Econ 201

The fact that people with higher incomes get to consume more goods and services addresses the _______ question

"for whom"

When China builds a dam using few machines and a great deal of labor, it is answering the ________ question

"how"

When consumers decide to purchase mroe electric cars and fewer gas guzzlers, they are most directly answering the ____ question

"what"

During the summer you have made eh decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost is $3,000 and books and supplies cost $1,300. The opportunity cost of attending summer school is

$10,300 (you just add them all together)

A change in which of the following alters buying plans for cars but does NOT shift the demand curve for cars?

A 20% increase in the price of a car

Coffee and sugar are complements. If the supply curve of coffee shifts leftward because of poor weather (i.e. price rises), then there will be

A decrease in the demand for sugar and a decrease in the price of sugar

If, as people's incomes increase, the demand for a good increases, the good is called

A normal good

If the quantity demanded exceeds the quantity supplied, then there is

A shortage and the price is below the equilibrium

A positive statement is

About what is

The principle of the law of increasing marginal (or opportunity) cost implies that the

Additional cost of producing one more of a good or service increases as more is produced

The term ceteris paribus means

All other things remaining equal

Economists believe that

All resources are scarce All human activity has an opportunity cost consumer wants are unlimited

Opportunity cost is defined as

All the highest-valued alternative given up

Which of the following always raises the equilibrium price?

An increase in demand combined with a decrease in supply

A shift rightward of the production possibilities frontier (curve) can be caused by

An increase in human capital (education)

Which of the following will shift the production possibilities rightward?

An increase in technology An increase in the capital stock Increase in labor and other natural resources

Keynesian economists believe the economy is analogous to

An old Idaho pickup

A bowed outward production possibilities frontier occurs when

As more of a good is produced, producing additional units of it require greater reductions in the other good

We measure the marginal _______ of a good by what a ______ for another unit of the good

Benefit; person willing to pay

As an economic concept, scarcity applies to

Both money and time

In economics, the term "capital" refers to

Buildings and equipment

An expansion of the production possibilities frontier is

Called economic growth

The economic school of thought that emphasizes the role of government failure in today's economic problems is called the _____ school.

Classical

According to your instructor (class discussion), the "bounce" theory of economics is supported by:

Classical economists and many Republicans

When an economist refers to choices made "at the margin" the economist is referring to

Decisions based on the marginal benefits and marginal costs of small changes in a particular activity

If both the demand and supply decrease, the equilibrium quantity

Decreases and the effect on the equilibrium price is indeterminate

Assume that beef and pork are substitutes for consumers. There is a drought in the cattle grazing areas raising the price of beer to consumers. The drought will shift the

Demand curve for pork rightward

The political party that emphasizes the role of market failure in today's economic problems is called

Democratic

The majority of economists in the US support which of following?

Dropping most, if not all trade barriers Greater immigration to the US Reducing or eliminating most agricultural subsides

Microeconomics focuses on all of the following EXCEPT the

Effect on inflation of increasing the money supply

A system of property rights

Encourages economic growth by creating incentives to invest in capital and to be innovative

The US economy is currently on the __________ phase of the economy

Expansion

If a technological advance takes place in the computer industry, then the equilibrium price of a computer will _______ and the quantity demanded will _____.

Fall; increase

Consumer surplus is defined as supply price minus demand price

False

Consumer surplus is the value of a good minus the cost of producing it, summed over the quantity bought

False

If demand and supply increase at the same time; we know that price falls and equilibrium quantity is indeterminate

False

If the price of gasoline rises; the demand for SUVs falls (a complement good), lowering the price of SUVs and decreasing their quantity demanded

False

T/F: In economics, many resources have no scarcity value....that is they are available to everyone free of charge

False

The inability of the government and government agencies to efficiently allocate resources is called:

Government failure

The type of uncertainty that classical economists and conservatives believe is slowing the recovery from the current recession is:

Government uncertainty

One economist says that raising taxes on gas would be in the social interest. What does this economist mean?

Higher taxes on taxes on gas would benefit society as a whole.

Which of the following is a macroeconomic issue?

How federal government budget deficits affect interest rates

If macaroni and cheese is an inferior good, a decrease in income will

Increase the demand for macaroni and cheese

An increase in the number of fast-food restaurants (suppliers)

Increase the supply of fast-good meals lowering price and increasing quantity demanded.

The principle of decreasing marginal benefit means that as the quantity of a good consumed

Increases, its marginal benefit decreases

The "law of demand" states that, other things remaining the same, the quantity demanded of any good is

Inversely related to its price

Paul Krugman is considered to be a ______ economist

Keynesian

The economic school of thought that emphasizes the role of market failure in today's economic problems is called the ______ school.

Keynesian

What are the four categories into which factors of production are grouped?

Land, labor, capital and entrepreneurship

Which of the following explains why demand curves slope downward?

Law of diminishing marginal utility

Scarcity arises from

Limited resources and unlimited wants

A decrease in demand combined with no change in supply

Lowers the equilibrium price

The branch of economics that deals with the analysis of the whole economy is called

Macroeconomics

Classical economists believe the business cycle is _____ by government intervention from macroeconomic stabilization policies

Made more unstable

Scarcity requires that people must

Make choices

The optimum level of production/consumption occurs where:

Marginal benefit = marginal cost

AS a person consumes more and more of a good, the

Marginal benefit decreases

The inability of the free market and capitalism to efficiently allocate resources is called

Market failure

Factors of production include all of the following EXCEPT

Money

In the US economy, which of the following statements is true?

More services are produced than goods

If a country must decrease current consumption to increase the amount of capital goods it produces today, then it

Must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods

Pure public goods are:

Non-rival, non-divisible, and non-excludable

"The rich should pay higher income tax rates that the poor" is an example of a

Normative statement

The marginal benefit from a good is the maximum amount a person is willing to pay for

One or more unit of good

The loss of the highest-valued alternative defines the concept of

Opportunity cost

In March 2002, a factory used new technology to produce its output. Then in August 2002, a fire destroys half the factory. The new technology shifted the factory's PPF _______ and the fire shifted it _______.

Outward; inward

Positive and normative statments differ in that

Positive statements can be tested, whereas normative statements cannot

The _______ describes the mistake of reasong that even A causes event B just because event A occurs prior to event B.

Post hoc fallacy

Most economists believe that

Prices are the best way to ration goods and services

Production efficiency is achieved when

Producing one more unit of one good cannot occur without producing less of some other good

The production possibilities frontier

Represents (the production of) all possible combinations of any two goods or services that are technically (productively) efficient.

The principle of increasing opportunity cost occurs because

Resources are not equally suited to all activities

When the demand for a good increases, its equilibrium price _____________ and quantity supplied _________.

Rises; increases

Economic growth can be pictured in a production possibilities frontier diagram by

Shifting the production possibilities frontier outward

When the price is less than the equilibrium price

Some consumers will be willing to pay a price higher than the prevailing price. There will be a shortage. The price will be forced higher. (All of the above)

On the issue of agriculture price supports and subsidies, economists (on average):

Strongly oppose

On the issue of free trade, economists (on average):

Strongly support

On the issue of immigration, economists (on average):

Strongly support

When the competitive market is using its resources efficiently, the

Sum of the total amount of consumer surplus plus the total amount of producer surplus is maximized

You observe that the price of a good rises and the quantity decreases. These observations can be the result of the

Supply curve shifting leftward.

Marginal cost is the cost

That arises from an increase in an activity

Marginal cost is the opportunity cost

That arises from producing one more unit of a good or service

The quantity supplied of a good is

The amount that the producers are planning to sell at a particular price during a given time period

Which of the following causes the production possibilities frontier to have a bowed out, curvilinear shape?

The assumption that resources are specialized and not perfect substitutes for one another

The classical school supports which function of government?

The first function of government (i.e. providing competition and a system of laws, courts and justice)

Each point on a supply curve represents

The lowest price for which a supplier can profitability sell another unit

The benefit that arises from an increase in activity is called

The marginal benefit

The birth of economists as an intellectual discipline can de dated fairly precisely in the eighteenth century with

The publication of the book "The Wealth of Nations"

Human capital is

The skill and knowledge of workers

Which of the following best defines the subject of economics?

The study of choices that businesses make to maximize profit

A change in which of the following shifts the demand curve?

The tastes and preferences of consumers

The quantity of IPODS that consumers (buyers) plan to buy this month depends on all of the following except the

The technology firms use to produce and IPOD

If Smack Raman is an inferior good, a decrease in consumer incomes will decrease demand, lower price, and decrease quantity supplied (ceteris paribus).

True

If demand rises, quantity supplied rises. If supply increases, quantity demand increases

True

Opportunity cost can be measured by the slope of the PPC curve (frontier)

True

Productive or technical efficiency occurs anywhere on the production possibilities curve

True

T/F: A straight line production possibilities curve has constant opportunity cost (constant cost technology)

True

T/F: According to Adam Smith, individuals acting in their own self-interest in the market place are also unintentionally acting in the social interest

True

T/F: Allocative efficiency occurs ar a specific point (i.e. a specific mix of production) on the production possibilities curve (frontier) that is valued above all alternatives

True

T/F: Because wants and desires are unlimited; in a well functioning economy there cannot be any substantial long-term involuntary unemployment (regardless of future productivity and technological increases)

True

T/F: Free market economists (classical) are more likely to be allied with Republican tha are Keynesian economists who are more likely to be allied with the Democrats.

True

T/F: Many economists believe that occupational licenses are designed more to rise salaries in tose professions than protect the consumers

True

T/F: Marginal cost (or supply price) is the minimum price that producers must receive to induce them to produce another unit of a good or service

True

T/F: Most economists believe that "exporting jobs" in the process of globalization is good for the US and world economy

True

T/F: Most economists favor less restrictive immigration policies in teh US

True

T/F: The best definition of a capital good is "foregone consumption"

True

T/F: The current price of gasoline is modest in real inflation adjusted terms by historical standards

True

T/F: The iron law of price is that it must rise before it can fall when a shortage occurs

True

T/F: The more we have of a good or service, the smaller is its marginal benefit and teh less we are willing to pay for an additional unit of it.

True

T/F: The producer surplus on a unit of output is the difference between the market price and the opportunity cost of producing it (supply price).

True

The BEST definition of a capital good is "forgone consumption"

True

In a market economy, what people do in the pursuit of their self-interest

Usually forwards the social interest

All economic questions arise becuase

We want more than we can get

The fallacy of composition is the false belief that

What is true for each part is also true for the whole part

Resource use is allocatively efficient

When marginal benefit equals marginal cost

If the US can increase its production of automobiles without decreasing its production of any other good, the US must have been producing at a point

Within its PPF

Suppose that for the past two months, you have studied economics one hour a day. You now decide to study economics two hours a day. For the past two months, ________.

Your marginal benefit from studying economics an hour must have been greater than its marginal cost