Microeconomics Exam 1

An American consumer who buys a Ferrari that was produced in Italy is an example of a US...

Import

Economists use the term Marginal to describe

Incremental changes A little more or a little less of something An increase or decrease in one unit

Which is not a factor of Production?

Money (Factors of Production: Labor, Capital, Natural Resources (Land))

The relationship between price and quantity demanded is

Inverse

Command Economy

An economic design where economic decisions are passed down (through hierarchy) from government planners where factors of production are owned by the government

How can society increase productivity?

More or better "Land" More or better "Labor" More or better "Capital"

Opportunity cost is

What was forgone because you pursued something else that was desired The next best alternative All around us and is part of daily decision making A true cost that economists incorporate into cost models

According to Figure, consumer surplus is shown by area:

A (In between Demand Curve and PE)

"The unemployment rate in April 2014 was 6.3% which was better than the unemployment rate was in March, but it still should have been lower"; this entire statement is an example of:

Normative economics

"The unemployment rate in April 2014 was 6.3%" is an example of

Positive economics

What are the benefits called when suppliers are willing and able to accept a price lower than equilibrium price, but actually receive equilibrium price?

Producer Surplus

A change in Quantity Demanded is

Shown by a movement from point to point along one demand curve, and occurs because the price of the product itself has changed

A change in Demand is

Shown by shifting the demand curve (out and to the right or back and to the left), and occurs because something in the world other than price has changed

The invisible hand

Shows how producers and consumers interact in the spontaneous market to create the immense and dynamic economy that we see today

The law of diminishing marginal utility

Shows the general pattern of higher levels of happiness for the first few units consumed compared to the last few units consumed

In a closed economy (no international trade), how does a society choose where on the PPF to produce?

Society will choose the combination of the two goods that maximize society's utility

Who conducts monetary policy?

The country's central bank

If hot dogs and hamburgers are substitutes and the price of hot dogs increases, what do we expect?

The demand curve for hamburgers to shift to the right

Who conducts fiscal policy?

The executive branch Congress The nation's legislative body

Law of Diminishing Marginal Utility

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time Example Thanksgiving dinner(s)

The demand curve shows that as the price of a good increases,

The quantity demanded of the good decreases

Economics is

The social science that seeks to understand the choices people make in using scarce resources to meet their unlimited wants

Choose the Figure below that depicts what happens to the market for Tamagotchi when its popularity increases and school children all across the country beg their parents to buy them a Tamagotchi?

a) an increase in Demand (An increase in popularity will cause an increase in demand.)

A _______________ shows the maximum quantity of two products that a person can purchase based on the price of the products and the person's budget.

budget constraint

Choose the Figure below that depicts what happens to the market for Apple MackBook computers when you get laid-off (change in income) and MacBooks are a "normal good" to you.

c) a decrease in Demand

Choose the figure below that depicts what happens to the market for lemonade when the price of sugar increases (increase in input price/ costs of production).

d) a decrease in Supply (Sugar is an input in the production of lemonade. An increase in the price of sugar will lead to an increase in the cost of production and a decrease in profits which reduces the firms desire to produce as much lemonade at each possible price. The end result is a decrease in Supply which is shown by shifting the supply curve backwards and to the left.)

Market Economy

An economy where economic decisions are conducted through spontaneous order, factors of production are owned by individuals and business supply goods and services based on demand

According to the Figure, producer surplus is shown by area:

B (In between PE and Supply Curve)

To be considered as part of the demand curve for a product, you must

Be willing and able to purchase that item

When economists refer to underground economies, they are talking about:

Black markets Illegal trade Employees being paid under the table

In the circular flow model, households:

Buy products and sell labor

There is a(n) __________ relationship between the amount of time that you study and how well you perform on the exam.

Direct

What is the process in which workers select specialized tasks to make a product?

Division of labor

The Division of & Specialization of Labor

Each individual person specialized in their part of a bigger picture. Ex. Assembly line workers

If there is a decrease in Supply, what will happen to equilibrium Price and equilibrium Quantity?

Equilibrium Price will increase & equilibrium Quantity will decrease

If there is an increase in Demand, what will happen to equilibrium Price and equilibrium Quantity?

Equilibrium Price will increase & equilibrium Quantity will increase

This figure shows the Market for Adidas running shoes. If the price of Nike running shoes increases; what happens in the market for Adidas running shoes? (Hint: first think about if you want more or less Nike running shoes).

Equilibrium Price will increase & equilibrium Quantity will increase (If the price of Nike Running Shoes increases, the quantity demanded of Nike Running Shoes will decrease. Therefore you are buying less Nike. If you are buying less Nike & you still need Running Shoes, the demand for Adidas Running Shoes will increase (shown by shifting the demand curve out and to the right))

Supply Increases by the exact same proportion that Demand Increases by - what will happen to equilibrium Price and equilibrium Quantity?

Equilibrium Price will stay constant & equilibrium Quantity will increase

Marginal analysis is used to

Examine the decisions of incremental change

A product that is produced in the US and sold abroad is a US...

Export

Which section of the graph is depicting "economies of scale"?

From quantity 0 to 30

This Figure shows the supply curve for lemonade. A decreases in the price of lemonade is shown by

Movement from point "A" to point "B"

This Figure shows the demand curve for Grape Juice. How is an increase in the price of Grape Juice shown on the graph?

Movement from point "B" to point "A"

When the Invisible hand is correcting the market because it has a surplus,

The equilibrium price will fall Built up inventories will decrease Quantity demanded will increase and quantity supplied will decrease

Microeconomics is concerned with:

The individual units that make up the whole of the economy

What concept are economists referring to if one input in the production of a good is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output?

The law of diminishing returns

The Production Possibility Frontier shows

The maximum combinations of two goods (or services) that can be produced given the economy's available knowledge and factors of production The efficient use of resources, points beyond the PPF are unattainable and points inside the PPF are inefficient A trade-off between two goods (or services) that could be produced

Gross domestic product is...

The total dollar amount of all final goods and services produce within a country's borders in one year

T/F Economists assume that choosing to donating money to a stranger is a "rational & self-interested' decision.

True

T/F The role of an assumption in an economic theory is to simplify the theory.

True

Traditional Economy

Typically an agricultural economy where things are done the same as they have always been done

The study of economics is primarily concerned with:

Understanding how people, businesses, governments, & societies use scarce resources

What is the term that economists use to describe the satisfaction or happiness gained from consuming a product?

Utility

Choose the figure below that depicts what happens to the market for lemonade when the producer purchases an automated lemon juicer.

b) an increase in Supply (An increase in supply is shown by shifting the supply curve out and to the right.)