitive market

High barriers to entry

Which of the following is NOT a characteristic of a perfectly competitive market?

High barriers to entry

Which of the following is not a characteristic of a perfectly competitive market?

High barriers to entry

A firm selling in a perfectly competitive market faces a demand curve that is

Horizontal (perfectly elastic) at the market price because other firms in the market sell an output that is a perfect substitute for its output

Unit elastic demand

If demand is unit elastic, then the two effects offset each other, so a price change does not change total revenue

Unit elastic demand

If the price elasticity coefficient is equal to one, demand is said to be unit elastic because a given percentage change in price causes quantity demanded to change by the same percentage. This means buyers respond to a given percentage price change by changing quantity demanded by the same amount in percentage terms.

Elastic demand

If the price elasticity coefficient is greater than one, demand is said to be elastic because the given price change causes a relatively large change in quantity demanded. This means buyers are relatively responsive to a change in price in this price range.

Inelastic demand

If the price elasticity coefficient is less than one, demand is said to be inelastic because the given price change causes a relatively small change in quantity demanded. This means buyers are NOT very responsive to a change in price over the given price range.

If the public transit system raises its fares and experiences an increase in total revenue as a result, the demand for public transportation in this price range is

Inelastic

The economic burden of a tax

Is partially shifted to consumers through higher prices in most cases

The marginal revenue curve for a perfectly competitive firm

Is the same as the firms demand curve

If Janet can produce more baskets per hour than Karen, then

Janet has an absolute advantage in the production of baskets

A decrease in market demand for output produced in a perfectly competitive industry

Leads to a decrease in the individual firms marginal revenue

Industry output is efficient when

MB = MC for each firm

Industry output is efficient when:

MB = MC for each firm.

A monopolist maximizes short-run profit by producing the level of output where:

MR = MC.

The profit-maximizing rule is for firms to produce the amount of output at which:

MR = MC.

The profit maximizing rule is for firms to produce the amount of output at which

MR equals MC

The purpose of setting a price ceiling below the equilibrium price is to

Maintain a low price for buyers in the market

A perfectly competitive firm producing P = MR = MC > ATC in the short run is

Making an economic profit greater than zero

Consumer surplus is the difference between ? and product price and producer surplus is the difference between ? and product price

Marginal benefit; marginal cost

Assuming no market failures, an efficient level of an output exists when

Marginal social benefit is equal to marginal social cost

Positive externalities exist when

Market activity creates benefits that spill over to third parties

The perfectly competitive model assumes the goal of firms in the marketplace is to

Maximize Profit

Consumer Surplus

Maximum amount the consumer is willing to pay for a product minus the amount the consumer actually has to pay (the market price).

Acts of Nature

May also be responsible for supply shifts in some cases, especially in agricultural markets Floods or droughts can reduce supply by destroying crops. Unusually good weather can cause a bumper crop, resulting in increased supply.

Marginal Benefit

Measure of the value of each additional unit to the consumer in terms of how much money each additional unit is worth to the consumer, or the maximum amount the consumer would pay for each additional unit. The law of diminishing marginal utility suggests that marginal benefit falls as the quantity consumed rises.

Macroeconomics focuses on

Measurement & analysis of the economy as a whole

Elasticity

Measures the responsiveness of one variable to a change in another variable and is widely applied

Suppose at the profit maximizing/loss minimizing level of output p= $6, ATC =$7, and AVC =$5. A firm in this situation will

Minimize its losses by continuing to produce where MR=MC in the short run

The functions of money

Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions

Which of the following is a normative microeconomic statement?

Most U.S. corporations have profit margins that are too high.

Total Revenue = Price x Quantity

Multiplying the number of units of output sold (quantity =Q) by the price of each unit (price=P), total revenue is price times quantity.

A cost that is borne by a third party or a spillover cost; an example is environmental costs associated with pollution.

Negative Externality

"Two large business firms that control a market should not be allowed to merge together" is an example of a

Normative microeconomic statement

Fallacy of Division

Occurs when it is incorrectly assumed that what is good, or true, for the whole is also good, or true, for the parts. ➕ example: concluding that because technological improvement brings benefits to the economy as a whole, it is also beneficial for each segment of a society. ➕ improved technology can have adverse effects on specific industries, firms , or individuals

Fallacy of Composition

Occurs when it is incorrectly assumed that what is true for the parts is also true for the whole 🔸 example: a tax cut will likely benefit certain individuals, but does not prove that the tax cut is good for the economy as a whole

Calculating Opportunity Cost

On the graph below, points B, C, & D are combinations of guns & butter that can be produced with current resources & technology, assuming efficiency & full employment of resources ▪️number of units of one good that must be given up in order to gain one more unit of the other good represents the opportunity cost of moving from one point to another along the curve ▪️opportunity cost of moving from point B to point C is 2 units of butter that are given up to gain 1 additional gun ▪️marginal rate of transformation (MRT) is the slope of PPF & is a measure of opportunity cost of moving from one point to another along the curve ▪️for PPFs that bow outward, MRT increases from point to point moving down along the PPF because of the law of increasing opportunity costs ▪️opportunity cost of moving from point B to point C is 2 units of butter ▪️opportunity cost of moving from point C to point D is 4 units of butter since production of butter fell from 9 units to 5 units (decrease of 4 units) when production of guns rose from 3 to 4 ▪️therefore, opportunity cost increases as society moves down & to the right along is PPF ▪️increasing opportunity costs occurs when resources are not equally well suited to all types of production; increasing production of one output by equal increments requires giving up increasing amounts of the other output ▪️for linear PPFs, MRT is constant because opportunity cost is constant because opportunity cost is constant; this occurs only if resources are equally well suited to both types of production

Products that generally negative externalities tend to be

Over produced by private markets

cross elasticity of demand

Percentage change in the quantity demanded of one product (product X) divided by the percentage change in the price of another product (product Y).

Production Possibilities Frontier (PPF)

Portrays what outputs can be produced using an economy's current resources & technology ▪️scarcity forces all societies to make decisions about what to produce from available resources

AD Curves shift effect on prices

Prices coordinate supply and demand, and they are also determined by it; there is no clean, direct and one-dimensional link between aggregate demand and general price levels. Under ceteris paribus conditions, however, a rightward shift in aggregate demand corresponds with an increase in the price level, while a leftward shift corresponds with a lower price level.

According to the coase theorem, an Efficient outcome can be achieved without any need for active government involvement as long as

Property rights are clearly defined and transaction costs sufficiently low

Good star both non-rival in nonexcludable are

Pure public goods

A market is in equilibrium when

Quantity supplied is equal to quantity demanded

Technological improvements that reduce the cost of manufacturing smaller personal computers combined with an increase in the demand for smaller personal computers results in an increase in equilibrium

Quantity, but the change in equilibrium price depends on the size of the shifts

If the demand for RC Cola increases following a decrease in income, then:

RC Cola is an example of an inferior good

If the demand for RC Cola increases following a decrease in income, then:

RC cola is an example of an inferior good.

A tax levied on gasoline is predicted to

Reduce production and consumption, leading to less pollution

All of the following would be expected to cause an economy's production possibilities frontier to shift outward except

Reduction in the economy's rate of unemployment

Supply Shifters

S- Sellers (more sellers, more supply; less sellers, less supply) I- Input prices (higher input prices, less supply; lower input prices, more supply) R- Regulation- taxes or subsidies (taxes decrease supply; subsidies increase supply) O- Other potential output (price increases or other potential output decreases supply of existing output) T- Technology (better technology, more supply) E- Expectations (expect price to be higher in the future; less supply now, more supply in the future)

The Law of Supply

Says that a greater quantity will be supplied at higher relative prices than at lower relative prices, ceteris paribus

If a firm is a price taker it

Sells it's product at the price determined by the market

Based on the information in the graph below, a price of $2 per pumpkin will lead to a

Shortage of 200 pumpkins

Which of the following statements best illustrates the existence of consumer surplus?

Stan saved $50 to buy a cowboy hat he had been wanting. When he got to the store, the hat was on sale and he bought the hat for only $39 instead of $50.

Which of the following statements illustrates the concept of consumer surplus?

Stan saved $50 to buy a cowboy hat he had been wanting. When he got to the store, the hat was on sale and he bought the hat for only $39 instead of $50.

Macroeconomics

Studies economic aggregates, such as national unemployment rate, rate of inflation, & the economy's growth rate, as well as macroeconomic policies designed to promote full employment, price stability, & a healthy rate of economic growth

Microeconomics

Studies the decisions of individuals, households, & firms. ➕ It focuses on the interaction of buyers & sellers in specific markets & production decisions of firms.

Economists

Studying the significance of scarcity and the need to make optimizing choices & help those in business & politics make better decisions leading to better outcomes for all

In the circular flow model, firms in the business sector_____goods & services in product markets & _____inputs in resource markets

Supply / demand

The tragedy of the commons refers to

Tendency to use common resources more than is desirable from society's point of view

Division Fallacy EX:

The U.S. unemployment rate declined last month; therefore, the unemployment rate in Collin County decreased in the last month

negative aggregate demand slope is caused by

The aggregate demand curve is negatively-sloped, because of the inverse relationship between aggregate expenditures and the price level. Hence, if the price level decreases, the aggregate demand increases and vice-versa

Relationship between Bond prices vs. Bond Yields

The amount of return a bond earns over time is known as its yield. A bond's yield is its annual interest rate (coupon) divided by its current market price. There is an opposite relationship between a bond's yield and its price.

Expectations

The anticipations of consumers, firms, and others about future economic conditions.

Each of the following reflects labor demand as a derived demand except:

The demand for the services of a babysitter by new parents

What is the effect of changing the required reserve ratio on the simple deposit multiplier and banks' ability to create deposits?

The deposit multiplier is all about a bank's ability to expand the money supply. The multiplier reflects the level of money creation that is enabled by means of the fractional-reserve banking system that only requires banks to hold a percentage of their total checkable deposits amount in reserve.

Availability of substitutes

The greater the number of substitutes, the more elastic the demand

AD Curves shift effect on unemployment

The increased demand for exports would show up as a rightward shift in aggregate demand, causing GDP and the price level to rise. ... The result would be an increase in GDP, a decrease in unemployment, and higher prices until potential output was reached.

In a market economy

The interaction of individual demanders and suppliers determines output prices

Composition fallacy EX:

The minimum wage law benefited me; therefore, the minimum wage law benefits the entire U.S. labor force

What is the monetary rule put forth by Monetarists?

The notion that the Fed should adhere to a policy of steady and predictable expansion of the money supply

The opportunity cost of labor used by government to build a dam is

The output that could have been produced by labor in its next best use

Barter vs. Money

The primary difference between barter and currency systems is that a currency system uses an agreed-upon form of paper or coin money as an exchange system rather than directly trading goods and services through bartering

After a price floor is established above the equilibrium price in the market for strawberries

The quantity of strawberries actually bought and sold decreases

After a price floor is established above the equilibrium price in the market for strawberries:

The quantity of strawberries actually bought and sold decreases

Macroeconomics

The study of the economy as a whole

The Tragedy of the Commons refers to

The tendency to use common resources more than is desirable from society's point of view

Keynesian economics

Theory based on the principles of John Maynard Keynes, stating that government spending should increase during business slumps and be curbed during booms.

How do you use the CPI to calculate inflation?

To calculate the Current Inflation Rate it uses the most recently released CPI data and compares it to data from exactly 12 months prior using the above formula. To find the CPI index on more than the current date you can check the Historical CPI Data which lists the CPI index all the way back to 1913.

Costs that must be paid in the short run even when no output is produced are called

Total Fixed Costs

Assuming no market failures, an efficient level of an output exists when

Total consumer and producer surplus maximized

Technical Efficiency

Type of efficiency demonstrated by production possibilities model ▪️achieved when economy is producing on its PPF because producers are making as much output as they can with available resources ▪️another type of efficiency is referred to as either economic efficiency or allocative efficiency ▪️recall that it is efficient to continue an activity such as producing a particular good or service as long as marginal benefit exceeds marginal cost, stopping where MB = MC; this is condition for allocative efficiency

SRAS

Upward sloping because an increase in the price level will improve the profitability of the firms and cause them to increase output.

Opportunity Cost

Value of the best alternative that must be given up when a choice is made ▪️ example: when resources are used to produce cell phones, they cannot be used to manufacture cameras / cameras that are given up represent the opportunity cost of cell phones, assuming the next best use of those resources was the production of cameras

How is the economy self regulating?

Wage rate and prices are flexible. Through the market mechanism, economy will move towards long run equilibrium

Elastic demand

When demand is elastic, raising price (P) will cause total revenue (PQ) to fall & lowering price will cause total revenue to rise.

Inelastic demand

When demand is inelastic, raising price (P) will cause total revenue (PQ) to rise & lowering price will cause total revenue to fall.

All of the following are examples of public goods except:

a bagel with cream cheese.

ad curve shifts along the curve when

a change in price level

Which of the following would be expected to decrease the demand for textbooks?

a decrease in college enrollment

which of following would be expected to increase the supply of copy machines?

a decrease in the cost of manufacturing copy machines .

According to the law of demand, an increase in the price of coffee leads to:

a decrease in the quantity demanded of coffee, ceteris paribus

According to the law of demand, an increase in the price of gasoline, ceteris paribus, leads to:

a decrease in the quantity demanded of gasoline

Ceteris paribus, a decrease in the number of firms selling calculators will result in:

a decrease in the supply of calculators

Oligopolistic industries are characterized by:

a few dominant firms and interdependent decision making

Oligopolistic industries are characterized by:

a few dominant firms and interdependent decision making.

Price taker

a firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm

productions possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

negative demand shock

a leftward shift of the aggregate demand curve. can cause business to lower product prices or production and in turn employment.

Decrease in demand

a leftward shift of the demand curve

Decrease in supply

a leftward shift of the supply curve

A demand curve can be interpreted as:

a marginal benefit curve

A demand curve can be interpreted as:

a marginal benefit curve.

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

A movement from a point inside the PPF to a point on the PPF is caused by:

a more efficient use of available resources

Law of Demand

a negative relationship exists between the price of a good and the quantity demand of that good, ceteris paribus.

Determinant of Demand

a nonprice factor that influences the amount of demand for a good or service such as income.

Law of Supply

a positive relationship exists between the price of a good and the quantity supply of that good, ceteris paribus

Which of the following is not an example of government response to a market failure?

a private foundation donating computers to inner city schools

Luxury or Necessity

a product that is a luxury will have a more elastic demand than a product deemed a necessity

A legal limit on the quantity of a product that can be imported from other countries is called:

a quota

Increase in demand

a rightward shift of the demand curve

increase in demand

a rightward shift of the demand curve

Increase in supply

a rightward shift of the supply curve

Economics

a social science that studies how societies allocate scarce resources to satisfy to satisfy virtually unlimited wants and needs

A free market economy is characterized by:

a system of private property, decentralized decision-making, and economic incentives such as the profit motive

demand schedule

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

A tax levied on imports is called:

a tariff

The value of the marginal product of labor (VMPL) is the:

additional revenue generated from employing one more unit of labor.

False Cause EX:

after Obama was elected president, the IRS began significantly auditing tax returns of conservative groups

To be successful in increasing prices for their product, members of a cartel:

agree to limit their power

The long run is a period for which:

all inputs and all costs are variable

The long run is a period for which:

all inputs and all costs are variable.

classical model assumes

all prices in the economy inclding out put prices, wages, input prices and interest rates are perfectly flexible and that people have motive for exchange.

A positive externality occurs when:

an activity creates benefits that spill over to third parties

Planned/Command Economy

an economy in which production, investment, prices, and incomes are determined centrally by a government. example- socialism/communism.

Beth quit her job as a computer programmer for a large corporation to begin her own computer repair business in her garage. To do this, she took $10,000 out of her retirement fund and hired her brother, Will, on an hourly basis. As a factor of production, Beth is best classified as _______, and Will is best classified as _______.

an entrepreneur; labor

Ceteris paribus, for a normal good, an increase in consumer income leads to:

an increase in demand and an increase in both equilibrium price and quantity

AD curve shifts right when

an increase in household income

Ceteris paribus, when supply shifts to the left, there is:

an increase in price and a decrease in consumer surplus.

According to the law of demand and supply, a decrease in the supply of cell phones is most likely to have been caused by:

an increase in the cost of manufacturing cell phones

According to the model of demand and supply, a decrease in the supply of cell phones can be the result of:

an increase in the cost of manufacturing cell phones.

Ceteris paribus, a decrease in supply of a product leads to:

an increase in the equilibrium price of the product and a decrease in the equilibrium quantity of the product

The demand for potato chips will increase in response to all of the following except:

an increase in the number of firms producing potato chips

Which of the following would best explain an increase in the demand for jeans?

an increase in the number of schools that allow students to wear jeans.

according to the law of supply, an increase in the price of apples leads to:

an increase in the quantity supplied of apples, ceteris paribus

In order to move from PPF1 to PPF2 this economy needs:

an increase in the resources and/or technology used to produce both consumer and capital goods

In a PPF model, economic growth is illustrated by:

an outward shift of the PPF

In the production possibilities model, economic growth is illustrated by

an outward shift of the production possibilities frontier

Firms encounter diminishing marginal product (diminishing returns) in the short run because:

at least one input is fixed.

short run equilibrium

at the point of intersection between the ad curve and the sras curve

In a perfectly competitive market, an individual firm sells output:

at the price determined by the market forces of supply and demand.

If the total cost of producing 2 units of output is $100 and the total variable cost of producing 2 units of output is $80, then:

average variable cost (AVC) is $40 when 2 units of output are produced; average total cost (ATC) is $50 when 2 units of output are produced; total fixed cost (TFC) is equal to $20.

Which of the following would be expected to decrease the demand for textbooks? a. an increase in the price of textbooks b. a decrease in college enrollment c. an increase in financial assistance to college students d. a decrease in the tuition per college class

b. a decrease in college enrollment

Which of the following will lead to a decrease in the demand for water skis? a. a decrease in the price of motor boats (a complementary good) b. a decrease in the price of kneeboards (a substitute good) c. an increase in the price of water skis d. a decrease in the price of water skis

b. a decrease in the price of kneeboards (a substitute good

All of the following would be expected to cause an economy's PPF to shift outward EXCEPT: a. an increase in the economy's stock of capital goods b. a reduction in the economy's rate of unemployment c. a larger and more productive labor force d. an improved production technology

b. a reduction in the economy's rate of unemployment

A firm gains monopoly power when:

barriers to entry can be erected and maintained.

The fallacy of composition occurs when it is wrongly assumed that

because some people benefit from certain government taxing and spending programs, all people must benefit from those programs

Scarcity exists...

because the wants and needs of society exceed the resources available to satisfy them

fallacy of composition

belief that what is true for a part is necessarily true for the whole.

A firm in a monopolistically competitive market is similar to a monopoly firm in that:

both maximize profit by producing the quantity where marginal revenue equals marginal cost.

The economic burden (economic incidence) of a tax is borne by:

buyers if demand is highly inelastic and supply is elastic

Which of the following would BEST explain an increase in the demand for jeans? a. a decrease in income; assuming jeans are normal goods b. a decrease in the popularity of jeans c. an increase in the number of schools that allow students to wear jeans d. a decrease in the price of jeans

c. an increase in the number of school that allow students to wear jeans

If both countries produce the good for which each has a comparative advantage, Country A would produce______ and Country B would produce _____.

cars; boats

MPC

change in consumption/change in disposable income income

firm that is able to use price discrimination will seek

charge customers with more elastic demand at lower price

The economic argument supporting free trade is based on the principle of:

comparative advantage

Composition of FOMC

consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

no barriers to entry

constant returns to scale

The downward-sloping portion of a LRAC curve implies:

constant returns to scale exist over that range of the curve

Law of Demand

consumers will buy more of a good when its price is lower and less when its price is higher

C

consumption spending

autonomous consumption

consumption spending that is not related to the level of disposable income

what causes left shift of SRAS?

cost of production is high such as higher energy costs.

profit maximizing, unregulated monopolist choose a level of output that

creates deadweightloss for society because marginal benefit exceeds marginal cost

shape of aggregate supply in the long run

curve is perfectly vertical, reflecting economists' belief that changes in aggregate demand only cause a temporary change in an economy's total output. The long-run aggregate supply curve can be shifted, when the factors of production change in quantity

Which of the following would be expected to increase the supply of copy machines? a. a decrease in the number of firms manufacturing copy machines b. a decrease in the price of copy machines c. a decrease in the price of copy paper d. a decrease in the cost of manufacturing copy machines

d. a decrease in the cost of manufacturing copy machines

Which of the following is not an example of the factor of production called capital? a. computers used in a local bank b. cash registers at a restaurant c. an office building d. deposits in a corporate bank account

d. deposits

If a seller wants to increase revenue from the sale of a product with a price elasticity of demand coefficient of 1.6, then the seller should

decrease price because demand is elastic

If a seller wants to increase revenue from the sale of a product with a price elasticity of demand coefficient of 1.6, then the seller should:

decrease price because demand is elastic

According to the law of demand, an increase in the price of orange juice will, ceteris paribus

decrease the quantity demanded of orange juice

if, at the current price, quantity demanded is equal to 400 units and quantity supplied is equal to 800 units, then price will:

decrease, causing quantity demanded to rise and quantity supplied to fall

A decrease in the demand for oranges with no change in supply will result in a ______ in the equilibrium price and a ______ in the equilibrium quantity

decrease; decrease

Ceteris Paribus, an increase in the supply for tortillas causes the equilibrium price of tortillas to _________ and the equilibrium quantity of tortillas to ________.

decrease; decrease

a decrease in the demand for oranges with no change in supply will result in a(n) __________ in the equilibrium price and a(n) ________ in the equilibrium quantity.

decrease; decrease

Ceteris paribus, an increase in the supply of tortillas causes the equilibrium price of tortillas to _____and the equilibrium quantity of tortillas to ______

decrease; increase

Ceteris paribus, an increase in the marginal product of manufacturing workers causes the:

demand for labor to shift to the right.

Assuming tomato juice is a normal good, an increase in consumer income will cause an increase in the ________ tomato juice and an _______in the price of tomato juice

demand for; increase

Assuming tomato juice is a normal good, an increase in consumer income will cause an increase in the _________ tomato juice and a(n) __________ in the price of tomato juice.

demand for; increase

In the circular flow model, the household sector _____ good and services in _____ markets.

demands; product

In the circular flow model, the business sector _____ the factors of production (inputs) in _____ markets.

demands; resource

An upward-sloping line illustrates a _____ relationship, indicating that as the value of one variable increases, the value of the other variable ______

direct (positive); increases

CONSUMPTION SPENDIING DEPENDS ON

disposable income

calculate labor force

dividing the number of people actively participating in the labor force by the total number of people eligible to participate in the labor force. You can then multiply the resulting quotient by 100 to get the percentage

When new firms enter a competitive market, their entry:

does all of the above.

Suppose 9 workers can repair 36 television sets per day. If a tenth worker is hired and the total number of repaired T.V. sets increases to 39, then:

each worker repairs, on average, 4 T.V. sets per day when nine workers are hired.

A monopolist that earns positive economic profit in the short run will:

earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand.

The firm is:

earning an economic profit of $200 in the short run

Based on the information in the graph below, this profit-maximizing firm is:

earning an economic profit of $200 in the short run.

An outward shift of a production possibilities frontier illustrates that:

economic growth has occurred

The downward-sloping portion of a LRAC curve implies:

economies of scale exist over that range of the curve.

Any point on a PPF represents:

efficient production

Any point on a production possibilities frontier represents:

efficient production

The demand for generic shampoo is likely to be:

elastic if there are lots of good substitutes for generic shampoo available

If the demand function is linear and downward-sloping, demand is:

elastic on the top portion, unit elastic in the middle, and inelastic on the bottom portion of the demand function.

if the absolute value of the price elasticity of demand coefficient for movie tickets is 1.2, then demand for movie tickets is _________, and an increase in the price of movie tickets will lead to a(n) ________ in total revenue for movies theaters.

elastic; decrease

If the absolute value of the price elasticity of demand coefficient for fresh flowers is 1.8, then the demand for fresh flowers is _________, and a (n) __________ in price will lead to an increase in total revenue.

elastic; decrease.

When output sells for a price that is higher than its marginal cost to the seller (the minimum price the seller is willing to accept), the seller:

enjoys a producer surplus.

If perfectly competitive firms are earning positive economic profits in the short run, the adjustment to long-run equilibrium includes firms _____ the market which causes market supply to _____ and market price to _____.

entering; increase; decrease

mixed economy

example is US. government has some power over resource allocation. most resources are still privately owned. market based.

trade surplus

exports exceeds imports

x-m

exports-import

Assuming that everyone in the country is better off when a bridge is built in Alaska to serve a small community is an example of the:

fallacy of composition

Assuming that a policy designed to reduce the national rate of unemployment is going to benefit a specific individual living in Michigan is an example of the:

fallacy of division

A sick person is more likely to make others sick in the winter when everyone spends more time indoors. Concluding that sickness is the result of cold weather is an example of the:

fallacy of false cause

Game theory assumes that:

firms anticipate rival firms' decisions when they make their own decisions.

positive economics

focuses on facts and cause-and-effect relationships

Market economies are characterized by all of the following except:

government control of capital

g

government spending

net investment

gross investment minus depreciation

A firm selling in a perfectly competitive market faces a demand curve that is:

horizontal (perfectly elastic) at the market price because other firms in the market sell an output that is a perfect substitute for its output

Dressel decided to leave work an hour early in order to study an extra hour for his exam bc he determined that his best use of time was to study his second-best use of time was to work. Dressel's OPPORTUNITY is best measured by the:

hourly wage he would have earned if he stayed at work

in the classical model it assumes that the labor market

if left alone will automatically move towards equilibrium

Markets tend to move toward equilibrium

if prices are able to change ti clear surpluses and shortages

trade deficit

imports exceed exports

rightward shift of SRAS is caused by

improved technology or productivity of resource

labor force

includes people who are already employed or actively seeking work and the unemployed.

real income

income divided by the price level to adjust for the effects of inflation or deflation

change in supply

increase in supply; rightward shift of supply curve decrease in supply; leftward shift of supply curve

According to the law of demand, a decrease in the price of orange juice will, ceteris paribus:

increase the quantity demanded of orange juice.

If the price ceiling of $2 is removed, market forces will cause the price to:

increase to $3, which will cause quantity demanded to fall and quantity supplied to rise`

Ceteris paribus, an increase in the demand for tortillas cause the equilibrium price of tortillas to ________ and the equilibrium quantity of tortillas to _________.

increase; increase

Ceteris paribus, an increase in the demand for tortillas causes the equilibrium price of tortillas to ________ and the equilibrium quantity of tortillas to ________

increase; increase

The opportunity cost of producing more automobiles _____ as more automobiles are produced, reflecting the law of ______ opportunity costs

increases; increasing

Any point inside a production possibilities frontier represents:

inefficiency

if the public transit system raises its fares and experiences an increase in total revenue as a transit, the demand for public transportation in this price range is:

inelastic

The demand for a life-saving drug is likely to be:

inelastic because the drug is a necessity

The characteristic that distinguishes oligopoly from the other market models is:

interdependence among firms in pricing and output decisions.

long run equilibrium

intersection of all 3 ad, SRAS and LRAS

i

investment spending

fractional reserve banking

is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties

Macro Equilibrium

is a condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply. If there are changes in either aggregate demand or aggregate supply, you could also see a change in price, unemployment, and inflation.

Industry profit is likely to be lowest in an industry that:

is a contestable market.

In a perfectly competitive market, an individual firm:

is a price-taker and sells output at the price determined by the market forces of supply and demand

define inflation

is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation's currency

How does inflation change purchasing power?

is an economic phenomenon that has an increasing change in the price of goods and services

The economic burden of a tax:

is partially shifted to consumers through higher prices in most cases.

The opportunity cost of the time an owner puts into a business:

is the income foregone by not working in the best alternative job.

federal fund rate (FFR)

is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis

The discount rate

is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window. The discount rate also refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Monetary policy

is the process by which the monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the monetary base, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Money creation

is the process by which the money supply of a country, or of an economic or monetary region, is increased. In most modern economies, most of the money supply is in the form of bank deposits. Central banks monitor the amount of money in the economy by measuring the so-called monetary aggregates

The marginal revenue curve for a perfectly competitive firm:

is the same as the firm's demand curve.

example of cyclical unemployment

is when an automobile worker is laid off during a recession to cut labor costs. During this downturn, people are buying fewer cars or vehicles, so the owner doesn't need as many workers to meet the demand.

The ceteris paribus assumption is used to

isolate the relationship between two variables by holding other influences on the relationship constant

The ceteris paribus assumption is used to:

isolate the relationship between two variables by holding other influences on the relationship constant.

A decrease in market demand for output produced in a perfectly competitive industry:

leads to a decrease in the individual firm's marginal revenue.

what way does graph shift when supply is decreased

left

A PPF can be _____, illustrating _____ opportunity costs

linear; constant

The monopolistically competitive firm represented in the graph is in:

long-run equilibrium since it is earning zero profit.

The purpose of setting a price ceiling below the equilibrium price is to:

maintain a low price for buyers in the market

The purpose of setting a price ceiling below the equilibrium price is to:

maintain a low price for buyers in the market.

A perfectly competitive firm producing where P = MR = MC = ATC in the short run is:

making an economic profit equal to zero.

A perfectly competitive firm producing where P = MR = MC > ATC in the short run is:

making an economic profit greater than zero.

division fallacy

making the incorrect assumption that if technological advance is beneficial for society as a whole, it is therefore also beneficial for every individual

A monopolistically competitive market is characterized by:

many firms, product differentiation, and easy entry in the long run.

A demand curve can be interpreted as

marginal benefit curve

Assuming no market failures, an efficient level of an output exists when:

marginal benefit is equal to marginal cost

An efficient level of an output exists when:

marginal benefit is equal to marginal cost.

Consumer surplus is the difference between ________ and product price and producer surplus is the difference between ________ and product price.

marginal benefit; marginal cost

Prices above equilibrium lead to ______, while prices below equilibrium lead to ______

market surpluses and decrease in price; market shortages and increase in price

The perfectly competitive model assumes the gaol of firms in the marketplace is to:

maximize profit

Ceteris paribs, if demand and supply both increase at the same time, equilibrium price _______ and equilibrium quantity _______

may rise, fall, or stay the same, depending on the size of the two shifts; increases

Ceteris paribus, if demand and supply both increase at the same time, equilibrium price ________ and equilibrium quantity ________ .

may rise, fall, or stay the same, depending on the size of the two shifts; increases

CPI (Consumer Price Index)

measures the change in consumer price over a period of time

The marginal rate of transformation

measures the opportunity cost of moving from one point to another along the production possibilities curve

Suppose at the profit-maximizing/loss-minimizing level of output P = $6, ATC = $7, and AVC = $5. A firm in this situation will:

minimize its losses by continuing to produce where MR = MC in the short run.

The use of money is more efficient than barter for conducting exchanges because

money does not require satisfying a double coincidence of wants which reduces transactions times.

When the price of gasoline goes up, the resulting fall in consumption is likely to be larger after a longer period of time has passed because consumers have found ways to conserve. For this reason, the demand for gasoline is thought to be:

more elastic in the long run than in the short run

If a firm is experiencing economies of scale, doubling inputs will:

more than double output.

natural rate of unemployment

occurs when economy achieves full employment

An industry dominated by a few large firms whose pricing and output decisions are dependent on one another is:

oligopolistic

Products that generate negative externalities tend to be:

overproduced by private markets

Products that generate negative externalities tend to be:

overproduced by private markets.

which of the following holds for both monopoly firms and monopolistically competitive firms in a long run equilibrium

p>mc

unemployed

people not working who have looked for work during previous 4 weeks

discouraged workers

people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them.

structurally unemployed

people who lose their jobs because of a change in the economy that makes their particular skill obsolete.

point inside PPF to point on PPF

point inside the PPF means that the economy is not being used efficient and when it goes on the PPF the economy is efficient; does not mean economic growth

The law of demand states that:

price and quantity demanded are inversely (negatively) related, ceteris paribus

The law of supply states that:

price and quantity supplied are directly related, ceteris paribus

The responsiveness of buyers to changes in the price of a product is measured by:

price elasticity of demand

behavior in which a dominant firms pricing strategy is followed by other firms in the industry is called

price leadership

Behavior in which a dominant firm's pricing strategy is followed by other firms in the industry is called:

price leadership.

At a typical store, there are dozens of choices on the breakfast cereal aisle. Therefore the demand for Cheerios is expected to be:

price-elastic since consumers can switch to corn flakes or shredded wheat if the price of Cheerios increases

the short run, the best the firm can do is to

produce where mr=mc and incur losses equal to 1000

circular flow model

product market, household sector, resource market, business sector

According to the Coase Theorem, an efficient outcome can be achieved without any need for active government involvement as long as:

property rights are clearly defined and transaction costs are sufficiently low.

Goods that are both non-rival and non-excludable are:

pure public goods

Goods that are both nonrival and nonexcludable are:

pure public goods.

In the market for used cars, a shortage of used cars would, ceteris paribus:

put upward pressure on the price of used cars

perfectly inelastic

quantity does not respond at all to changes in price (E=0)

A market is in equilibrium when:

quantity supplied and quantity demanded are equal

Technological improvements that reduce cost of manufacturing smaller personal computers combined with an increase in the demand for smaller personal computers results in an increase in equilibrium:

quantity, but the change in equilibrium price depends on the size of the shifts.

Technological improvements that reduce the cost of manufacturing smaller personal computers combined with an increase in the demand for smaller personal computers result in an increased equilibrium:

quantity, but the change in the equilibrium quantity depends on the size of the shifts

Assume a wireless company has hired you as a consultant to help determine what price to charge for local weekday airtime. You establish that the price elasticity of demand for local weekday airtime is 0.62. if the goal of the company is to increase the revenue generated from the sale of weekday are time, you should advice the company to:

raise the price of weekday air time because demand is inelastic

A tax levied on gasoline is predicted to:

reduce production and consumption, leading to less pollution.

example of structural unemployment

refers to a mismatch between the jobs available and the skill levels of the unemployed. Unlike cyclical unemployment, it's caused by forces other than the business cycle. It occurs when an underlying shift in the economy makes it difficult for some groups to find jobs

example of frictional unemployment

relates to the time lag between a worker moving from one job to the next. Examples of frictional unemployment include quitting, termination, seasonal employment, term employment, and seeking a first-time job

if the PPF is a straight line, opportunity cost __________ as resources are shifted from producing housing to food production; when the PPF is bowed outward, opportunity cost ___________ as resources are shifted from producing housing to food production

remains constant; increases

The truth in lending act of 1968 protects consumers by

requiring clear disclosure of the costs of credit

The Truth in Lending Act of 1968 protects consumers by:

requiring clear disclosure of the costs of credit.

To be successful in increasing the price of their product, members of a cartel must:

restrict market output.

Government deals with imperfect competition by:

restricting market power through antitrust laws and regulation

Government addresses the inefficiency associated with monopoly by:

restricting market power through antitrust laws and regulation.

Ceteris Paribus, a decrease in the supply of grape juice combined with an increase in the demand for grape juice causes the equilibrium price of grape juice to:

rise, but the effect on equilibrium quantity cannot be determined from the information given

Ceteris paribus, a decrease in the supply of grape juice combined with an increase in the demand for grape juice causes the equilibrium price of grape juice to:

rise, but the effect on equilibrium quantity cannot be determined from the information given.

You are using money as a store of value when you:

save for vacation

If a firm is a price-taker, it:

sells its product at the price determined by the market.

A market _____ occurs when the quantity demanded exceeds the quantity supplied, while a market ______ occurs when the quantity supplied exceeds the quantity demanded

shortage; surplus

If the demand for a book is elastic at a price of $25 and the goal of selling the book is to maximize total revenue, the price of the book:

should be lowered below $25.

aggregate demand curve

shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world

aggregate supply curve

shows the relationship between the quantity supplied of all goods and services and the price level

Economic models

simplifications of reality that describe or predict real world behaviors and outcomes

defining characteristic of monopoly market

single supplier, unique product, barriers to entry

Economics is best defined as a social science that studies how:

societies allocate scare resources to satisfy virtually unlimited wants and needs

unit of account example

something that can be used to value goods and services, record debts, and make calculations.

store of value

something that keeps its value if it is stored rather than used

In the circular flow model, the business sector _____ goods and services in _____ markets.

supplies; product

In the circular flow model, the household sector _____ the factors of production (inputs) in ______ markets.

supplies; resource

says law

supply creates its own demand

what do firms supply/demand

supply goods and services in product market, and demand resources

natural monopoly can

supply the entire market at a lower cost than many competing firms

A natural monopoly can:

supply the entire market at a lower cost than many competing firms.

In the circular flow model, firms in the business sector ______ goods and services in product markets and _______ inputs in resource markets.

supply; demand

A market price of $8 per pumpkin will lead to a:

surplus of 300 pumpkins (600 supplied - 300 demanded = 300)

If quantity supplied exceeds quantity demanded, the resulting market _____ motivates firms to _____ product price.

surplus; lower

factors that shift LRAS

technology, worker productivity, stock of capital. price doesn't shift it.

nominal income

the amount of money income received in a given time period, measured in current dollars

A PPF for two outputs is drawn assuming that:

the amount of resources currently available for production is fixed

A production possibilities frontier for two outputs is drawn assuming that

the amount of resources currently available for production is fixed

Liquidity

the availability of liquid assets to a market or company. liquid assets; cash. a high volume of activity in a market.

price level

the average of all prices in the economy

The "free-rider" problem refers to a situation in which:

the benefits associated with public goods cannot be denied to users, whether or not they are willing to pay for them.

Marginal cost (MC) is:

the change in total cost (TC) divided by the change in output (Q); the change in total variable cost (TVC) divided by the change in output (Q); not affected by the level of fixed costs.

Law of Supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

full employment

the condition in which virtually all who are able and willing to work are employed

Microeconomics focuses on

the decisions and behaviors of individual households, firms, and markets

Market demand curve

the demand curve that shows the quantities demanded by everyone who is interested in purchasing the product

If price and quantity demanded are inversely related, then:

the demand function is downward-sloping

If cotton clothing becomes more popular at the same time that the supply of cotton decreases, then basic supply and demand analysis predicts that:

the equilibrium price of cotton clothing will increase but the change in the equilibrium quantity of cotton clothing cannot be determined from the information given

all of the following are characteristics of a monopolistically competitive market except

the firms in the industry engage in interdependent decision making

In a competitive capitalist (market) economy:

the interaction of individual demanders and suppliers determines output prices

share of total budget

the larger the proportion of a budget the good constitutes, the more elastic the demand and the greater the value of price elasticity

Macroeconomics focuses on

the measurement and analysis of the economy as a whole

Time dimension

the more time consumers are given to adjust to a price change, the more elastic the demand and the greater the value of price elasticity

Underemployment

the number of people who work part time because they cannot find full-time jobs. they are still searching for a job.

The opportunity cost of labor used by government to build a dam is:

the output that could have been produced by labor in its next best use

price elasticity of demand is calculated as:

the percentage change in quantity demanded divided by the percentage change in price

price elasticity of supply

the percentage change in quantity supplied divided by the percentage change in price

Market-Clearing Price/Equilibrium

the price at which the quantity demanded equals the quantity supplied

equilibrium price

the price that balances quantity supplied and quantity demanded

After a price floor is established above the equilibrium price in the market for strawberries:

the quantity of strawberries actually bought and sold decreases.

purchasing power

the real goods and services that money can buy; determines the value of money

The production possibilities frontier (PPF) shows all the combinations of two different outputs that can be produced with:

the resources and technology currently available

Microeconomics

the study of the decisions made by individuals and businesses. focuses on interaction between buyers and sellers in specific markets

normative economics

the study of what the goals of the economy should be, requires value judgments

Assume teenagers in a town can either baby sit or rake leaves to earn money on the weekends. Ceteris paribus, if the price paid for an hour of baby sitting increases relative to the price paid for an hour of leaf raking, then:

the supply of teens available to rake leaves is likely to decrease.

The Tragedy of the Commons refers to:

the tendency to use common resources more than is desirable from society's point of view

The Tragedy of the Commons refers to:

the tendency to use common resources more than is desirable from society's point of view.

GDP

the total market value of all final goods and services produced annually in an economy

fiscal policy

the use of government spending and revenue collection to influence the economy

frictional unemployment

there are jobs available, but process of looking at job vacancies, applying, interviewing and being hired takes time.

The typical firm in a perfectly competitive industry earns zero economic profit ( a normal profit) in the long run because:

there are no barriers preventing new firms from entering the industry and competing away positive economic profits in the long run

Costs that must be paid in the short run even when no output is produced are called:

total fixed costs

Costs that must be paid in the short run even when no output is produced are called

total fixed costs.

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Complements

two goods that are bought and used together

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

inflationary gap

unplanned inventory decreases, businesses increase production and higher more workers. increased spending during this time. real gdp is above full employment. rate of unemployment is lower than natural rate.

ceterus paribus assumption

used to isolate the relationship between 2 variables by holding all other influences constant

LRAS curve

vertical at the full employment

Demand that is perfectly elastic graphs as a(n):

vertical line

Ceteris paribus, the demand for farm workers will increase in response to all of the following except an increase in the:

wage paid to farm workers.

recessionary gap

weak spending, business inventory increases at a rate higher than what was expected. businesses cut production and lay off workers.. what occurs when the equilibrium quantity of output is below potential output

income not spent by households

will be funneled through financial markets and borrowed by business firms finance investment

Taxes and Subsidies

▪️Taxes effectively make selling a product more expensive if it is the seller's duty to collect taxes on each sale & then send money to the government. ▪️a subsidy is the opposite of a tax, with the government paying the seller & making it cheaper for sellers to provide the product. Thus, a tax, or an increase in a tax, causes supply to decrease & shift to the left, while a subsidy, or an increase in a subsidy, causes supply to increase & shift to the right.

Changes in costs of production

▪️When suppliers can produce their product at a lower cost, result is an increase in supply ▪️holding product same, lower production costs mean higher profits, & higher profits motivate firms to sell more at each price ▪️cheaper raw materials or lower wage rates cause costs of production to fall & supply to increase & shift to the right, while more expensive inputs cause supply to decrease, or shift to the left

Absolute or Comparative Advantage

▪️a country has an absolute advantage in production of a particular output if it can produce more of the output in a given time period than another country ▪️a country has a comparative advantage in production of a particular output of it can produce the output at a lower opportunity cost than another country ▪️economic argument for free trade is based on the principle of comparative advantage

Conclusion

▪️analysis leads to conclusion that there are potential gains associated with free trade ; nevertheless, many argue that there are good reasons to restrict trade using tariffs or import quotas ▪️this debate cannot be resolved based solely on the model of comparative advantage demonstrated here, but it is important to an overall understanding of complex issues surrounding international trade policy

Changes in price of other producible goods

▪️can affect the supply curve ▪️if there is more than one possible product that the seller can make with available resources, then a change in one product can affect the supply of the other product Example: if the price of wheat increases, the supply of corn can fall as farmers plant wheat instead of corn. The change in the price of wheat will cause a movement along the supply curve of wheat & a shift of the supply curve of corn.

Sellers' Expectations

▪️if it changes, the supply curve may shift as a result Example: if sellers expect the price of their product to rise in the future, they may hoard the product, hoping to sell it later at a higher price. This behavior causes supply to decrease in the present period

Number of sellers

▪️increase causes the market supply curve to increase, or shift to the right, while a decrease in the number of sellers causes the market supply curve to decrease, or shift to the left

Bowed PPF : Increasing Opportunity Cost

▪️increasing opportunity costs occur when resources are not well suited to all types of production ▪️this means that continuing to increase the production of one output entails giving up increasingly larger amounts of the other output ▪️lets start at point A where all of the land is devoted to making corn; then let's decide to use some of the land to make 1 cow ▪️opportunity cost of moving from point A to point B is the 2 units of corn that are given up to gain 1 additional cow ▪️land least suited to corn production will be the first land given to the cows (remember, cows can graze equally well on the land that is available) ▪️opportunity cost of moving from point B to point C is 3 units of corn that are given up to gain 1 additional cow; opportunity cost has increased from 2 cows as we moved from A to B to 3 cows as we moved from B to C ▪️increasing opportunity costs occur when the ppf is concave or "Bowed Out"

Demand & Supply

▪️market is comprised of buyers (demanders) & sellers (suppliers) interacting to satisfy a goal ▪️basic market model of demand & supply assumes that the goal of buyers is to maximize their satisfaction, & the goal of sellers is to maximize profit ▪️demand & supply analysis is a useful tool for explaining & understanding economic events

Cetris Paribus, the demand for a product will be more price inelastic when

▪️product is a necessity ▪️there are very few close substitutes available ▪️very little time is allowed for consumers to adjust to a price change

The Law of Demand

▪️says that a greater quantity will be demanded at lower relative prices than at higher relative prices, ceteris paribus

Straight line PPF : Constant Opportunity Cost

▪️suppose an economy produces outputs, jeans & denim skirts, & that it has 40 yards of fabric, 4 huge spools of thread, 2 sewing machines, 2 workers & 1 week for production ▪️table below is a production possibilities schedule & shows some of the combinations of jeans & skirts that can be produced from the above resources & current level of technology, assuming that the resources are fully employed & that production is efficient ▪️combination jeans skirts A 0 40 B 5 30 C 10 20 D 15 10 E 20 0 ▪️if all of the fabric is used to produce skirts, then 40 skirts can be produced but 0 jeans can be produced ▪️if the economy chooses to produce 5, then it can produce only 30 skirts (combination B). A combination combination of 5 jeans & 40 skirts is not possible ▪️Combinations A through E represent the maximum amounts of the two outputs that can be produced from the available resources & technology ▪️points on the curve represent attainable combinations that fully employ available resources & technology & are efficient , such as combinations A through E ▪️points inside the curve represent attainable combinations that are inefficient, such as point F ▪️points outside the curve are unattainable ▪️the above ppf is a straight line, indicating that the opportunity cost of continuing to increase the production of jeans is constant

A free market economy is characterized by

▪️system of private property ▪️decentralized decision making ▪️economic incentives such as the profit motive

Drawing a PPF for two outputs in a given time period assumes that

▪️types & amounts of available resources are fixed ▪️technology used to produce the outputs is constant ▪️available resources are fully employed ▪️production is efficient

Trade

▪️united states currently exports more than ten percent of total domestic output & imports an even higher percentage ▪️when exports exceed imports, a trade surplus exists; when imports exceed exports, a trade deficit exists ▪️most economists believe that open trade is beneficial to all countries but some some companies or labor unions may want protection from trade ▪️two common trade barriers are 1) quotas - legal limit on quantity of imports 2) tariff - tax on imports ▪️North American Free Trade Agreement was major expansion of trade between the USA, Canada, & Mexico

Improved Technology

▪️used to produce the output causes supply to increase, or shift to the right ▪️technological advance has the effect of making it cheaper to produce or provide, a good or service Example : advances in telecommunications have made it cheaper to provide cellular service, & development of microchips made personal computers smaller & cheaper to produce the same product, a firm would not adopt it.

Inefficiency, Unemployment, & Growth

▪️when an economy is producing at a point on its production possibilities curve, economy is using its resources fully & efficiently ▪️point A lies inside the production possibilities curve & corresponds to a combination of electronics & textiles that is below what the economy is capable of producing ▪️producing at a point inside the PPF indicates that some resources are unemployed (not being used) or being used inefficiently (producing less than they can), which keeps society from producing at its potential ▪️moving from point A to a point on the PPF implies that inefficiency of unemployment has been eliminated but this is not economic growth ▪️point F lies outside PPF & is therefore unattainable given current resources & technology; economic growth is needed to reach F ▪️whether caused by an increase in quantity or quality of resources or an improvement in technology, economic growth shifts production possibilities frontier outward ▪️if production possibilities frontier shifts outward from PPF1 to PPF2 in the graph below, economy is able to produce more of both types of outputs ▪️in other cases, growth may be industry specific; production possibilities frontier may rotate outward form one of the axes as shown by the shift from PPF1 to PPF2 in the graph below ▪️economy experiences an increase in quantity or quality of resources used to produce automobiles or an improvement in technology in the automobile manufacturing sector; but this technological progress in the automobile industry can also lead to increased output of wheat if we move from point A to point B in the above graph

Factors of production (Resources)

➕ land & other natural resources 🔺 labor services ▪️ capital (structures & equipment) ♣️ entrepreneurial ability

Economic Theories & Models

🔹Economists develop theories about relationships between variables (such as ice cream sales increase during hot weather) & try to test their validity using statistics ▪️economic models put these theories in a concise framework such as a graph or mathematical equation 🔸economic models are designed to simplify reality in an attempt to explain real world relationships & predict outcomes

Fallacy of False Cause

🔺 post hoc fallacy / association - causation issue occurs when it is assumed that because one event follows another, the first event must have caused the second 🔹 example: in many large cities, an increase in ice cream sales is followed closely by an increase in criminal activity, concluding that eating ice cream leads to criminal behavior is erroneous