Macroeconomics Midterm

What does ceteris paribus meaning?

Ceteris paribus means other things being equal.

Several types of economic events can cause a shift in labor demand, so that a higher or lower quantity of labor is hired at every salary or wage. List three of these events

Changes in education and training, changes in technology, changes in government regulations.

In the financial market, what causes a movement along the demand curve? What causes a shift in the demand curve?

Changes in the interest rate cause a movement along the demand curve. A change in anything else that affects demand for financial capital would shift the demand curve.

In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve?

Changes in the interest rate would cause a movement along the supply curve. A change in anything else that affects the supply of financial capital such as income or future needs would shift the supply curve.

What is comparative advantage?

Comparative advantage is when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production.

What are diminishing marginal returns?

Diminishing marginal returns are the decrease in the marginal output of a production process as the amount of a single factor of production is incrementally increased.

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?

The demand will go down, while the supply would go up.

What are the three main goals of macroeconomics?

Growth in the standard of living, low unemployment, and low inflation.

Consumption is the purchase of goods and services by:

Households

Are households demanders or suppliers in the goods market? Are firms demanders or suppliers in the goods market? What about the labor market and the financial market?

Households demand goods and supply labor, whereas firms supply goods and demand labor.

Name some factors that can cause a shift in the supply curve in labor markets.

How desirable a job appears to workers for reasons other than wages, and how government policy either restricts or encourages the quantity of worker trained.

How can you locate the equilibrium point on a demand and supply graph?

When the demand curve and the supply curve intersect.

Which of the following is most likely a topic of discussion in macroeconomics?

a decrease in the unemployment rate

Final goods or services used to compute GDP refer to:

goods and services purchased by the ultimate users.

In the long run, the most important source of increase in a nation's standard of living is a:

high rate of economic growth.

Scarcity implies that

it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available. consumers would be willing to purchase the same quantity of a good at a higher price.

As a person receives more of a good, the _______________ from each additional unit of the good declines.

marginal utility

The basic difference between macroeconomics and microeconomics is that:

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

The demand curve for a typical good has a(n):

negative slope because some consumers switch to other goods as the price rises

Explain why scarcity leads to tradeoffs.

people must choose, they end up facing tradeoffs in which they have to give up things they desire to get other things that they desire more.

The value of what is produced per worker, or per hour worked, is called ____________.

productivity

_________________ refers to the total number of units that are purchased at that price

quantity demanded

Economists typically measure economic growth by tracking

real GDP per capita

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options

sunk costs

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

the benefit to his grades from studying for an hour

What is the trade balance?

the gap between exports and imports

As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.

the production possibilities frontier

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:

the supply curve.

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:

$44

What are five things that will shift a supply curve to the right?

1.Change in resources 2. Change in technology 3. Change in taxes and subsidies 4. change in prices of other goods 5. change in producer expectation.

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

In the labor market, what causes a movement along the demand curve? What causes a shift in the demand curve?

A change in salary. A change in the quantity demanded of the product that the labor produces, a change in the production process.

In the labor market, what causes a movement along the supply curve? What causes a shift in the supply curve?

A change in salary. How desirable a job appears to workers, government policy that either restricts or encourages the quantity of worker trained for a job, the number of workers in an economy, and required education.

Describe the general appearance of a demand or a supply curve with infinite elasticity.

A horizontal line, since as much of the product as desired can be sold or bought at a single price.

Which of the following is included in the calculated Gross Domestic Product?

A local ice cream store sells $17,000 worth of cones and sundaes on July 1.

What is a scarce good?

A scarce good is one for which the choice of one alternative requires that another be given up.

Describe the general appearance of a demand or a supply curve with zero elasticity.

A vertical line, since quantity will not change at all in response to a change in price.

What is standard of living?

All elements that affect people's happiness, whether these elements are bought and sold in the market or not

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

Andy's demand for beer to increase

What is the relationship between quantity demanded and quantity supplied at equilibrium?What is the relationship when there is a shortage? What is the relationship when there is a surplus?

At equilibrium, quantity demanded and quantity supplied are equal to one another. In a shortage,quantity demanded exceeds quantity supplied. In a surplus, quantity supplied exceeds quantity demanded.

What is the relationship between price elasticity and position on the demand curve? For example, as you move up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that?

Demand becomes less elastic as we move up the demand curve, because elasticities are calculated as percentages. A large increase of an already high price may be only a small percentage increase,whereas a small decrease of an already very low quantity may be quite a large percentage decrease.

Will demand curves have the same exact shape in all markets? If not, how will they differ?What does an upward-sloping supply curve mean about how sellers in a market will react to a higher price?

Demand curves will appear somewhat different for each product. Most have the similarity that they slope down from left to right. It means as the price of goods increases, the quantity supplied will increase and vice-versa.

Name some factors that can cause a shift in the demand curve in labor markets.

Demand for output, education and training, technology, number of companies, government regulations, and price and availability of other inputs.

One danger for the statisticians who calculate GDP is to avoid the mistake of double counting. Define "double counting" and describe why it may be dangerous.

Double counting is output counted two or more times as it travels through the stages of production. The danger is that this could overstate the size of the economy considerably

_____________ refers to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

Economies of scale

What is the formula for calculating elasticity?

Elasticity is calculated by dividing the percent change in quantity over the percent change in price. E= %ΔQ/%ΔP

The ___________ is the only price where quantity demanded is equal to quantity supplied.

Equilibrium price

What is a black market, and under what economic condition is it most likely to thrive?

Even the most command-oriented economies operate with substantial black markets, or underground economies, which are markets where the buyers and sellers make transactions without the government's approval.

In order to avoid double counting, statisticians just count the __________________.

Final goods and services

How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Adam Smith offered three reasons. List them and briefly describe the rationale behind each.

First, specialization in a particular small job allows workers to focus on the types of production where they have an advantage. People have different skills, talents, and interests, so they will be better at some jobs than others. The particular advantages workers may be based on educational choices, which are in turn shaped by interests and talents: for example, only those with medical degrees qualify to become doctors. Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. This pattern holds true for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. Third, specialization allows economic agents, or actors, to take advantage of economies of scale, a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

What are normal goods and inferior goods? Discuss within the context of income elasticity of demand.

For most products, most of the time, the income elasticity of demand is positive: that is, a rise in income will cause an increase in the quantity demanded. This pattern is common enough that these goods are referred to as normal goods. However, for a few goods, an increase in income means that one might purchase less of the good; for example, a person with a higher income might buy fewer hamburgers, because they are buying more steak instead, or a person with a higher income might buy less cheap wine and more imported beer. When the income elasticity of demand is negative, the good is called an inferior good.

Name some factors that can cause a shift in the demand curve in markets for goods and services.

Income, population, and expectations.

_____________________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s.

Industrial revolution

In economic terms, what do economists mean by the word "investment"?

Investment does not refer to the purchase of stocks and bonds or the trading of financial assets in economic terms, but instead refers to the purchase of new capital goods.

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

Marginal analysis

What is the difference between microeconomics and macroeconomics?

Microeconomics focuses of individual actors within an economy, whereas macroeconomics focuses on the economy as a whole, or the sum of all individual actions

Will supply curves have the same shape in all markets? If not, how will they differ?

Most supply curves share a basic similarity. They slope up from left to right and show the law of supply.

Could a nation be producing in a way that is allocatively efficient, but productively inefficient?

No. Allocative efficiency requires productive efficiency, because it pertains to choices along the production possibilities frontier.

What is scarcity?

Our resources are limited. Our unlimited wants are continually colliding with the limits of our resources, forcing us to pick some activities and to reject others. Scarcity is the condition of having to choose among alternatives.

Explain why individuals make choices that are directly on the budget constraint, rather than inside the budget constraint or outside it.

People make decisions that are directly on the budget constraint because they want to get the most they can for their money. If they spend outside the constraint then they are spending money they don't have and if they spend inside then they aren't getting everything they potentially could.

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.

Price

To achieve a high standard of living, a nation should:

Promote economic growth

Name some factors that can cause a shift in the supply curve in markets for goods andservices.

Resource prices, taxes, technology, number of sellers.

What are the three main sources for economic growth in any economy?

Technology, human capital, and physical capital

Explain the Law of Diminishing Returns and illustrate with a relevant example.

The law of diminishing returns says "as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline." an example is government spending to help reduce crime. In the beginning, there might be a large reduction in crime. But over time the reduction will decrease and no longer be worth the money spent.

What is the price elasticity of demand?

The price elasticity of demand is the extent to which quantity demanded responds to a change in price.

What is the price elasticity of supply?

The price elasticity of supply is the extent to which quantity supplied responds to a change in price.

What is the "price" commonly called in the labor market?

The price is typically called a wage

What does a production possibilities frontier illustrate?

The production possibilities frontier is the set of every combination of goods that is both possible and efficient to produce.

Double counting is output counted two or more times as it travels through the stages of production. The danger is that this could overstate the size of the economy considerably

The size of a nation's overall economy is measured by its GDP, which is the value of all FINAL goods and services produced within a country in a GIVEN year

The two main tools of macroeconomic policy include monetary policy and fiscal policy. Briefly describe the main components of each.

The two main tools of macroeconomic policy include monetary policy, which involves policies that affect bank lending, interest rates, and financial capital markets, and fiscal policy, which involves government spending and taxes.

In macroeconomics, the connection from inputs to outputs for the entire economy is called _______________.

an aggregate production function

Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine:

both the equilibrium price and quantity will rise.

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

budget constraint

The nature of demand indicates that as the price of a good increases:

buyers desire to purchase less of it

GDP is:

the value of all final goods and services produced domestically.

When quantity demanded decreases in response to a change in price:

there is a movement up along the demand curve.

Scarcity exists because of:

unlimited wants and limited resources.