Macroeconomics - Unit 2 study Guide

If you are willing to pay up to $8 for your first cup of coffee, the ______________________ of your first cup of coffee is $8.

marginal benefit

What are planned economies?

an economic system directed by government agencies

What are Market economies?

an economic system in which production and prices are determined by unrestricted competition between privately owned businesses.

what is the law of supply?

an increase in price results in an increase in quantity supplied

As your income increases, you buy ______________________ inferior goods.

less

Consider the maximum amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant. Economists call this... maximal output. sales volume. supply. profit maximization. When the market price of a good increases, the amount that sellers are willing to offer for sale increases. Economists call this... the maximal quantity curve. the law of supply. the price-quantity principle. the law of large numbers.

1. Supply 2. The Law of supply.

Determine whether each good is a normal good or an inferior good for the average consumer. a. For most consumers, the newest iPhone is b. For most consumers, a 10-year-old used car is c. For most consumers, dental services are

1. a normal good. 2. an inferior good 3. a normal good.

What are markets?

A market is any setting that brings together potential buyers (demanders) and sellers (suppliers). Markets are everywhere.

When is a market in equilibrium

A market is in equilibrium when the quantity supplied is equal to the quantity demanded.

If Samir replaces his manually operated espresso machines with automatic ones his marginal costs will ________________________________ .

Decrease

What are shortages and why are they important?

Economic Shortage Definition Economic shortage is a situation where the demand does not meet the supply of goods and services, Shortages cause the price to rise. Opposite for surplus

What are the factors that shift demand curves?

Income increases demand for normal goods and decreases demand for inferior goods Preferences including advertising and social pressure Prices of complements and substitutes Expectations Congestion and network effects The type and number of buyers . . . but not a change in price.

What are the factors that shift supply markets?

Input prices Productivity and technology Other opportunities and the prices of related outputs Expectations The type and number of sellers . . . but not a change in price.

Which of the following statements are true? Markets by definition involve the exchange of money for goods and services. Markets are forums in which parties exchange goods and services at a "price," where the latter can be flexibly construed. Your current economics course, the next election, and the dating scene can all be seen as markets.

Markets are forums in which parties exchange goods and services at a "price," where the latter can be flexibly construed. Your current economics course, the next election, and the dating scene can all be seen as markets.

You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers, making it easy for engineering graduates to find employment, while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. Which economic principle does this illustrate? Individuals do not normally take into account the decisions of other individuals. Changes in incentives are unlikely to change the decisions people make. Markets tend to move towards equilibrium as individuals respond to incentives. Government intervention can improve efficiency when there is a market failure. Specialization leads to economic efficiency.

Markets tend to move towards equilibrium as individuals respond to incentives.

Which of the following is NOT an example of a how a market economy is organized? Despite the advice of its business partners, Puma discontinues its most popular lines of clothing, and chooses instead to produce retro jean jackets and purple sweatpants, thinking that jean jackets and sweatpants are bound to make a fashion comeback. North Korea decrees that rice must be consumed at all meals in an effort to help domestic rice makers. For their wedding, Alex and Erika choose Matte Photography instead of Pro Finish Photography, since Matte Photography is cheaper. Dove decides to introduce a soap scent, Pomegranate, in response to Ivory's new soap scent, Blood Orange, and Olay's award-winning scent, Tangerine.

North Korea decrees that rice must be consumed at all meals in an effort to help domestic rice makers.

What is the 3 step recipe for predicting market outcomes?

Step 1: Determine which curve is shifting (supply, demand, or both). Remember that any change affecting buyers or their marginal benefits will shift the demand curve, while any change affecting sellers or their marginal costs will shift the supply curve. Step 2: Determine if it's an increase, shifting the curve to the right, or a decrease, shifting the curve to the left. An increase in marginal benefit is an increase in demand, while an increase in marginal cost creates a decrease in supply. Step 3: Determine how prices and quantities will change in the new equilibrium. Compare the old equilibrium with the new equilibrium.

What are the three symptoms in a market that is in disequilibrium?

Symptom 1: Queuing. When you're driving around looking for a spot, you're effectively queuing—waiting in line—for the next available spot. The extra time you spend in the queue raises the effective price you're paying because it will cost you both time and money to get a spot. Symptom 2: Bundling of extras. When you bought dinner just so you could get the valet to park your car, you were effectively buying extras (that dinner) so you could get the thing you wanted (the parking spot), and this effectively raises the price you're paying to park. Symptom 3: A secondary market. By parking in someone else's driveway, you've found a way around the "official" market for parking spots.

Over time, a continual decrease in autoworkers' wages leads to an increase in the supply of trucks. During this same time, drivers start to prefer compact cars over trucks, leading to a decrease in the demand for trucks. Which of the statements most accurately describes what happens to the equilibrium price and quantity of trucks? The equilibrium price will increase and the equilibrium quantity will increase. The equilibrium price will decrease and it is unclear how the equilibrium quantity will change. The equilibrium quantity will decrease and it is unclear how the equilibrium price will change. The equilibrium price will decrease and the equilibrium quantity will decrease.

The equilibrium price will decrease and it is unclear how the equilibrium quantity will change.

What is the price-quantity principle?

The higher the price, the higher the quantity supplied.

What is the Law of large numbers?

The law of large numbers states that as a company grows, it becomes more difficult to sustain its previous growth rates.

how are markets organized?

There are many different ways in which buyers and sellers meet, and each of them counts as a market. A few examples are illustrated in Figure 1. In some cases, like in a coffee shop, prices are posted, and you simply pay the price, grab your latte, and go. Alternatively, perhaps you've participated in an auction, where the price you pay depends on how much the other bidders forced you to raise your bid

What is an equilibrium price?

There's only one price at which the quantity supplied equals the quantity demanded, this is the equilibrium price.

Indicate whether each scenario involves a shift in the supply curve or movement along the supply curve. a. Americans sell their gold and silver jewelry as a result of rising prices. b. A national consumer products company produces less of its premium quality soap as a result of lower soap prices. c. Amplitude decides to join the smartphone market. d. After discovering that flash-steaming tuna before using mechanical processes to extract meat removes more tuna flesh, more cans of tuna arrive on the shelves at all major grocers.

a. Movement b. movement c. shift d. shift

The average price of gasoline is $3.25 per gallon in your town. a. At a price of $0.50 per gallon, there would be a shortage There would be a surplus. as the amount of gasoline people are willing and able to buy exceeds the amount of gasoline gas stations are willing and able to sell. b. At a price of $6.00 per gallon, there would be a shortage there would be a surplus as the amount of gasoline people are willing and able to buy is less than the amount of gasoline gas stations are willing and able to sell.

a. there would be a shortage b. There would be a surplus.

Which of the items is most likely to be a complement to coffee? creamer decaf coffee tea baked beans If a monsoon destroys the coffee crop in Vietnam, one of the world's largest coffee producers, what will likely occur? Consumers will try to find alternatives to coffee due to increases in the price of coffee. The price of sugar and creamer will increase. People will consume more coffee. There will be no change in the market for coffee.

creamer Consumers will try to find alternatives to coffee due to increases in the price of coffee.

Consider your current uses of tap water. Think about some of the ways that you use water that are beyond what is necessary to sustain life. a. If the price of tap water triples, what are some likely changes that you will make to your consumption of tap water? decrease the length of your showers leave water running while brushing your teeth turn water off while brushing your teeth increase the length of your showers b. In general, the consumption of tap water _____________ obey the law of demand.

decrease the length of your showers turn water off while brushing your teeth Does

Which cost does the owner of Milka Coffee Roasters consider when he is deciding whether to stay open an extra hour? labor rent advertising equipment

labor

You are more likely to use a dating app if a lot of other people are also using it. This is an example of the _____________________________ effect.

network

The price of related outputs effect supply because they represent an important marginal benefit opportunity cost marginal cost fixed cost

opportunity cost

When you decide whether to buy takeout for lunch or to make yourself a grilled cheese sandwich, you are applying the marginal principle. opportunity cost principle. interdependence principle. cost-benefit principle.

opportunity cost principle.

When the price of an item goes down, people buy more of it because at a lower price the item is more valuable. some new people may be willing to enter the market. there is no opportunity cost. the marginal cost is more likely to exceed the marginal benefit.

some new people may be willing to enter the market.

What is equilibrium quantity?

the quantity bought and sold at the equilibrium price

What to do when both supply and demand shift?

🅐 A decrease in both supply and demand causes both curves to shift left. 🅑 This leads to a new supply-equals-demand equilibrium. 🅒 The price falls when there is a big demand shift with a small supply shift. 🅓 And a decrease in the quantitywhen there is a big demand shift with a small supply shift.

what to know about shifts in demand markets?

🅐 An increase in demand causes the demand curve to shift right. 🅑 This leads to a new supply-equals-demand equilibrium. 🅒 Leading to an increase in the price. 🅓 And an increase in the quantity. An increase in demand leads to a higher price and a larger quantity. A decrease in demand leads to a lower price and a smaller quantity. Demand shifts lead price and quantity to move in the same direction.

What to know about supply market shifts?

🅐 An increase in supply causes the supply curve to shift right. 🅑 This leads to a new supply-equals-demand equilibrium. 🅒 Leading to a decrease in the price. 🅓 And an increase in the quantity. A shift in supply causes price and quantity to move in opposite directions. A shift in demand causes price and quantity to move in the same direction.