ECON100 EXAM 1

The primary concern of economics is the study of:

How best to allocate scarce resources among competing uses.

Product markets

Where finished goods and services are bought and sold

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily explicit costs for the firm described above? $320 $390 $400 $470

$470

One NEWSWIRE article in the text, "Hurricane Sandy to Raise Prices on Used Cars" describes the impact of thousands of cars being destroyed by the storm.. This is an example of: -An increase in supply. -A decrease in supply. -An increase in demand. -A decrease in demand.

A decrease in supply

Economic cost

Explicit costs + Implicit costs

The central problem of economics is the:

Human wants exceeding the availability of resources.

A market: -Is any place where goods are bought and sold. -Must have a physical location so buyers and sellers can meet. -Does not exist for the exchange of illegal goods and services. -Must be approved by the government before it can exist.

Is any place where goods are bought and sold

The production function

Labor is a variable input, Land & Capital are fixed inputs

Factors of production

Land, Labor, Capital, Entrepreneurship

Government failure

Occurs when government intervention fails to improve economic outcomes

Economic profit

Revenue - (explicit costs + implicit costs)

Determinants of Supply

Technology Input costs and availability Related goods in production Taxes & Subsidies Expectations Number of firms

If the first, second, third and fourth worker employed by the firm add 15, 21, 12 and 8 units of total product respectively, we can conclude that: -That after the second worker marginal product declines. -The marginal product of all four workers is 14. -The total product of two workers is 42. -That adding a fourth worker will cause total product to decline.

That after the second worker marginal product declines.

Rising marginal costs are the result of: -Increasing returns to scale. -The law of variable returns. -Rising marginal physical product. -The law of diminishing returns

The law of diminishing returns.

Law of diminishing returns

The marginal product of a variable input declines as more of it is used with a given quantity of other fixed inputs

Which of the following is true about the factors of production? -The physical limits of production are determined by all of the factors of production and technology -Rich countries have an unlimited quantity of factors. -The factors include natural resources but not skilled labor. -Some factors are scarce but other factors are not.

The physical limits of production are determined by all of the factors of production and technology

Law of increasing opportunity costs

To get more of something, you must give up an ever-increasing quantity of something else

Average Total Cost

Total Cost ------------ Total Output

Factor markets

Where factors of production are bought and sold

A production function describes: -the quantity of output demanded by consumers -the maximum amount of output attainable from a given combination of factor inputs. -how management and labor work in cooperation to increase production. -the profits that result from various production outputs.

the maximum amount of output attainable from a given combination of factor inputs.

Factors of production are:

the resources used to create output.

Ceteris paribus, _______ can change without shifting the demand curve for jackets. -Income -Taste -The price of jackets -The price of sweaters

The price of jackets

Law of demand

The quantity demanded increases as its price falls and vice versa in a given time period, negative relationship

Law of Supply

The quantity supplied increases as its price increases and vice versa, positive relationship

Microeconomics

The study of individual economic behavior of the components of the larger economy

Macroeconomics

The study of the aggregate economic behavior of the economy as a whole

If demand is constant, a decrease in the supply of gasoline will cause the equilibrium price: -To rise and quantity to fall. -And quantity both to rise. -To fall and quantity to rise. -And quantity both to fall.

To rise and quantity to fall.

T/F: When a society is operating on the production possibilities curve, it is using its available resources efficiently in the production of goods and services.

True

The market mechanism: -Works through central planning by the government. -Eliminates market failures created by the government. -Uses prices as a means of communication between consumers and producers. -Is very inefficient since consumers cannot communicate directly with producers.

Uses prices as a means of communication between consumers and producers.

Societies must address the question of WHAT to produce because: -We can't produce all the goods and services we want. -The amount of money in an economy is limited. -We are wasteful and use resources inefficiently. -Our economy experiences market failures.

We can't produce all the goods and services we want.

Three basic economic questions

What to produce? How to produce? For whom to produce?

Economic growth

An increase in output represented by the outward expansion of the PPC

Which of the following provides the best example of the law of supply? -Falling labor costs cause an increase in supply. -Improved technology shifts the supply curve to the right. -Some producers leave the industry, and the supply curve shifts to the left. -An increase in price entices suppliers to produce more.

An increase in price entices suppliers to produce more.

Ceteris paribus, which of the following will cause the demand for pizza to increase in a college town? -A new pizza restaurant opens near campus. -A decrease in the costs associated with pizza production. -A decrease in the price of tacos. -An increase in the number of students who eat pizza.

An increase in the number of students who eat pizza.

Market

Any place where goods are bought and sold

Explicit costs: -Are the total value of resources used to produce a good but for which no monetary payment is actually made. -Include only payments to labor. -Are the sum of actual monetary payments made for resources used to produce a good. -Include the market value of all resources used to produce a good.

Are the sum of actual monetary payments made for resources used to produce a good.

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily implicit costs for the firm described above? *$150 *$70 *$220 *$80

$70

Because of scarcity,

-choices must be made. -there are not enough goods and services to satisfy everyone.

The price of chocolate candy bars rises. This could be due to: -A decrease in the wage rate paid to workers in the candy bar factories. -A decrease in the cost of chocolate, which is used to produce candy bars. -A subsidy by the federal government for the producers of chocolate candy bars. -A decrease in the number of chocolate candy bar producers.

A decrease in the number of chocolate candy bar producers.

The economy of the United States is best characterized as: -Centrally planned. -A laissez faire model. -A mixed economy. -A democratic socialist economy.

A mixed economy

The long run refers to: -A time period longer than one year. -A period of time long enough for all inputs to be varied. -A time period less than one year. -The time period required for a firm to cycle its inventory.

A period of time long enough for all inputs to be varied.

Opportunity cost is: -the value of the best alternative that you give up. -the most desired goods and services that are foregone in order to obtain something else. -what you sacrifice in order to do something. -All of the above are true.

All of the above

Marginal Cost

Change in total cost ----------------------- Change in total output

Marginal Product

Change in total output -------------------------- Change in labor

A change in demand means there has been a shift in the demand curve, and a change in the quantity demanded: -Corresponds to a movement along the demand curve. -Means a shortage or surplus will result from holding prices constant. -Results from a change in the price of other related goods. -Also means demand has shifted.

Corresponds to a movement along the demand curve

A price floor: -Decreases the quantity producers are willing and able to supply relative to the equilibrium level. -Increases the quantity demanded relative to the equilibrium level. -Causes excess demand. -Creates a market surplus.

Creates a market surplus

Assuming the level of resources and technology are constant, if France decreases the size of its military, then: -Its' production possibilities curve will shift outward. -Its' production possibilities curve will shift inward. -Its' production of consumer goods can increase. -Its' production of consumer goods must decrease.

Its' production of consumer goods can increase.

In defining costs, economists recognize: -Only explicit costs while accountants recognize only implicit costs. -Explicit and implicit costs while accountants recognize only explicit costs. -Only explicit costs while accountants recognize explicit and implicit costs. -Explicit and implicit costs while accountants recognize only implicit costs.

Explicit and implicit costs while accountants recognize only explicit costs.

If supply is unchanged, a decrease in the demand for soft drinks will cause equilibrium price to: -Rise and equilibrium quantity to fall. -Fall and equilibrium quantity to fall. -Fall and equilibrium quantity to rise. -Rise and equilibrium quantity to rise.

Fall and equilibrium quantity to fall.

T/F: Capital includes the machinery and buildings used to produce goods and services.

False

T/F: The United States relies primarily on central planning to allocate resources.

False

Total Cost

Fixed Cost + Variable Cost

Which of the following is equivalent to total cost? -Economic costs plus accounting costs. -Variable costs plus marginal costs. -Marginal costs plus implicit costs. -Fixed costs plus variable costs.

Fixed costs plus variable costs.

Central Planning

Government decides the economic questions and is the doctrine of everyone's needs would be filled

One HEADLINE article in the text suggests that 30 percent of Americans trust the federal government to do the right thing. If government intervention makes the economy worse off, this is referred to as: -Scarce resources. -Central planning. -Market failure. -Government failure.

Government failure

Which of the following statements is consistent with central planning? -The economy relies heavily on the market mechanism to allocate resources. -Government planners play the dominant role in deciding how resources are allocated. -Economic decisions are made by large competitive firms. -Market prices are used to guide production and consumption activities.

Government planners play the dominant role in deciding how resources are allocated.

When a price ceiling is set for a market, the quantity demanded will be: -Less than the equilibrium quantity and price will be less than the equilibrium price. -Less than the equilibrium quantity, and price will be greater than the equilibrium price. -Greater than the equilibrium quantity, and price will be less than the equilibrium price. -Greater than the equilibrium quantity, and price will be greater than the equilibrium price.

Greater than the equilibrium quantity, and price will be less than the equilibrium price.

The goals of the principal participants in the economy are to maximize: -Income for consumers, profits for business, and taxes for government. -Goods and services for consumers, scarce resources for businesses, and money for government. -Happiness for consumers, profits for businesses, and general welfare for government. -Goods and services for consumers, scarce resources for businesses, and general welfare for government.

Happiness for consumers, profits for businesses, and general welfare for government.

A market exists for the sale and purchase of: -Computer services but not nuclear warheads. -Nuclear warheads but not illegal drugs. -Illegal drugs but not medical services. -Illegal drugs, computer services, and nuclear warheads.

Illegal drugs, computer services, and nuclear warheads.

Ceteris paribus, which of the following will cause the demand for peanut butter to decrease? -The factories that produce peanut butter close down for safety reasons. -The workers who pick peanuts, the main ingredient in peanut butter, demand a higher wage. -Many people learn that they are allergic to peanut butter. -It is reported that peanut butter prevents heart attacks.

Many people learn that they are allergic to peanut butter.

Mixed Economies

Market & Government decides

Market Mechanism

Market decides the economic questions and laissez faire is the doctrine of leave it alone

Government intervention designed to address market failure: -May either improve or worsen the mix of output produced. -Will definitely worsen the mix of output produced. -Will definitely improve the mix of output produced. -Never has an impact on the mix of output produced.

May either improve or worsen the mix of output produced.

Market Failure

Occurs when the market mechanism does not generate the best possible outcome

Long run

Period of time in which all inputs can be changed

Short run

Period of time in which some inputs cannot be changed

Determinants of Demand

Preferences and Tastes Income Number of buyers Expectations Related goods

According to the law of demand: -Price and quantity demanded are inversely related. -Price is constant along a particular demand curve. -The demand curve will shift rightward as price increases. -Businesses will produce more as price increases.

Price and quantity demanded are inversely related.

Revenue

Price x Quantity

If a market surplus exists: -The only resolution is for the government to set the price. -Consumers will compete for the product buy offering to pay more. -Producers will compete for customers by reducing prices. -The equilibrium price is equal to the price ceiling.

Producers will compete for customers by reducing prices.

If a state decides to reduce the cost of college tuition, by providing more Pell grants to students ceteris paribus, then the: -Quantity demanded of a college education in the state will decrease. -Demand for a college education in the state will decrease. -Quantity demanded of a college education in the state will increase. -Quantity supplied of a college education in the state will increase.

Quantity demanded of a college education in the state will increase.

There would be no reason for students to study the concept of opportunity costs if: -The market mechanism functioned to allocate resources. -The government allocated resources. -The production possibilities curve bowed outward. -Resources were no longer scarce.

Resources were no longer scarce.

Accounting profit

Revenue - explicit costs

When there is a shortage in a market, prices are likely to: -Fall because buyers do not wish to buy as much as sellers want to sell. -Rise because some buyers will offer to pay a higher price. -Fall because sellers are likely to reduce their production if prices rise. -Rise because the government will put a price ceiling in place.

Rise because some buyers will offer to pay a higher price.

The planning period over which at least one resource input is fixed in quantity is the: -Production run. -Long run. -Short run. -Investment decision.

Short run

Demand

The ability and willingness to buy specific quantities of a good or service

Supply

The ability and willingness to sell specific quantities of a good or service

Microeconomics focuses on: -Full employment, price stability, and economic growth. -The behavior of individuals, firms, and government agencies. -Land, labor, and capital. -Centrally planned economies.

The behavior of individuals, firms, and government agencies.

Ceteris paribus, which of the following will cause the supply of milk shakes to increase? -Consumer incomes increase. -A new diet craze suggests that people can consume milk shakes and lose weight. -The cost of milk, a key ingredient, decreases. -The wages paid to those who work on dairy farms increases.

The cost of milk, a key ingredient, decreases.

An increase in the supply of frozen yogurt will take place when: -The price of frozen yogurt decreases. -The cost of producing frozen yogurt decreases. -The taxes on frozen yogurt increase. -Consumer incomes increase.

The cost of producing frozen yogurt decreases.

Macroeconomics focuses on: -Government failure. -The behavior of individuals, firms, and government agencies. -Land, labor, and capital. -The economy as a whole.

The economy as a whole

Economic growth means: -an increase in imports. -an expansion of production possibilities outward. -an increase in population. -Both A and B are true.

an expansion of production possibilities outward.