Economic Environment

In a market with an upward sloping supply curve and a downward sloping demand curve, when the actual price must be higher than the equilibrium price, there will be:

excess supply.

Businesses are most likely to hire new employees during which stage of the economic cycle?

expansion

If the economy is currently experiencing high growth and inflation combined with low unemployment, it is likely to be at which phase of the business cycle?

expansion

Rising economic indicators typically signal ________ in the economy.

expansion

A business cycle reflects changes in economic activity, particularly real GDP. The phases of a business cycle, in order, are:

expansion, peak, contraction and trough.

Economists refer to the relationship that a higher price leads to a higher quantity supplied as the:

law of supply.

The downward slope of a demand curve illustrates the pattern that as ________ decreases, ________ increases.

price : quantity demanded

A supply curve is a graphical illustration of the relationship between price and:

quantity supplied.

Raising public transportation fares:

reduces the opportunity cost of driving one's car

The unemployment rate generally ________ during contractions and ________ during expansions.

rises: falls

If a technology change reduces a company's production costs, it will:

shift the supply curve to the right.

supply:

the relationship between the price of a certain good or service and the quantity of that good or service producers are willing to offer for sale

Suppose Congress passes legislation that offers subsidies to orange farmers. The impact on the market for orange juice will be a rightward shift of:

the supply curve.

quantity supplied:

the total number of units of a good or service producers are willing to supply at a given price

A competitive market is one in which:

there are a large number of buyers and sellers.

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

there is a movement from one point to another along the demand curve.

If a business finds its production is becoming more efficient as it increases production, the organization is experiencing what specialization advantage?

Economies of scale

The economic term "scarcity" describes which of the following conditions?

Global oil reserves are limited.

The market value of all goods and services produced by the economy in a given year is known as:

Gross Domestic Product (GDP).

Jane Doe is a shop owner in the fictional country of Xanadu. Every month the government's planning ministry sends her a large booklet (which resembles a phone book) regulating the price of essential commodities including milk, flour, and eggs. In response to these regulations Jane Doe has reduced her inventory of essential goods and switched to selling luxuries such as cakes, pies, and soft drinks. Luxury goods are not price controlled. Does Jane Doe reside in a command economy? Why or why not?

Jane does not reside in a command economy. She owns her own business and is free to make some production and price decisions.

Which country has characteristics of a command economy?

Russia

Which of the following describes a business cycle?

Periods of increasing and decreasing real GDP.

What would cause the demand curve to shift?

Population grows in a particular market area.

Identify the macroeconomic issue among the following statements.

The average cost of producing electricity nationally is rising.

List and explain three out of the four factors responsible for shifts in the supply curve.

The four factors that can shift the supply curve include natural conditions, input prices, technology, and government. Natural conditions include any natural event that may favorably or unfavorably impact production. Lower input costs will increase the profit margin of the supplier, encouraging them to provide more output at any given price. Improved technology can increase what a supplier can produce with a given set of inputs. Government intervention can either encourage or discourage production depending on the type of intervention (subsidy vs. tax, regulation vs. deregulation, etc).

A free market is described by which of the following statements?

The government does not intervene in any way.

A decrease in the quantity supplied can be the result from:

a decrease in price.

supply curve:

a graphic representation of the relationship between price and quantity supplied of a certain good or service, with price on the vertical axis and quantity on the horizontal axis

supply schedule:

a table that shows the quantity demanded for a certain good or service at a range of prices

An economy is composed entirely of two equally sized farms A and B producing both eggs and milk. Farm A is better at producing eggs than Farm B which is better at producing milk. Then in order to maximize output, Farm A should

abandon the production of milk to fully specialize in the production of eggs and then trade with Farm B for milk

Excess supply occurs when the actual price in some market is ________ the equilibrium price.

above

Which of the following is an example of frictional unemployment as defined in the text?

an auto worker has received a job offer two states away, and must take off one month between jobs in order to relocate

According to the law of demand, assuming other factors are held constant:

as the price of milk decreases, the quantity of milk demanded will increase.

According to the law of supply, assuming other factors are held constant:

as the price of milk decreases, the quantity of milk supplied will decrease.

The law of demand states that as the price of a good decreases:

buyers desire to purchase more of it.

Because of our limited money, time, and effort, we are best off when we allocate those things:

by constantly assessing the opportunity costs of our choices.

When ________, business firms will collectively supply a higher quantity of output at any given price, and the supply curve will shift to the right.

costs of production fall

Jane is an unemployed construction worker desperate to find employment so she can cover her mortgage and basic living expenses. She is willing to work for any wage, yet is unable to find any paid work given the poor state of the economy. She continues her search despite the lack of opportunities. Which of the following economic terms best describes Jane's current predicament?

cyclical unemployment

The market for cement in a small town is defined by a demand curve that passes through the points ($50/ton, 300 tons), ($100/ton, 200 tons), ($150/ton, 100 tons). Meanwhile we know the supply curve passes through the points ($150/ton, 300 tons), ($100/ton, 200 tons), ($50/ton, 100 tons). If the market starts in a surplus of 200 tons, how much must the price change before the market is in equilibrium?

decrease by $50/ton

Complete the following sentence: If people think that the price of televisions will decrease in the near future, that belief may cause a(n):

decrease in the demand for televisions today.

Due to the negative health effects of smoking the number of cigarette consumers has steadily decreased over the past decade. During the same time period more permissive immigration laws has allowed for cheaper tobacco harvesting using migrant labor. As an economist, what movements in equilibrium quantity and price do you predict given the above information?

equilibrium price will decrease while quantity cannot be determined

The past year has had very favorable growing conditions for oranges in California. At the same time, a new study reports that eating citrus fruits are linked to better health and longevity. As an economist, what movements in equilibrium quantity and price do you predict given the above information?

equilibrium quantity will increase wile price cannot be determined

The one unique point in which quantity demanded equals quantity supplied is called:

equilibrium.

Government expenditures on public schools is classified as ________ policy.

fiscal

In a planned economy, government determines the prices for goods and services, and:

government also determines what goods will be produced.

The main economic indicators include

gross domestic product, inflation, and unemployment

Natalie runs a fast food stand selling hot dogs and soft drinks. A decrease in the price of which good below is likely to negatively impact her bottom line?

hamburgers

Michael is the owner of a steel refinery in Pittsburgh, PA. The market (his sales) price for a ton of steel increased from $400 per ton in October to $600 per ton in November. According to the law of supply, what would be a rational response by Michael to this change in the market price for steel?

hire additional workers and increase output

Use the information you just read in the text to think about the following scenario. The computer software industry is more likely to achieve economies of scale if it is located

in or close to large cities with large numbers of technology workers

Over the past 10 years consumer incomes have grown by 15%, while the price of automobiles has increased by over 20%. Tires and automobiles are complement goods. What would be a reasonable expectation regarding the demand for tires today compared to 10 years ago?

it is impossible to know with the given information

You are the leader of a revolutionary movement which has recently overthrown the government of the tiny country of Tropico. During the 3rd Party Congress, which was held shortly before your glorious victory, the party committee decreed that "to free Tropico's struggling masses from the jackboots of capitalism and reactionary imperialism, it is necessary to immediately enforce a command economy upon realization of our final victory." Which of the following actions would betray your mandate to create a command economy in Tropico?

maintain private ownerships, but legalize labor unions which will now be free to bargain with private businesses for improved ages and benefits

Economic policy decisions taken by individual states within the U.S. are classified as ________ decisions.

microeconomic

The field of economics that focuses on the actions of individual agents within the economy, like households, workers, and businesses is:

microeconomics

The economy of Atlantia is defined by the private ownership of the means of production. Although products produced and prices are based on market factors, the government intervenes as a regulator to ban harmful products and to set a minimum wage. Atlantia is an example of a ________ economy.

mixed market

Take a stab at this question (you'll need to do some multiplication). Every day, 500,000 drivers in Los Angeles incur an additional 30 minutes of traffic delays when commuting by car to their jobs. In Boston, the delays amount to 45 minutes for 200,000 drivers. If the price of time is $15/hour in Los Angeles and $25/hour in Boston, which city incurs the largest opportunity cost?

neither

The relationship between the price in a market and the amount that producers collectively make available for sale, is referred to as:

supply.

The equilibrium price for Gizmos Puzzle Toys is $12, but Gizmos are currently priced at $10 throughout the market. In the typical store that sells Gizmos, we might expect:

the box of available Gizmos is often empty.

law of supply:

the common relationship that a higher price leads to a higher quantity supplied of a certain good or service and a lower price leads to a lower quantity supplied, while all other variables are held constant

In life, we all come to a fork in the path when we need to make a choice, knowing that:

the correct choice depends upon how much we need to give up.

Suppose that a family decides to spend all of their available money on a fancy vacation instead of purchasing a much needed new automobile. From an economist's perspective, which of the following statements about this decision is likely to be true?

the decision is rational in the sense that it reflects the family's preference for vacations over new automobiles

In the past year the price of pork, the main ingredient in hot dogs, has decreased by 20%. At the same time the price of hot dog buns has also dropped 20%. How will the new equilibrium quantity and price for hot dogs compare with the original equilibrium before these price changes? Hint: Using a pen and paper to illustrate supply and demand shifts could be helpful for this question

the equilibrium in the hot dog market will increase the old equilibrium, yet the effect on price is impossible to determine

Which of the following is a defining feature of free markets?

the government does not interfere in anyway with the economic decisions of buyers and sellers

When higher prices result in a lower quantity demanded, economists call this relationship:

the law of demand.

Smith's theory of the division and specialization of labor implies that a worker skilled in engineering will

yield economic output that is sub-optimal if she were employed in something other than engineering-type functions