Macro Test 1 Review Questions

If a price floor is set below the market price, it is:

Ineffective

Inferior good:

a good that consumers demand less of when their incomes increase

When a price ceiling is set below equilibrium...

a shortage results

David Ricardo

Strong advocate of free trade. Came up with the theory of comparative advantage

An increase in the cost of coffee beans that are used to make coffee will cause the _____ for coffee to shift _____

Supply, left

Each point along a production possibilities frontier represents:

maximum output, given the state of technology and resource availability

Absolute advantage

one country can produce more of a good than another country

Because of scarcity:

We face tradeoffs in nearly every choice we make.

An increase in demand is shown as a:

A shift to the right on the demand curve.

The father of modern demand-and-supply analysis is...

Alfred Marshall

When the supply curve shifts out (to the right) and the demand curve shifts in (to the left), the equilibrium price will..

Decrease

_________ refers to the way an economy allocates goods and services to consumers.

Distribution.

________ is the fairness of various issues and policies.

Equity

A decrease in the supply of a good causes an:

Increase in the equilibrium price and a decrease in equilibrium quantity.

A leather company produces shoes and belts. What will the company do if it expects the price of shoes to rise in the near future?

It will move resources from belt production to shoe production, thereby decreasing the supply of belts.

If the demand for iPhones rises as incomes increase, then the iPhone is a ______ good.

Normal

What drives and disciplines markets?

Prices and profits

The price of automobiles is rising because more people want to purchase cars. As a result...

Quantity supplied increases

The government can make owning a business easier or more profitable by:

Reducing regulations, offering low-interest loans, and offering favorable tax treatment.

According to the law of demand, people buy more of a good when:

The price falls.

Which concept would be addressed by microeconomics?

The price of college tuition that an individual student pays.

According to the law of comparative advantage, when one country sells goods for which it has the comparative advantage in production and buys goods for which it does not have the comparative advantage in production:

Total output to each person can be expanded.

In a capitalist society, consumers signal what products they want by their demands..

True

Thinking in the margin means that the individual thinks about the additional costs and benefits of doing something. T or F?

True.

Normal good:

a good that consumers demand more of when their incomes increase

A downward sloping curve shows the law of:

demand

If a country wants to maximize its GDP, it should always,

export goods in which it has an absolute advantage.

The fundamental reason why supply curves slope upward is:

increasing costs

A laissez-faire approach to the question of "how to produce" would be found in a:

market economy

When quantity demanded in a market equals quantity supplied, then the:

market is in equilibrium.

A change from a technically or productively inefficient mix to an efficient mix of output would BEST be represented with production possibilities frontier as a:

movement from inside the PPF onto the PPF.

Comparative advantage

one country has a lower opportunity cost of producing a good than another country

The reason that the law of demand exists is that:

people substitute cheaper products for more expensive products

The market economy is often called the price system because:

prices provide information for both the buyers and sellers.

When production technology improves, supply increases and the equilibrium...

quantity rises and the equilibrium price falls

If the supply curve shifts leftward and the demand curve also shifts leftward, and if demand shrinks relatively less than supply, then price will:

rise and quantity will fall

An increase in demand causes the equilibrium price to ____ and the equilibrium quantity to ____.

rise, rise.

An increase in technology:

shifts the production possibilities frontier curve outward.

An upward-sloping curve shows the law of:

supply

If television sellers expect the prices of televisions to fall in the future, we are likely to see the:

supply of television increase

Market failure means that:

that market has not provided a socially optimal amount of goods and services.

Human capital is...

the skills and knowledge gained by a worker through education and experience

In the market for cable television, fewer people are subscribing to cable while the cost of providing cable television has increased. As a result, we can expect an:

unknown change in the equilibrium price but a decrease in the equilibrium quantity of cable television