Microeconomics Exam #1 Chapters: 1 & 3

Arable land, water machinery and a professional baseball player are all considered scare economic ___ to production.

Resources

When the price of one product rises, the demand for its substitute will:

Rise

The law of supply states that as price ___, the quantity supplied rises; as price ___, the quantity supplied falls.

Rises; falls

Where on the PPC do we want to be?

-Determined by the marginal benefit (MB) and marginal cost (MC)

What does each point on the PPC represent?

-Efficiency in production -The maximum potential output of two or more products

What decreases demand?

-Falling incomes -The product is a normal good -Unfavorable change in consumer tastes -Decrease in the price of a substitute good

A shift leftward in supply while demand is constant results in:

-Increase in equilibrium price -Decrease in equilibrium price

Combinations of output that fall inside the production possibilities curve represent:

-Inefficient use of resources -Less total output in an economy -Goods that are attainable

Resources

-Land or natural resources (rent) -Labor --> physical & mental effects (wage) -Capital --> physical capital such as tools, factories, schools, etc. (interest) -Entrepreneurial ability (profit)

What defines positive economics?

-Measurable or scientific statements about economic behavior -Statements based on facts empirical cause-and-effect relationships

Combinations of goods that are beyond the PPC ___.

-Require economic growth -Require resources that are not available, are unattainable

Opportunity Cost

-The value of the next best opportunity -Slope (graph) of the constant

The function of an entrepreneur is:

-To combine scarce resources -To produce desired goods or services -To organize other factors of production in the production of new products

A surge in demand while holding supply constant results in an ___ in both equilibrium price and quantity.

Increase

Factories, storage, transportation, and distribution facilities, as well as tools and machinery are all examples of physical ______ goods.

Capital

What goods are used together with other goods?

Complementary

The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be:

Consumed at various possible prices

Non-price determinants of demand:

1. Income Normal goods vs. Inferior goods --------- 2. Price of related goods -Substitute goods: As the price of related goods rises, the demand for the good in question increases or shifts right and vice versa. -Compliments: As the price of the related goods rises, the demand for the good in question decreases or shifts left. --------- 3. Number of consumers More consumers will causes demand to increase and vice versa. --------- 4. Tastes and Preferences --------- 5. Expectations If buyers expect higher, future prices, demand increases NOW (speculation) --> often self-fulfilling

Economic growth can occur due to the following reasons:

1. Increase in quantity of resources 2. Increase in the quality of resources 3. Improvements in technology

What illustrates when a good and its complement resemble a good relationship?

1. When the price of tuition decreases, the demand for textbooks increases. 2. When the price of lettuce increases, the demand for salad dressing decreases.

A decrease in demand while holding supply constant results in:

A decrease in both equilibrium price and quantity

When the demand curve shifts upward or downward, this occurs because:

A factor other than price affects consumption of a good or service

Market demand curve:

A horizontal summation of individual demand curve

A' =

A prime

Which of the following best clarifies the "other-things-equal" assumption?

All variable except those under immediate consideration are held constant for a particular analysis.

Points that are ____ the PPC are attainable, so long as the economy uses all of its available resources.

Along

What results when there is a shortage?

An excess of quantity demanded

What causes a change in quantity supplied under consideration of nothing else changed?

An increase or decrease in the price of the product

What is a market?

An institution or mechanism that brings buyers and sellers into contact

The highest-valued alternative that is given up or sacrificed when choosing to produce or consume one good over another is referred to as:

An opportunity missed

Combinations of goods that fall on the production possibilities curve:

Are attainable, utilize all of an economy's resources, and are efficiently produced

Inferior goods

As income increases, demand shifts (moves) to the left and vice versa.

Normal goods

As income increases, demand shifts (moves) to the right and vice versa.

Reasons for the Law of Demand (2. Substitution Effect):

As price falls, buyers will substitute the new cheaper goods for the more expensive goods (P decreases --> Qp increases)

Reasons for the Law of Demand (1. Income Effect):

As price falls, the purchasing power of a given normal income rises, such that people can buy more.

Reasons for the Law of Demand (3. Law of Diminishing Marginal Utility):

As we consume additional units of a good or service, the additional satisfaction or utility consuming additional units will diminish. (Qp increases --> P decreases)

Normative economics:

Based on subjective or value judgements

Capital goods differ from consumer goods in that:

Consumer goods satisfy wants directly, and capital goods satisfy consumer wants indirectly through the production of consumer goods

A(n) _____ in income will shift the budget line to the left.

Decrease

A buyer's intentions or plans in regard to the purchase of a product is:

Demand

What is a graphical representation of the relationship between price and quantity?

Demand curve

What organizes the relationship between price and quantity in a tabular format?

Demand schedule

The demand curve measures quantity ___ on the horizontal axis and ____ on the vertical axis.

Demanded; price

What curve represents the inverse relationship between price and quantity demanded?

Downward sloping curve

A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions is known as:

Economic model, economic principle, and economic theory

The ___ problem refers to the need to make choices because economic wants exceed economic means.

Economizing

In markets, when prices rise and fall, what will be achieved?

Equilibrium quantity and equilibrium price

True or false: Economists classify economic resources into land, labor, money, and entrepreneurial ability.

False

Everyone, even the very wealthy, has a ___ amount of income.

Finite

Ceteris-Parabis

Holding all else constant

Change in demand

If anything other than price changes willingness and ability to purchase a particular amount, the demand curve will move.

A rise in income causes an ____ in demand for most products. A fall in income causes an ____ in demand for most products, other things equal.

Increase; decrease

A favorable change in consumer tastes and preferences for a product will ____ demand, shifting the demand curve to the ____.

Increase; right

The market curve is the summation of all ___ demand curves for a good or service.

Individual

Scarcity

Individual level: -Money --> budget constraint -Time --> time constraint Social: -Resources --> Production Possibilities Curve (PPC)

In economics, the term ______ describes spending that pays for the production and accumulation of capital goods.

Investment

In addition to entrepreneurship, the resource of human ______ consists of the physical actions and mental activities that people contribute to the production of goods and services.

Labor

The four general categories of economic resources are:

Labor, Capital, Natural Resources, and Entrepreneurship

From an economic standpoint, ___ includes all natural resources used in the production process.

Land

The factors of production are:

Land, labor, capital, and entrepreneurship

As firms leave an industry supply decreases, causing the supply curve to shift to the ___.

Left

If costs of production rise, the producer has an incentive to produce ___ output at every possible cost.

Less

Net benefit will be maximized when:

Marginal benefit = marginal cost

What is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each given possible price during a specific period?

Market supply

Buyers and sellers are brought together through:

Markets

The disciple that studies the decision-making process of workers, households, firms, and government on an individual basis, rather than as aggregates is known as:

Microeconomics

An inverse relationship between two variables is a:

Negative relationship

Products whose demand varies directly with changes in money or income are called:

Normal or superior goods

The products whose demand varies directly with changes in money or income are:

Normal or superior goods

A production possibilites curve illustrates the attainable combination:

Of two goods that can be produced given a specific set of resources

The law of increasing ___ states that as production of a particular good increases, the cost of producing an additional unit rises.

Opportunity Costs

Due to scarce resources, every individual, whether rich or poor, is faced with an ____ when choosing to produce or consume more of one good over another.

Opportunity cost

Points lying ___ the PPC are unattainable with the current availability of resources and technology.

Outside

Price and quantity supplied have a ____ relationship.

Positive

On a supply curve, what are the labels of each axis? Price - vertical (y) Quantity - horizantal (x)

Price - vertical (y) Quantity - horizontal (x)

What is the determinant of supply dealing with alternative products that can be produced by firms?

Price of other goods

The interaction of buyers and sellers determines equilibrium ___ and equilibrium ___.

Price; quantity

What is specialization about in an individual or firm that is using available resources to?

Produce one or only a few goods and services

A change in ____ is caused by an increase or decrease in the price of the product under consideration and nothing else.

Quantity demanded

What is equal at equilibrium?

Quantity demanded and quantity supplied

The law of increasing opportunity costs states that as production of a particular good ___, the opportunity cost of producing an additional unit ___.

Rises; rises

All natural, human, and manufactured goods that go into the production of goods and services are considered society's ___ economic resources.

Scarce

Why "can't you always get what you want"?

Scarcity

At equilibrium price, there is neither a ____ nor a ____ because the quantity demanded by consumers at a specific price is identical to the quantity supplied at the same time.

Shortage; surplus

In the type of economy existing in the US and most other countries the government plays a(n) ___ role.

Substantial

Which type of goods affect the demand for a product due to a change in their price?

Substitute and complementary goods

Producer expectations of future prices are a determinant of ___.

Supply

Which curve is an upward sloping curve?

Supply curve

An increase in ____ while holding the demand constant ____ equilibrium price and ____ equilibrium quantity.

Supply, lowers, raises

An increase in ____ while holding ____ constant results in a decrease of equilibrium price, but an increase in equilibrium quantity.

Supply; demand

Demand

The amount that buyers are willing and are able to purchase at each possible price, holding all else constant

What happens when consumers purchase a good or service?

The level of utility or satisfaction increases

A consumer's willingness to purchase in a market must be supported by the ability to make the purchase as evidenced by:

The necessary income

Law of Demand states that:

The price per unit (P) and quantity demanded per period (Qp) are inversely related Ex. When P increases, Qp decreases & when P decreases Qp increases.

What is supply?

The production of a product, whereas demand refers to the buyers who consume the product.

What is the result from scarcity with respect to economic resources?

The production of limited goods and services

True or false: A trade-off occurs when some quantity of production or consumption is given up in order to produce or consume another good or service.

True

For better or worse, people have virtually ___ wants.

Unlimited