Macroeconomics

The law of demand states that, all else equal,

As price increases, quantity demanded decreases

The law of supply states that, all else equal,

As price increases, quantity supplied increases

1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 Suppose the minimum wage was $5/hr in 1979 and automatically adjusted for inflation. How much would the minimum wage be in 2000?

$10/hr

1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 Suppose a manager made $40,000 in 1920. How much would this be in year 2000 dollars?

$400,000

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes 2 sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is the GDP here?

$80

1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 A movie released in 1930 had a $10 million box office, a movie release in 1980 had a $50 million box office, and a movie release in 2000 had a $60 million box office. Which one has the bigger box office?

The 1930 movie did better

Which of the following does NOT add to the US GDP?

The federal government sends a Social Security check to an elderly resident of Bowling Green.

One salesperson is paid by the hour. Another is paid a commission on each sale. Which one has the stronger incentive to sell more merchandise?

The one paid on commission

inferior good

a good that consumers demand less of when their incomes increase

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

market failure

a situation in which a market left on its own fails to allocate resources efficiently

marginal change

a small incremental adjustment to a plan of action

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

supply & demand

demand ⬆️ price ⬆️ q ⬆️ supply ⬆️ price ⬇️ q ⬆️

normal & inferior goods

income ⬆️: demand for normal goods ⬆️ demand for inferior goods ⬇️ income ⬇️: demand for normal goods ⬇️ demand for inferior goods ⬆️

inflation

increase in the overall level of prices in the economy

input prices

input prices ⬆️ supply ⬇️ input prices ⬇️ supply ⬆️

Natural resources per worker

inputs into production that are provided by nature, such as land, rivers, and mineral deposits

federal reserve

institution that sets the nation's monetary policy

Economics is the study of how societies ___ their ___ resources.

manage, scarce

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

incentive

something that induces a person to act

substitutes or complements

substitute price ⬆️ demand ⬆️ substitute price ⬇️ demand ⬇️ complement price ⬆️ demand ⬇️ complement price ⬇️ demand ⬆️

technology

supply ⬆️ future price ⬆️ supply ⬇️ future price ⬇️ supply ⬆️ # of sellers ⬆️ supply ⬆️ # of sellers ⬇️ supply ⬇️

disruption

supply ⬇️

The discovery of a large new reserve of crude oil will shift the ___ curve for gasoline, leading to a ___ equilibrium price.

supply, lower

market power

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

property rights

the ability of an individual to own and exercise control over scarce resources

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer

opportunity cost

whatever must be given up to obtain some item

recession

when GDP shrinks

underground economy

when you pay someone, but it's not recorded

business cycle

Fluctuations in economic activity, such as employment and production

future price

future price ⬆️ demand ⬆️ future price ⬇️ demand ⬇️ # of buyers ⬆️ demand ⬆️ # of buyers ⬇️ demand ⬇️

good news & bad news

good news: demand ⬆️ bad news: demand ⬇️

imports

goods produced abroad and sold domestically

exports

goods produced domestically and sold abroad

capital goods

goods that make other goods

Equality

the property of distributing economic prosperity uniformly among the members of society

Efficiency

the property of society getting the most it can from its scarce resources

Productivity

the quantity of goods and services produced from each unit of labor input

Physical capital per worker

the stock of equipment and structures that are used to produce goods and services

microeconomics

the study of how households and firms make decisions and how they interact in markets

10 principles

1. People face trade-offs 2. The cost of something is what you give up to get it 3. Rational people think at the margin 4. People respond to incentives 5. Trade can make everyone better off 6. Markets are usually a good way to organize economic activity 7. Governments can sometimes improve market outcomes 8. A country's standard of living depends on its ability to produce goods and services 9. Prices rise when the government prints too much money 10. Society faces a short-run trade-off between inflation and unemployment

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to the GDP as ___ hamburgers.

15

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Recall that when they were not trading, each brother spent half of his effort on each good. Now, suppose that they decide to specialize in producing only one good and agree to trade 90 pounds of cheese for 270 pints of yogurt. What would the gains from trade be for Sam?

30 pounds of cheese and 30 pints of yogurt

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Recall that when they were not trading, each brother spent half of his effort on each good. Now, suppose that they decide to specialize in producing only one good and agree to trade 90 pounds of cheese for 270 pints of yogurt. What would the gains from trade be for Dean?

60 pounds of cheese and 30 pints of yogurt

Identify which component of the US GDP the following transaction belongs in: The state government purchases some new police cars for their state police.

Government purchases

Technological knowledge

Best way to produce goods and services

If the demand for computers increased and the supply remained the same, what would happen to the equilibrium price and quantity?

Both price and quantity would increase

Which of the following is a role of households in the circular-flow diagram?

Buy and consume goods and services

What is the only creature known to naturally exchange one good for another?

Humans

Identify which component of the US GDP the following transaction belongs in: A Kentucky family purchases movie tickets at a local theater.

Consumption

Which component of the US GDP is the largest?

Consumption

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. If the brothers decide to trade, which one should specialize in cheese?

Dean

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Which brother has the absolute advantage in cheese and which one has the absolute advantage in yogurt?

Dean has the absolute advantage in cheese; Sam has the absolute advantage in yogurt.

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. Which brother has the comparative advantage in cheese, and which one has the comparative advantage in yogurt?

Dean has the comparative advantage in cheese; Sam has the comparative advantage in yogurt.

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. When not trading, each brother spent half their effort on producing one good and half their effort on producing the other good. How much of each good did each brother produce?

Dean produced 150 pounds of cheese and 240 pints of yogurt; Sam produced 60 pounds of cheese and 300 pints of yogurt.

What effect would a decrease in the price of SUVs have on the market for cars?

Decrease demand

What effect would the government increasing the legal driving age from 16 to 18 have on the market for cars?

Decrease demand

What effect would a war in the Middle East have on the market for oil?

Decrease supply

Central planning is superior to free markets as a method for economic growth.

False

In the long run, there is a trade-off between inflation and unemployment.

False

Normal people face trade-offs, but someone that's very rich like Bill Gates doesn't.

False

Rational people do not make decisions at the margin.

False

What effect would consumers on Tuesday expecting an increase in the price of gas on Friday have on the market for gas on Tuesday?

Increase demand

What effect would a new technology to extract oil from shale have on the market for oil?

Increase supply

What effect would a new, more efficient drilling technology have on the market for oil?

Increase supply

What happens when the government prints too much money?

Inflation

Which of the following are problems in measuring the CPI?

Introduction of new goods

Identify which component of the US GDP the following transaction belongs in: An American car company expands their factory in Detroit.

Investment

How many people does it take to make a computer mouse?

Millions

Roy is deciding between two movies to download. Both movies are $4.99. However, Movie A takes up 6 "slots" on his device while Movie B takes up 3. Which of the following statements is most accurate?

Movie A has a higher opportunity cost than Movie B

Identify which component of the US GDP the following transaction belongs in: A British restaurant purchases fish from an American fishing company.

Net Exports

How many individuals are there in the world who can, completely on his/her own, produce a computer mouse from raw materials?

None

A point inside the production possibilities frontier is

Possible but not efficient

If the supply of wheat increases and demand remained the same, what would happen to the equilibrium price and quantity for wheat?

Price would decrease, quantity would increase

Suppose that a drought destroys a large portion of the US corn crop. What would happen to the price and quantity of movie popcorn?

Price would increase, quantity would decrease

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

Prices and quantities both rise

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. If these brothers decide to trade, which one should specialize in yogurt?

Sam

1920 = 20 1930 = 25 1940 = 40 1950 = 60 1960 = 80 1970 = 100 1980 = 140 1999 = 180 2000 = 200 A classic 1950 sci-fi film got a $90 million dollar box office. Studio execs tried to turn it into a TV series in 1970, but it never aired and they decided to turn the pilot episode into a movie, which made $20 million. Eventually, the classic was remade in 2000 with a bigger budget, high-tech computerized special effects, and edgy writing. It was almost universally disliked by critics, but it did make $400 million. Which one had the bigger box office?

The 2000 remake

Honda operates a car factory in Ohio. Nike operates a shoe factory in Thailand. Which one belongs in the US GDP and which one belongs in the US GNP?

The Honda factory in Ohio belongs in the US GDP; the Nike factory in Thailand belongs in the US GNP.

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?

The demand curve shifts to the right

Governments can sometimes improve market outcomes.

True

In a month, Dean can produce 300 pounds of cheese or 480 pints of yogurt or any linear combination of the two. His brother Sam can produce 120 pounds of cheese or 600 pints of yogurt or any linear combination of the two in the same time. True or False: These brothers can benefit by trading with each other.

True

Trade can make everyone involved better off.

True

positive statements

claims that attempt to describe the world as it is

normative statements

claims that attempt to prescribe how the world should be

externality

the impact of one person's actions on the well-being of a bystander

Human capital per worker

the knowledge and skills that workers acquire through education, training, and experience

Scarcity

the limited nature of society's resources