Macroeconomics Exam 1

Fill in the following blanks with the correct response: If a shortage exists in the car market, then the current price must be ___1___ than the equilibrium price. For the market to reach equilibrium, you would expect ___2___. If a surplus exists in the car market, then the current price must be ___3___ than the equilibrium price. For the market to reach equilibrium, you would expect ___4___. A. higher B. no different C. lower D. persistent excess demand E. persistent excess supply F. buyers to offer higher prices G. sellers to offer lower prices

1) C. lower 2) F. buyers to offer higher prices 3) A. higher 4) G. sellers to offer lower prices

1 - The claim that, with other things being held equal, the quantity demanded of a good falls when the price of that good rises. 2 - A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices. 3 - The amount of a good that buyers are willing and able to purchase at a given price. 4 - A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices a - quantity demanded b - demand curve c - demand schedule d - law of demand

1) law of demand 2) demand curve 3) quantity demanded 4) demand schedule

1 - The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises. 2 - A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices. 3 - A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices. 4 - The amount of a good that sellers are willing and able to supply at a given price

1- d 2- c 3- b 4- a

3 economic ideas

1. People are rational 2. People respond to economic incentives 3. Optimal decisions are made at the margin

Which of the following best describes microeconomics? ​1) "small" (less than​ $100,000) economic transactions in the economy. 2) how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices. 3) firms as individual units excluding how these firms interact with one another. 4) the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

2) how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

Opportunity cost is 1) when unlimited wants exceed the limited resources available to fulfill those wants. 2) the idea that because of scarcity, producing more of one good or service means producing less of another good or service. 3) the highest valued alternative that must be given up to engage in an activity. 4) when consumers and firms use all available information as they act to achieve their goals.

3) the highest valued alternative that must be given up to engage in an activity.

Which of the following best describes macroeconomics? 1) the study of​ "large" (greater than​ $100,000) economic transactions in the economy. 2) the study of firms as a group with special emphasis on how these firms interact with one another. 3) the study of the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth. 4) the study of how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

3) the study of the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics: A consumer's optimal choice when buying a flat-screen TV The government's decision on how much to spend on public projects The effect of an increase in consumer income on demand for smart phones Choose the answer that correctly describes the choices in order: 1) Macroeconomics; Microeconomics; Macroeconomics 2) Microeconomics; Microeconomics; Macroeconomics 3) Macroeconomics; Macroeconomics; Microeconomics 4) Microeconomics; Macroeconomics; Microeconomics

4) Microeconomics; Macroeconomics; Microeconomics

perfectly competitive market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Gross Domestic Product (GDP)

A measurement of the total goods and services produced within a country.

Equilibrium

A state of balance

comparative advantage vs. absolute advantage

Absolute Advantage: The ability of an actor to produce more of a good or service than a competitor. Comparative Advantage: The ability of an actor to produce a good or service for a lower opportunity cost than a competitor.

A market is a group of a good or service and the institution or arrangement by which they come together to trade. Governments Buyers Sellers Buyers and sellers

Buyers and sellers

Which of the following best describes the study of the choices people make to attain their goals, given their scarce resources? Scarcity Rationality Economics The market

Economics

efficiency vs. equality

Efficiency: when society gets the most from its scarce resources Equality: when prosperity is distributed uniformly among society's members

micro vs. macro

MICRO- the study of how households and firms make decisions and how they interact in markets MACRO- the study of economy wide phenomena, including inflation, unemployment, and economic growth

GDP deflator

Nominal GDP/Real GDP x 100

_______ occurs when a good or service is produced at the lowest possible cost. ________ occurs when production is in accordance with consumer preferences. Productive efficiency; allocative efficiency Allocative efficiency; productive efficiency Productive efficiency; voluntary exchange Allocative efficiency; voluntary exchange

Productive efficiency; allocative efficiency

demand curves vs. quantity demanded

Quantity demanded is how many things a consumer will purchase at a specific price. a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time

total production = total income

The production of a given value of goods and services generates an equal value of total income.

production possibilities frontier (PPF)

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

complete specialization

a situation in which a country produces only one good

supply and demand schedule

a table representation of the relationships with price and production and consumption

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

Choose whether each event will cause a movement along the supply curve for peanut butter or a shift of the supply curve for peanut butter, holding all else constant: a - A decrease in the number of producers b - A decrease in the price of peanut butter c - A change in expectations about the future price of peanut butter d - An increase in the cost of peanuts to the peanut butter producers

a- shift b- movement along c- shift d- shift

Consider the market demand for peanut butter. Choose whether each option will cause a movement along the demand curve (change in Quantity Demanded) for peanut butter or a shift of the demand curve for peanut butter, holding all else constant: a - A change in the expectations of consumers about prices b - A decrease in the price of hazelnut spread (a substitute for peanut butter) c - An increase in the price of peanut butter d - There is a tax cut that results in consumers having higher take home income

a- shift b- shift c- movement along d- shift

In a perfectly competitive market, all producers sell [a] (identical, very different) goods or services. Additionally, there are [b] (few, many) buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price [c] (takers, makers). True or False: The market for lettuce does exhibit the two primary characteristics that define perfectly competitive markets. [d]

a. identical b. many c. takers d. true

market system

an economic system in which individuals, not the government control the production and distribution of goods and services; also called capitalism

Normal vs. Inferior Goods

as income increases, demand increases vs as income increases, demand decreases

You Work as an assistant coach on the university basketball team and earn $15 per hour. One day, you decide to skip the hour-long practice and go to the county fair instead, which has an admission fee of $9. The total cost (valued in dollars) of skipping practice and going to the fair (including the opportunity cost of time) is _________. a. 6 b. 24 c. 9 d. 15

b. 24

__________ is when economic benefits are distributed uniformly across society. ___________ is when a society gets the most it can from its scarce resources. All societies face a trade-off between equality and efficiency. If the United States government lowers the income taxes on the wealthiest Americans, while decreasing welfare payments to the poorest Americans, the result will likely be ___________ in efficiency and ___________ in equality in the United States. a. Efficiency; Equality; a decrease; an increase b. Equality; Efficiency; an increase; a decrease c. Efficiency; Equality; an increase; a decrease d. Equality; Efficiency; a decrease; an increase

b. Equality; Efficiency; an increase; a decrease

law of demand

consumers buy more of a good when its price decreases and less when its price increases

substitute vs compliment

goods I'm willing to switch between vs goods I consume together

other measures of total production and total income

gross national product, personal income, disposable personal income

shortcomings of GDP

household production, underground economy, doesn't measure leisure, not adjusted for pollution, doesn't account for income inequality doesn't account for social issues

factors that shift demand

income, price of related goods, taste/preferance, demographics/population, expected future price

appendix

material added at the end of a book

A economy ________ is an economy in which most economics decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources. Mixed Centrally planned Market None of the above

mixed

inflation

new-old/old x 100

components of GDP

personal consumption, business investment, government purchases, and net exports

positive vs. normative

positive- what is normative- what should be

______ is concerned with what is, and ______ is concerned with what ought to be. positive; normative neutral; positive normative; positive neutral; normative

positive; normative

factors that shift supply

price of inputs, technological change, price of related goods in production, number of firms, expected future price

law of supply

producers offer more of a good as its price increases and less as its price falls

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality economists call Rationality The market Economics Scarcity

scarcity

supply curves vs quantity supplied

supply represents how much the market can offer at different prices. In contrast, quantity supplied represents what amount of commodity producers will supply at a specific price.

gains from trade

the improvement in outcomes that occurs when producers specialize and exchange goods and services

opportunity cost

the most desirable alternative given up as the result of a decision

real GDP

the production of goods and services valued at base-year prices

nominal GDP

the value of final goods and services evaluated at current-year prices

types of economies

traditional, command, market, mixed

effect of change in price

when the price increases the quantity supplied also increases (movement along the curve). If the price decreases, quantity demanded increases (movement along the curve)