Microeconomics test 1

The differences between efficiency and equity

Efficiency - How well a resource is used Equity - The fairness of various issues and policies

Gains from trade associated with an Absolute advantage:

A COUNTRY CAN PRODUCE MORE OF A GOOD THAN ANOTHER COUNTRY USING THE SAME AMOUNT OF RESOURCES.

The gains from trade are

- A country specializes in the production of goods in which it has a comparative advantage, and trades these goods with another country. - Both countries can benefit even if one country has an absolute advantage in both goods.

Describe the way economic growth can happen in the economy

- Finding more factors of production (Land, Labor, Capital, Entrepreneurial) - technological innovation

The difference between positive questions and normative economics:

- POSITIVE QUESTION: Can be answered by available information or facts - NORMATIVE QUESTION: Addresses society's beliefs about what should or should not take place

Gains from trade associated with a comparative advantage:

A COUNTRY HAS A LOWER OPPORTUNITY COST OF PRODUCING A GOOD THAN ANOTHER COUNTRY.

What are the assumptions of economics?

- are rational. - are self-interested. - respond to incentives

BASIC ECONOMIC QUESTIONS EACH SOCIETY MUST ANSWER

1.WHAT GOODS AND SERVICES ARE TO BE PRODUCED? 2.HOW ARE THESE GOODS AND SERVICES TO BE PRODUCED? 3.WHO WILL RECEIVE THESE GOODS AND SERVICES?

What is the opportunity cost of 1 boomerang if an economy has 12 kiwis and 20 boomerangs

12 kiwi/20 boomerangs=0.6 kiwi per boomerang

What is the opportunity cost of 1 kiwi if an economy has 16 kiwis and 8 boomerangs

8 boomerangs/16 kiwi=0.5 boomerangs per kiwi

Executives at General Motors are discussing whether raising pricing will lead to higher profits. A. Microeconomic B. Macroeconomic

A

If you pay $10 to see a movie at a multiscreen cinema, then sneak into a second movie without paying, the marginal cost of the second movie is: A. $0 B. $5. C. $10. D. $15. E. $20.

A

Which points represent Full employment

AB C

Define ceteris paribus

Assumption used in economics that all other relevant factors or variables are held constant or equal.

Which of the following is a normative question? A. WHAT IS THE SPEED LIMIT ON CAMPUS? B. HOW MUCH DO TEXTBOOKS COST THIS TERM? C. SHOULD CHEWING GUM BE BANNED IN CLASSROOMS? D. HOW MUCH DOES STUDYING IMPROVE YOUR GRADE? E. WHEN IS THE NEXT HOME FOOTBALL GAME

C

France can produce 100 cameras or 250 cheeses. Germany can produce 200 cameras or 300 cheeses. Which country has an absolute advantage in cheese production? A. FRANCE B. GERMANY C. BOTH COUNTRIES D. NEITHER COUNTRY E. CANNOT BE DETERMINED

B

Is the following a microeconomic or a macroeconomic issue? Lawmakers are discussing how to keep unemployment from rising in the coming year. A. Microeconomic B. Macroeconomic

B

HOW WILL A RECESSION AFFECT A COUNTRY'S PPF? A. THE COUNTRY'S PPF WILL SHIFT INWARD. B. THE COUNTRY'S PPF WILL SHIFT OUTWARD. C. THE COUNTRY WILL PRODUCE AT A POINT BELOW AN UNCHANGED PPF. D. THE COUNTRY WILL PRODUCE AT A POINT ABOVE AN UNCHANGED PPF. E. A RECESSION DOES NOT CHANGE A COUNTRY'S POSITION ON THE PPF.

C

What does it mean when economists create models that include the assumption of ceteris paribus? A. ALL MARKETS ARE IN EQUILIBRIUM B. OPPORTUNITY COSTS ARE MINIMIZED. C. MARKETS ARE FREE OF INTERVENTION D. ALL ELSE IS HELD CONSTANT. E. NONE OF THE ABOVE

D

Which point represents underutilization of resources

D

What does the outward shift of the PPF mean

Economic Growth

Describe the major differences between a market economy and a planned economy.

Market Economy - Economic decision are made by the free market Planned Economy - Economic decisions are made by a central body or government

Define Macroeconomics

Is the study of broader issues in the economy, such as inflation, unemployment, and national output.

Define Microeconomics

Is the study of decision making by individuals, businesses, and industries.

What does the production possibilities frontier (PPF)

It shows different combinations of goods that a fully employed economy can produce, given its available resources and current technology

Describe the four factors of production

Land: - land includes both land in the usual sense as well as all other natural resources that are used in production. All resources above and below the land such as mineral deposits, oil and natural gas, and water Labor: - Labor as a factor of production includes both the mental and physical talents of people. Capital: - Capital includes all manufactured products that are used to produce other goods and services, and Equipment Entrepreneurial Ability: - Entrepreneurs combine land, labor, and capital to produce goods and services, and they assume the risks associated with running a business.

Is it likely that any country produces on its PPF (Production Possibility Frontier)?

No the linear PPF is possible in theory but not in reality.

Define autarky

Self-Reliance or when the parties do not trade at all

Define allocative efficiency

THE MIX OF GOODS AND SERVICES IS JUST WHAT SOCIETY DESIRES.

Explain the concept of opportunity costs.

THE NEXT BEST ALTERNATIVE; WHAT YOU GIVE UP TO DO SOMETHING OR PURCHASE SOMETHING

Define comparative advantage

The ability of an individual or group to carry out an economic activity, such as production, at a lower cost and more efficiently than another entity.

Draw A PPC showing increasing opportunity costs

This is the PPC

Define Scarcity

UNLIMITED WANTS CLASH WITH LIMITED RESOURCES. EVERYONE FACES SCARCITY. ECONOMICS FOCUSES ON THE ALLOCATION OF SCARCE RESOURCES.

Explain why opportunity costs generally increase as an economy devotes more of its resources toward the production of a particular good

Whenever a country reallocates or shifts resources to change production patterns, it does so at the opportunity cost. Recall - opportunity cost is what you give up when making an economic decision.

What is economics?

is the study of the ways individuals, firms, and society make decisions to allocate limited resources to competing wants.

How is ceteris paribus used?

ÜModels are crafted from new ideas, then tested against real world data. For example, will more government spending lead to economic growth?

Define productive efficiency.

•GOODS AND SERVICES ARE PRODUCED AT THEIR LOWEST POSSIBLE RESOURCE (OPPORTUNITY) COST.