Exam 1
Human capital is
the accumulation of skills, training and education of workers.
A government-sponsored good is one that
the political process has determined socially desirable
The law of demand states that
the quantity demanded is inversely related to price.
Ad valorem taxes
are assessed as a percentage of a good's price.
Resources are
used to produce goods and services to satisfy people's wants.
If demand increases while supply simultaneously decreases, then the equilibrium quantity
None of these.
Goods X and Y are complementary goods. An increase in the price of good X has occurred. In the market for good Y this will lead to
a decrease in price and a decrease in quantity.
The law of supply states that there is
a direct relationship between price and quantity supplied, ceteris paribus.
Holding demand constant, a reduction in supply leads to
higher prices and lower quantity demanded.
If two goods are substitutes, then
if the price of one good falls, the demand for the other good falls also.
Normative economics
involves value judgments
By definition, a government-sponsored good
is a good that is deemed socially desirable.
Economic resources are
items of value that are used to make other things that satisfy people's wants.
The United States is best known as a
mixed economic system.
Positive economic analysis is said to be
objective
The opportunity cost of a decision is the
value of the best alternative not chosen.
A government-inhibited good is one that
has been deemed socially undesirable via the political process.
Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a year or coaching for $50,000 a year. He decides to play football, but eight years later he quits football to make movies for $3 million a year. His opportunity cost at graduation was ________ and eight years later was ________.
$50,000; $2 million
Following adjustments to a new equilibrium in a market, the market clearing price remains unchanged, but the equilibrium quantity is now lower. Which of the following could definitely have caused this outcome?
Demand and supply both decreased.
The law of demand includes the statement "other things being equal." These other things include all of the following EXCEPT
the price of that good in the law of demand.
Suppose the price of cheese rises. In the market for pizza, one would expect that
the supply of pizza would decrease, and price would rise.
Markets tend to underallocate resources to the production of a good when
there are positive externalities.
In a market system, the costs associated with exchanging goods are known as
transaction costs.
Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are
40 percent on A and 20 percent on B.
What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.
The three sources are explicit fees, taxes, and borrowing. Money borrowed is paid by tax revenues and user charges and in order to be able to transfer and spend money they cannot exceed the amount they are receiving. Government cannot rely on borrowing forever so explicit fees and taxes are more reliable in the long run.
To correct for positive externalities the government
can give a subsidy.
When income rises,
demand for a normal good rises.
The price of a good always changes when
either a shortage or a surplus occurs.
On an afternoon that a class meets, you could alternatively study for an exam that will take place in another class the next morning, go to a movie with a friend, or, most desirable to you at present, take a nap. The opportunity cost of attending the afternoon class is
forgoing the nap
Positive economic analysis is supposed to be
free of value judgments.
Physical capital is distinguished from human capital because
physical capital refers to equipment and machinery, whereas human capital refers to trained people.
Market failures
prevent the price system from attaining economic efficiency.
Assume a family that earns $20,000 pays $1,500 in income taxes, while a family that earns $40,000 pays $3,200 in income taxes. In this situation, the income tax system is
progressive.
Equilibrium in a market occurs when
quantity supplied and quantity demanded are equal at the market clearing price.
In economics, the term physical capital
refers to all manufactured resources used for production.
Assume a family that earns $30,000 pays $3,000 in income taxes, while a family that earns $40,000 pays $3,500 in income taxes. In this situation, the income tax system is
regressive
Whenever a society forgoes current consumption to invest in capital goods,
that society can consume more in the future.
The marginal income tax rate is equal to
the change in the tax payment divided by the change in income.