Econ (micro) Bergin Exam 1

define ceteris paribus

"holding everything else constant"

What is the definition of economics?

**Economics is the study of the allocation of our limited resources to satisfy our unlimited wants.

What is Macroeconomics?

**Macroeconomics is the study of the aggregate, or total economy. Economic problems that influence the whole of country and its people: inflation, unemployment, business cycles, economic growth.

What is the definition of scarcity?

**Scarcity occurs when the amount people desire exceeds the amount available

Describe a Market economy (pure capitalism)

-decentralized decision-making process -Millions of individual producers and consumers of goods and services determine what goods will be produced. -Private ownership of resources -use of prices to coordinate economic activity -unregulated/free markets -Consumer sovereignty -No government regulation of markets

Describe a Command economy

-rely on central planning or central planning board to make economic decisions. -Decisions about what is produced are largely determined by a government official or a committee associated with the central planning organization. Example: Cuba, North Korea, Iran

*-Economics is the study of the allocation of our limited resources to satisfy our unlimited wants

1

Positive incentives - Either increase benefits or reduce costs and thus result in an increased level of the related activities or behaviors. ( get bonus points for an extra report)

10

Negative incentives - Either reduce benefits or increase costs, resulting in a decreased level of the related activities or behaviors.(high taxes are designed to discourage you from buying an item)

11

If a person, a region, or a country can produce a good or service at a lower opportunity cost than others, they have a comparative advantage in the production of that good or service.

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To obtain the greatest gains from trade, a country or region should specialize and export that good in which it has the comparative advantage. It can then import needed goods from other countries in which they have the comparative advantage.

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*Market is a set of arrangements through which buyers and sellers carry out exchange - any place where you buy, sell, or trade.

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Economic growth is measured by the annual percentage change in real (adjusted for inflation) output of goods and services per capita (real GDP per capita), reflecting the expansion of the economy over time.

15

Economic growth is measured by: -New technology Increased productivity - Productivity is the amount of goods and services a worker can produce per hour. Increased savings Increased investment

16

Governments can encourage economic growth by: -Education and training programs -tax incentives for investment and capital formation -infrastructure improvements - France and UK to airbus

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Three fundamental questions must be faced in a world of scarcity are: What is to be produced? How are these goods to be produced? Who will get the goods produced?

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Consumer sovereignty - describes how individual consumers in market economies determine what is to be produced.

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**scarcity occurs when the amount people desire exceeds the amount available.

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*decisions about what is produced is largely determined by a government official or a committee or board associated with the central planning organization. It is unlike or opposite if the market economy.

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Prices serve as he language of the marketplace.

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Market mechanism will determine the most efficient use of resources.

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An economic system characterized by some private and some public/government ownership of resources.

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The LAW OF DEMAND: the quantity of a good of service demanded varies INVERSELY with its price

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other things constant) when the price of a good or service falls, the quantity demanded increases.

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The incomes of Americans have shifted the demand curve. The effects that this change in demand has on starbucks coffee (a normal good) is *****an increase in demand for coffee to D2, and increase in the equilibrium price to P2 and increase in equilibrium quantity to q2******

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A decrease in Supply A decrease supply results in a higher equilibrium price and a lower equilibrium quantity

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******* An increase in supply decreases the equilibrium price and increases the equilibrium quantity. ****** An new hormone will increase the amount of milk each cow produces. The effect on the milk makes is an increase in supply, lower equilibrium price and a higher equilibrium quantity.

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-**ceteris paribus ("holding everything constant)- assumption

3

**** A price ceiling, or a legal maximum price, ii often set for goods deemed important to low income households, like housing. *** A price floor, or a legal minimum price, may be set on wages because wages are the primary source of income.

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**Microeconomics studies the behavior in particular markets - if studies the decision making behaviors - firms - households - their interaction in markets for particular goods or services

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***** Economics is concerned primarily with scarcity - how well we satisfy our unlimited wants in a world of limited resources

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****Scarce resources that are used in the production of goods and services can be grouped into four categories

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Services are the intangible acts for which people are willing to pay such as legal or medical services.

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Opportunity cost is the highest value of an item or activity that is not chosen (given or sacrificed).

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Marginal (margin) - that extra, additional, incremental used to describe a change in an economic variable.

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3. In a market economy, the goods produced go to those who(m): A. have sufficient income and are willing to pay the price asked for those goods. B. the government views as best suited for consumption. C. business firms choose to favor. D. desire the goods the least

A

5. The difference between a change in quantity demanded and a change in demand is that a change in: a. quantity demanded is caused by a change in a good's own current price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations. b. demand is caused by a change in a good's own current price, while a change in quantity demanded is caused by a change in some other variable, such as income, tastes, or expectations. c. quantity demanded is a change in the amount people actually buy, while a change in demand is a change in the amount they want to buy. d. A change in demand and a change in quantity demanded are the same thing.

A

What does a change in a goods price lead to?

A change in a good's price leads to a change in quantity demanded. (up and down the same demand line)

What does a decrease in income cause?

A decrease in income usually leads to a decrease in the demand for goods (leftward shift).

Describe a mixed economy

An economic system characterized by some private and some public ownership of resources. There is some government regulation of the markets. Example: U. S.

What does an increase in income cause?

An increase in income usually leads to an increase in demand for goods (rightward shift of demand curve).

5. A system of economic organization in which the ownership and control of productive capital assets rests with the state and resources are allocated through central planning and political decision making is called: A. Market economy B. Corporate Economy C. Command Economy D. Capitalism

B

6. In a command economy, decisions about how to allocate resources are made: A. based upon tradition. B. by a central planning board. C. by individuals and firms interacting in markets coordinated by a price system. D. lottery

B

9. Each point on the supply curve shows the: a. amount that people want to buy at that price. b. quantity supplied at that price. c. productive capacity of an individual producer. d. "the amount producers want to sell to buyers of different income levels.

B

The production possibilities curve is: A. a graph that shows the combinations of output which are most profitable to produce. B. a graph that shows the various combinations of output it is possible for an economy to produce given its available resources and technology. c. a graph that shows the various combinations of resources that can be used to produce a given level of output. d. a curve that shows the quantity of output that will be offered for sale at various prices.

B

Which concept explains how individual consumers in market economies determine what is to be produced? A. Competition B. Consumer sovereignty C. decentralized decision-making D. Free Enterprise

B

Who determines the demand side of the market?

Buyers, or consumers, determine the demand side of the market, consumers purchase goods

10. A severe freeze has once again damaged the Florida orange crop. The impact on the market for oranges will be a leftward shift of: a. the demand curve, as consumers try to economize because of the shortage. b. the demand curve and a rightward shift of the supply curve. c. the supply curve. d. the supply curve and a rightward shift of the demand curve, resulting in a higher equilibrium price.

C

18. Improving the level of education of the labor force will: a. move the economy from a point inside the production possibilities curve to a point on the production possibilities curve. b. move the economy from a point on the production possibilities curve to a point inside the production possibilities curve. c. shift the production possibilities curve outward. d. shift the production possibilities curve inward.

C

1. Which of the following is not a question that scarcity forces all societies to answer? A. Which goods and services are to be produced? B. How are goods and services to be produced? C. Who will get the goods and services produced? D. How can scarcity be eliminated?

D

16. Economic growth can be illustrated by: a. a movement along the production possibilities curve. b. a movement from a point on the production possibilities curve to a point inside the production possibilities curve. c. an inward shift of the production possibilities curve. d. an outward shift of the production possibilities curve.

D

4. When collective decision making is utilized to resolve economic questions regarding the allocation of resources, then: A.everyone will receive an equal share of the output produced. B. the preferences of individuals are of no importance. C. economic efficiency will be assured. D. markets

D

8. Skateboards International of Long Beach, California, was able to sell 20,000 skateboards at a price of $60 in 2009. In 2010, it is able to sell only 12,000 of the same skateboards at a price of $60. Evidently, Skateboard International has experienced a(n): a. increase in quantity supplied. b. increase in demand. c. increase in supply. d. decrease in demand. e. increase in quantity demanded.

D

A devastating earthquake destroys ten percent of the population in California. As a result: a. California's production possibility curve shifts outward. b. California moves up and to the left along its production possibilities curve. c. California moves down and to the right along its production possibilities curve. d. California's production possibility curve shifts inward.

D

Excessive unemployment of resources is illustrated using a production possibilities curve by: a. an inward shift of the curve. b. an outward shift of the curve. c. a movement along the curve in a northwest direction. d. a point inside the curve.

D

What other factors can influence the demand curve are called determinants of demand. They shift the entire demand curve—a change in demand.

Demand Shifters: (think of the old English spelling of pint of pynte) prices of related goods(P) incomes of demanders(Y) number of demanders(N) tastes of demanders(T) expectations of demanders(E)

****Example: Edward likes to visit Dallas on baseball weekends: Weekends Marginal Benefit 1 $600 2 $550 3 $476 4 $325 5 $250 6 $180 His marginal cost for a weekend is $350. How many weekends can he enjoy?

E(MB) > E(MC) 3 - $476 MB is greater than $350 MC

Define Efficiency

Efficiency requires society to use its resources to the fullest extent—getting the most we can out of our scarce resources--there should be no wasted resources

True or False? When the economy is at its full potential, it can produce more of one good without producing less of another

False

The business fact

Firms supplying goods and services want to increase their profits, and the higher the price per unit, the greater the profitability generated by supplying more of that good or service.

Define Goods

Goods are those items that we value or desire. They satisfy human wants.

Define comparative advantage

If a person, a region, or a country can produce a good or service at a lower opportunity cost than others, they have a comparative advantage in the production of that good or service

Whats a smart thing about ta change in demand?

If one of the other factors (determinants of demand) influencing consumer behavior changes, we say there is a change in demand

An decrease in demand is represented by a _______ shift in the demand curve.

Leftward

What are the Two main branches of economics:

Macro and Micro

Define Market

Market is a set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms.

Microeconomics looks at the ____; Macroeconomics looks at the ____.

Microeconomics looks at the trees; Macroeconomics looks at the forest.

What is Microeconomics?

Microeconomics studies the behavior in particular markets. It studies the decision making behaviors. - firms , households, their interaction in markets for particular goods or services.

Define Opportunity cost

Opportunity cost is the value of best item, activity, or alternative that is not chosen.

Wise men say

People will pursue and activity as long as they get happiness or enjoyment. As soon as costs exceed happiness, they change to another activity.

What are the two types of capitol?

Physical & Human

An increase in demand is represented by a _________ shift in the demand curve.

Rightward

What is the economic problem?

Scarcity forces us to make choices. We must give up some opportunities and products.

Who determines the supply side of the market?

Sellers determine the supply side of the market, firms/PRODUCERS sell their goods.

According to the law of supply,

The higher the price of the good, the greater the quantity supplied. The lower the price of the good, the smaller the quantity supplied.

What is the law of demand?

The law of demand: the quantity of a good or service demanded varies inversely with its price (Other things constant) when the price of a good or service falls, the quantity demanded increases.

What does the law of supply state?

The law of supply states that, other things constant, the quantity supplied will vary directly with the price of the good.

What is a market supply curve?

The market supply curve for a product is the horizontal summation of the supply curves for individual firms

Define land

The natural resources used in the production of goods and services.

7. Which of the following is an example of a pure market economy?

There is no country with a pure market economy

True or False? If an economy is operating inside its production possibilities curve (in the blue area), it is not at full capacity, and is operating inefficiently.

True

True or False? On a production possibilities curve, the economy has a given quantity and quality of resources and technology available to use for production.

True

True or false? If an economy is operating inside its production possibilities curve, The economy is not getting the most from its scarce resources. actual output is less than the economy's potential output

True

Describe substitutes

Two goods are called substitutes if an increase in the price of one causes an increase in the demand for the other good. Example: Coke and Pepsi, white bread and wheat bread

Describe complements

Two goods are complements if an increase in the price of one good causes a decrease in the demand for the other good. Goods that go together such as hot fudge sauce and ice cream, peanut butter and jelly

Three fundamental questions must be faced in a world of scarcity are:

What is to be produced? How are these goods to be produced? For whom are the goods produced?

What is a demand curve?

a graphical representation that shows the inverse relationship between price and quantity demanded. -Demand curves slope downward. -When the price is higher, the quantity demanded is lower.

Define economic growth

an increase in the economy's ability to produce goods and services. It is shown by an outward shift in the PPC.

Define Consumer sovereignty

describes how individual consumers in market economies determine what is to be produced

Define Profit

is the entrepreneurs reward

Define Physical Capital

is the equipment and structures used to produce goods and services. Examples: Office buildings, tools, machines and factories

Define Entrepreneurship

is the process of combining the labor, land and capital together to produce goods and services.

What are the four categories that scarce resourced that are used for production grouped into?

labor land capital entrepreneurship

define inferior goods

nferior goods- If income increases, demand for the good decreases. If income decreases, demand for the good increases. The term inferior does not refer to the quality of the good, but it shows that when income changes demand changes in the opposite direction (inversely).

define normal goods

normal goods: A good for which demand increases as income increases

Describe a production possibilities curve.

represents the potential total output combinations of any two goods for an economy.

A change in any other factor that can affect supplier behavior results in a shift the entire supply curve. Supply curve shifters: (SPENT)

supplier input/resource prices(S) prices of substitutes in production (P) expectations (E) number of suppliers (N) technology (T) regulations / laws/ taxation weather

Define marginal

that extra, additional, incremental used to describe a change in an economic variable

Define Human Capital

the productive knowledge, education and skill people receive from education and on-the-job training.

Define labor

the total of both physical and mental effort expended by people in the production of goods and services. Payment is wages.

What happens when a price of a good changes?

this leads to a change in quantity demanded.