ECON - Test 1 - Chapters 1-6

(Exhibit: Demand and Supply Schedules for a Good.) If there were an increase in demand by 50 units at each price, the equilibrium price and the quantity would be ________ and ___________ units, respectively.

$3.50; 250

Law of Diminishing Marginal Utility

The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.

Quantity demanded

The quantity buyers are willing and able to buy of a good or service at a particular price during a particular period, all other things unchanged.

When the market price in is established where demand and supply curves intersect:

The quantity demanded and the quantity supplied are equal

Supply

The quantity of something that producers have available for sale

Quantity Supplied

The quantity sellers are willing to sell of a good or service at a particular price during a particular period, all other things unchanged.

GNP (Gross National Product)

The total value of final goods and services produced during a particular period with factors of production owned by the residents of a particular country.

A hypothesis that has been tested extensively without being rejected and has won widespread acceptance is a:

Theory

T/F A surplus will cause pressure on the price fall

True

T/F A theory or model is a simplification of reality, in much the same way that road map shows only those features needed to get from one point to another.

True

T/F Health-care spending as a percentage of total U.S. output generally rose between 1960 and 1995

True

T/F There is an important role for government in a market capitalist economy

True

T/F Unexpected deflation benefits lenders and hurts borrowers

True

substitutes

Two goods for which an increase in price of one increases the demand for the other.

complements

Two goods for which an increase in price of one reduces the demand for the other.

Which of the following is not capital?

a migrant worker in the fields of California

Equilibrium

a state in which opposing forces or influences are balanced.

the study of how people choose among alternatives available to them is the:

definition of economics

A measure of the degree to which capital wears out or becomes obsolete during a period

depression

Specialization arises because

differences in the costs of production give some producers a comparative advantage in the production of particular goods or services.

In economics, the function of theories, laws, and hypotheses is to:

discover relationships between events that are important to economic behavior.

If the united states decides to allocate more resources to capital goods and less to consumer goods, the united states will obtain a greater degree of:

economic growth

Goods that are produced in a particular period but NOT sold in that period:

end up in inventories and are included in gross private investment

The three broad types of resources used to produce goods and services are also known as:

factors of production

In a market capitalist economy:

factors of production are owned privately and decisions about their use are basically made by individuals

The value of income generated by the production of a given value of final goods and services is called

gross domestic income

The value, at current market prices, of the final goods and services produced during a particular period is

gross domestic product

To be considered capital, a factor of production must:

have been produced

natural rate of unemployment

includes frictional and structural unemployment & Is the unemployment rate that exists when the quality of labor demanded is equal to the quantity of labor supplied.

Third-party payer systems are most likely to ________ the quantity of health care ________.

increase; demanded

Third-party payer systems are most likely to _________ the quantity of healthcare _________.

increase; demanded

A market price floor for wheat:

increases the price paid by consumers.

A market price support policy establishes a price floor, which:

increases the price received by farmers

(Exhibit: Production Possibilities Curve for Firms A and B) In Firm A, the opportunity cost of producing 1 more unit of X in terms of Y:

is equal to the opportunity cost in Firm B of producing 1 more unit of X in terms of Y.

Although water is very abundant in most places, it is scarce because:

it has two or more alternative uses

When making a choice to do more of one activity, the highest-valued other choice society does not make is called ________ and it is measured ________

opportunity cost; by the slope of the production possibilities curve at that level

In the 1990s, the Monks of St. Benedict's the Monks determined that their ________ were ________ in the egg and cookie business, so they ________ .

opportunity costs; too high; switched to providing private retreats

Transfer payments are

payments that do not require a good or service in exchange.

A key theme fundamental to all of economics is:

people have unlimited wants facing limited means to satisfy them

An economy is said to have a comparative advantage in the production of a good if it can:

produce the good at a lower opportunity cost than another economy

The law of increasing opportunity cost is associated with the slope of the:

productions possibilities curve

A hypothesis is an assertion that can be:

proven to be false

In a market capitalist economy, which of the following is not an accepted role for government?

provision of national defense, enforcing a legal system, establishing policies to encourage full employment

If the price in the market for a commodity is above the market equilibrium price, the:

quantity supplied exceeds the quantity demanded

Dividing real GDP by the population equals

real GDP per capita

A period of falling real GDP is a(n)

recession

Supply is best defined as the:

relationship between the quantity of a good or service sellers are willing to offer for sale and the independent variables that determine quantity.

A non-free good is one that is:

scarce

positive statements are:

statements that can be tested

In the textbook, the prices of the factors of production, returns from related goods, technology, expectations regarding future prices, and the number of sellers are called:

supply shifters

Investment

the action or process of investing money for profit or material result.

The consumer price index reflects

the changes in the prices of goods and services typically purchased by consumers.

Reaching the incorrect conclusion that one event causes another because the events tend to occur together is called:

the fallacy of false cause.

If we add up all the values added at every stage of production for a good , we will get

the final value of the good

Demand

the quantity of a good or service that consumers are willing and able to buy

Factors of production are:

the resources the economy has available to produce goods and services.

A systematic set of procedures through which knowledge is created is:

the scientific method

The case in point on the Oregon plan makes it clear that:

the state's insurance plan applied primarily to those whose incomes were lower than the poverty line

The observed correlation between baldness and heart disease demonstrates that:

there is probably some other factor that causes both baldness and heart disease.

The labor force is made up of

those who are employed plus those who are unemployed.

In terms of equity, existing farm policies tend to help:

wealthy farmers more than poor farmers

Normal goods

A good for which demand increases when income increases.

A free good is:

A good with no opportunity cost

Price Ceiling

A maximum allowable price.

Price floor

A minimum allowable price set above the equilibrium price.

Economists classify health care as:

A normal good

Shortage/excess demand

A situation in which quantity demanded is greater than quantity supplied

If the quantity demanded in a market, we would expect price to:

Decrease

T/F Economic data adjusted for price level changes are said to be expressed in terms of current dollars

False

T/F The Oregon Plan for the provision of healthcare to people living below the poverty line generally increased the number and type of procedures for which they were eligible

False

T/F The same factors that lead to a change quantity demanded also cause a change in demand

False

T/F a production possibilities curve measures cost in terms of dollars spent, not in terms of sacrificed alternatives

False

T/F there is no role for government in a market capitalist economy

False

Law of Demand

For virtually all goods and services, a higher price leads to a reduction in quantity demanded and a lower price leads to an increase in quantity demanded.

Suppose that in Croy, residents never supply factors of production to foreign firms, while producers in Croy regularly employ factors owned by residents of other countries. Which of the following statements is true for Croy?

GDP is greater than GNP

In the generation of GDP, pollution often occurs. As a result,

GDP is not always a good measure of economic or social welfare

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

What does the phrase "jobless recovery" refer to?

It refers to a recovery from a recession which does not produce strong growth in employment.

Economists concerned about the behavior of individual households, firms, and industries are studying:

Microeconomics

Circular flow

Model that provides a look at how markets work and how they are related to each other.

Imports

Purchases of foreign-produced goods and services by a country's residents during a period.

The price of oranges falls. What happens in the market for apples, which are a substitute for oranges?

The equilibrium price and quantity fall.

Researchers demonstrate conclusively that drinking 4-6 ounces of ginger ale each day increases life expectancy by 3 years. What happens in the market for ginger ale?

The equilibrium price and quantity rise

In the market for health care:

-the effect of third-party payers decreases the price that consumers pay. -providers are encouraged to supply a greater quantity than they would without third-party payers.

If the cost of a market basket is $150 in 2004 and $200 in 2005, the price index for 2004 using 2005 as the base year is

0.75

T/F 1- the CPI is computed using a fixed basket of goods 2- The implicit price defoliator is computed a fixed basket of goods 3- The CPI and the implicit price deflator can be used to calculate inflation

1 & 3

In 2008, the average price of the baseball fan market basket (based on the cost of the basket for 30 major league baseball teams) was $191.92. The cost of attending a Boston Red Sox game was $320.71 in 2008. Calculate the fan price index for the Boston Red Sox using the average price of the market basket as the equivalent of a base year.

1.67

Exports

Sales of a country's goods and services to buyers in the rest of the world during a particular time period.

Suppose that voters in your community pass a one-cent sales tax increase to fund education, knowing full well they will have to forgo other goods they typically consume. This primarily addresses the economic question of:

What goods and services should a society produce?

Which would not cause the supply curve to shift?

a change in the price of the good

An announcement that smoking will harm your ability to think clearly will most likely result in:

a decrease in the demand for cigarettes

What is an example of structural unemployment?

a geologist who is permanently laid off from an oil company due to a new technological advance

Inferior goods

a good that consumers demand less of when their incomes increase

the primary emphasis in macroeconomics is on:

aggregates in the economy.

The unusually heavy rainfall that hit southern California 1997 caused:

an increase in both the demand for and supply of roof repairs

A decrease in supply is caused by

an increase in returns from other alternative activities

The statement that "there is no such thing as a free lunch" means:

any production requires the use of scarce resources, and thus the sacrifice of another alternative.

Those things held unchanged when an equilibrium price is established:

are called demand shifters if a change in one (or more) of them would change demand.

Positive statements:

are factual and can be tested

The demand curve for stocks shows that:

at lower prices, more people calculate that the expected value of the firm's future earnings justify the stock's purchase.

A market is a set of arrangements where:

buyers and sellers can get together and buy and sell.

The increase in the cost of health care was caused in part:

by technology, which has created new and costly treatments

The bulk of the nation's output is produced by:

corporations

An increase in real GDP

may or may not correspond to an increase in human happiness.

"Titanic," a movie released in 1998, was, as of 1999, the top-grossing movie of all time. However, in real terms, it ranked eighth in box office receipts, below an older hit movie, "Gone With the Wind." We can conclude that

more people went to see "Gone with the Wind" than "Titanic."

"Titanic" a movie released in 1998, was, as of1999, the top-grossing movie of all time. However, in real terms, it ranked eighth in box office receipts, below an older hit movie, "gone with the wind" we can conclude that

more people went to see "gone with the wind" than Titanic"

The best example of an increase in capital is:

new computer software

Statements that make judgments are:

normative

A complete business cycle is defined by the passage from:

one peak to the next peak