Homework 1 Practice

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What happens to the supply curve when any of the following determinants change? Change in factor productivity

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Change in producer expectations

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Change in taxes

A shift of the supply curve

Market

An institution that brings buyers and sellers together

Why is entrepreneurial ability distinct from labor even though both are considered a category of economic resource?

Because entreprenuerial ability is not directly engaged in production.

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of gasoline substantially drops

Cannot be determined

What are the determinants of supply?

Change in: - Market price - Factor productivity - Producer expectations - Price of other goods - Technology - Resource prices - Taxes

Command system, a market system, or a laissez-faire system: A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area

Command system

Invisible hand or creative destruction? "If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries."

Creative destruction

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: A devastating earthquake destroys numerous production facilities

Curve shifts inward

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Small cars become more fashionable

Demand increases

If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?

Fewer

What roles do entrepreneurs play in the economy?

Innovate, take risks, and make decisions

Invisible hand or creative destruction? "Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly."

Invisible hand

Invisible hand or creative destruction? "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

Invisible hand

Invisible hand or creative destruction? "Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets."

Invisible hand

Command system, a market system, or a laissez-faire system: The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens

Laissez-faire system

With these curves, the optimal allocation of resources to a particular product will occur when . . .

MC (marginal cost) = MB (marginal benefit)

Microeconomics or macroeconomics? The consumer price index rose by 2.2 percent from November 2017 to November 2018

Macroeconomics

Microeconomics or macroeconomics? U.S. output, adjusted for inflation, increased by 2.3 percent in 2017

Macroeconomics

Microeconomics or macroeconomics? The unemployment rate in the United States was 3.7 percent in December 2018

Macroeconomics

What happens to the supply curve when any of the following determinants change? Change in market price

Movement along the supply curve

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: The number of unemployed workers increases

No change

Money is not considered a capital resource in economics because money is . . .

Not productive

Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills to open and run a new coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business undertakes. Their business is a . . .

Partnership

Freedom of Enterprise

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice

Freedom of Choice

The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate

Opportunity Cost

The next-best thing that must be forgone in order to produce one more unit of a given product

Utility

The pleasure, happiness, or satisfaction obtained from consuming a good or service

Competition

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit

Private Property

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property

Economics

The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity

The marginal-cost curve is . . .

Upward sloping (because of increasing marginal opportunity costs)

Self-Interest

What each individual or firm believes is best for itself and seeks to obtain

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources for producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit.

What is the firm's total revenue? $800 What is its total cost? $ 760 Calculate the amount of economic profit or loss. Profit The firm generates an economic profit of: $40 Will it continue to produce banana bread? Yes If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good? Toward

Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30 per pound. a. How many pounds of potatoes will she purchase? b. How many pounds would she purchase if she only had $2 to spend?

a. 3 lbs b. 2 lbs

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following?

a. The supply of cattle hides: Decrease b. Hide prices: Increase c. The supply of leather goods: Decrease d. The price of leather goods: Increase

Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease?

a. Your budget increases from $100 to $150 while the prices stay the same: Increase b. Your budget remains $100, and the price of books remains $25, but the price of movie tickets rises to $20: Decrease c. Your budget remains $100, and the price of movie tickets remains $10, but the price of a book falls to $15: Increase

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Income declines and small cars are an inferior good

Demand increases

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of large cars rises (with the price of small cars remaining the same)

Demand increases

What happens to the supply curve when any of the following determinants change? Change in resource prices

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Change in technology

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Change in the price of other goods

A shift of the supply curve

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: A new technique improves the efficiency of extracting copper from ore

Curve shifts outward

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: The quality of education increases

Curve shifts outward

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Consumers anticipate that the price of small cars will decrease substantially in the near future

Demand decreases

The marginal-benefit curve is . . .

Downward sloping (because successive units of a specific product yield less and less extra benefit)

Mutually Agreeable

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off

Marginal Analysis

Making choices based on comparing marginal benefits with marginal costs

Command system, a market system, or a laissez-faire system: Shops stock and sell the goods their customers want, but the government levies a sales tax on each transaction in order to fund elementary schools, public libraries, and welfare programs for the poor

Market system

Microeconomics or macroeconomics? A U.S. software firm laid off 15 workers last month and transferred the work to India

Microeconomics

Microeconomics or macroeconomics? An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise

Microeconomics

Microeconomics or macroeconomics? Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point

Microeconomics

Circular Flow Diagram #1