Midterm 1

Mixed economies

Have features of both socialism & capitalism

Allocative efficiency

Where production is consistent with consumer preferences: people who value the good/service the most will get it

If demand remains unchanged and supply increases, a ________ occurs, leading to a lower equilibrium price

Surplus

Productive efficiency

Where goods or services are produced at the lowest possible cost

What factors influence market demand?

- Income of consumers - Prices of related goods - Tastes - Population & demographics - Expected future prices

A perfectly competitive market is a market with what 3 things?

1. Many buyers and sellers, 2. All firms selling identical products, and 3. No barriers to new firms entering the market

The economic problem that every society must solve (3 key questions)

1. What goods & services will be produced? 2. How will the goods be produced? 3. Who will receive the goods & services?

What are the 3 key economic ideas?

1. people are rational 2. people respond to economic incentives 3. optimal decisions are made at the margin

If you can spend $120 on books ($20 each) or pizza ($10 each), the opportunity cost of buying 1 more book is ____ - 1 pizza - 3 pizzas - 0 pizzas - 2 pizzas

2 pizzas

Supply curve

A curve that shows the relationship b/w the price of a product & the quantity of the product supplied

Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase? a decrease in consumer income unusually good weather that results in a bumper crop of barley a drought that sharply reduces barley output an increase in consumer income

A decrease in consumer income

Which of the following would cause a decrease in the equilibrium price and decrease in the equilibrium quantity of papayas? an increase in supply and an increase in demand greater than the increase in supply a decrease in supply and a decrease in demand a decrease in demand a decrease in supply and an increase in demand

A decrease in demand

Technological change

A firm may experience a positive of negative change in its ability to produce a given level of output with a given quantity of inputs

Inferior good

A good for which the demand decreases as income rises, and increases as income falls EX: second-hand clothing, ramen noodles, old navy

Normal good

A good which the demand increases as income rises, and decreases as income falls EX: clothing, restaurant meals, vacations

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

Price ceiling

A legally determined maximum price that sellers can charge

Price floor

A legally determined minimum price that sellers may receive

Underground market

A market in which buying & selling take place at prices that violate govt price regulations

Laissez faire

A nickname for free markets ("let it be"/ "hands-off")

What is a trend?

A response to the price

Market equilibrium

A situation in which quantity demanded equals quantity supplied

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Supply schedule

A table that shows the relationship b/w the price of a product & the quantity of the product supplied

Microeconomics is the study of: - How households and firms make choices - How they interact in markets - How the govt attempts to influence their choices - All of these

All of these

An increase in the demand for LED light bulbs due to changes in consumer tastes, accompanied by an increase in the supply of LED light bulbs as a result of government subsidies, will result in - an increase in the equilibrium price of LED light bulbs and no change in the equilibrium quantity. - an increase in the equilibrium quantity of LED light bulbs; the equilibrium price may increase or decrease. - an increase in the equilibrium quantity of LED light bulbs and no change in the equilibrium price. - an increase in the equilibrium price of LED light bulbs; the equilibrium quantity may increase or decrease.

An increase in the equilibrium quantity of LED light bulbs; the equilibrium price may increase or decrease.

What is an example of capital? - types of work - land - an oven in a bakery - water

An oven in a bakery

Which of the following would decrease the market supply of cars in the US? - Decrease in price of steel/aluminum - Auto workers union going on strike & successfully bargain for higher wages - Toyota & Honda open more US factories - Federal govt gives tax breaks to Detroit's Big 3

Auto workers union going on strike & successfully bargain for higher wages

The formula for CS

CS = Maximum willingness to pay - the actual price

Negative supply shock

Causes quantity supplied to be rapidly reduced, and price to increase quickly until new equilibrium is reached

Which of the following is an example of spending on goods and services in the circular flow model? - Toby buys a new lawn mower to use in his lawn care business. - Lily purchases a new massage table for use in her therapy center. - Chester buys a first-class ticket from Atlanta to London for his long-awaited vacation. - Micah purchases a new wrench for his auto repair business

Chester buys a first-class ticket from Atlanta to London for his long-awaited vacation.

Increase in price of related goods decreases demand if products are

Compliments

Marginal cost

Costs associated with producing additional unit of output.

Which of the following countries does not come close to the free market benchmark? - Japan - Cuba - France - the United States

Cuba

An increase in the price of an input decreases the profitability of selling the good, causing a ________ in supply

Decrease

Which of the following will decrease the demand for a good? - decrease in the income and the good is inferior - increase in the income and the good is normal - decrease in the income and the good is normal - increase in the income and the good is inferior

Decrease in the income and the good is normal

If the govt implements a price ceiling on insulin, this will: - Have to be set above the market equilibrium to be effective - Decrease the quantity of insulin the manufacturers will be willing to supply - Encourage manufacturers to produce & sell more insulin to increase their profits - I am groot

Decrease the quantity of insulin the manufacturers will be willing to supply

An expected decrease in the price tomorrow _______ demand today

Decreases

Demand ______ as the price goes up

Decreases

If there are fewer firms in the market, supply ______

Decreases

When price increases for one complement, demand _______ for the other

Decreases

Households receive payments for these factors by selling them to firms in ________

Factor markets

True or false: It is easy to find a perfectly competitive market in a natural economy.

False - it is very hard & rare to find naturally

Markets with _________ prices allow the collective actions of households and firms to signal the relative worth of goods and services

Flexible

Complements

Goods and services that are used together EX: Big Mac & McDonald's fries, hot dogs & buns, Gillette razors & blades, car & gas prices

Substitutes

Goods or services that can be used for the same purpose EX: Big Mac/Whopper, Gap/Tommy Hilfiger, Ford F150/Dodge Ram, iPhone/Samsung Galaxy

Which of the following is a microeconomics question? - How does Fiat decide on the price of the 500 Pop model? - When will the government better secure the borders? - What determines the level of U.S. imports and exports? - Why hasn't the federal government raised the minimum wage?

How does Fiat decide on the price of the 500 Pop model?

What determines the supply of smartphones?

How many smartphones are producers willing to sell? - Affected by the price of smartphones - Affected by other factors, including technology & labor costs

What determines the demand for smartphones?

How many smartphones do consumers want to buy? - Affected by the *price* of the smartphones - Affected by *other factors*, including prices of other goods

Which of the following is a positive economic statement? - If the price of iPhones falls, a larger quantity of iPhones will be purchased. - The government should revamp the health care system. - The standard of living in the United States should be higher. - The U.S. government should not have bailed out U.S. auto manufacturers.

If the price of iPhones falls, a larger quantity of iPhones will be purchased.

A decrease in the price of an input increases the profitability of selling the good, causing an ______ in supply

Increase

Increases in the number of people buying something will ________ the amount demanded

Increase EX: an increase in the elderly population increases the demand for medical care

Which will increase the demand for a good? - Decrease in the price of a substitute good - Increase in the price of a substitute good - increase in the price of a compliment - increase in the price of a compliment & the good is inferior

Increase in the price of a substitute good

An expected increase in the price tomorrow _______ demand today

Increases

If the demand curve is downward sloping, that means: as price _________, quantity demanded decreases

Increases

The "invisible hand" allows _________ responses to _________ end up satisfying the wants of consumers

Individual, collectively

Increase in income decreases demand if product is ______

Inferior

Price is determined by the _______ of both buyers and sellers

Interaction

Economic surplus

Maximizing the sum of consumer & producer surplus (i.e. the total net benefit to consumers & firms)

What are 3 market failures?

Monopolies, govt interference, externalities

Factors of production

Natural resources, land, factories

Does the opportunity cost of buying 1 more book change depending on how many books you have already bought?

No

Increase in income increases demand if product is _________

Normal

What does slope show/represent?

Opportunity cost

The formula for PS

PS = actual price - minimum price the producer is willing to accept

Which of the following is a normative economic statement? - Rising global demand for coal has led to increases in the price of coal. - Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. - The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. - With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased.

Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Firms supply goods and services to ________; households buy these products from the firms

Product markets

Market economies promote which 2 efficiencies?

Productive & allocative

________ is a situation in which a good or service is produced at the lowest possible cost. Allocative efficiency Optimal marginalism Equity Productive efficiency

Productive efficiency

Individuals are acting only in their own _______ ____________

Rational self-interest

Centrally planned economies (socialism)

Result when govts decide what to produce, how to produce it, and who will receive the goods and services

Market economies (capitalism)

Result when the decisions of households and firms determine what is produced, how it is produced, and who receives the goods and services. Generally, markets decide production and allocation. *private ownership is encouraged*

Households, firms, and govts continually face decisions about how to use their ______ resources

Scarce

If demand increases and supply remains unchanged, a ________ occurs, leading to higher equilibrium price

Shortage

If demand remains unchanged and supply decreases, a _______ occurs, leading to a higher equilibrium price

Shortage

Demand curve

Showing at what price, how much consumers are willing to buy

Economic models

Simplified versions of reality used to analyze real-world economic situations

Economic variables

Something measurable that can have different values, such as the incomes of doctors

Future products are ________ for current products

Substitutes

Increase in price of related goods increases demand if products are

Substitutes

If demand decreases and supply remains unchanged, a _______ occurs, leading to a lower equilibrium price

Surplus

Demand schedule

Table showing the relationship b/w the price of a product and the quantity of the product demanded

Quantity demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price

Quantity supplied

The amount of a good or service that a firm is willing & able to supply at a given price

The income effect

The consumer now has greater purchasing power and elects to purchase more goods overall

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant? The demand curve shifts to the right. The supply curve shifts to the right. The demand curve shifts to the left. None of the above.

The demand curve shifts to the right.

When Toyota introduced its 2010 Prius, it announced that the average retail price of the 2010 model would be lower than the average retail price was for the equivalent 2009 model. Which of the following would explain the price differential? - The supply of the Prius had decreased, and the demand for the Prius remained unchanged. - The demand for the Prius had increased, and the supply of the Prius had decreased. - The demand for the Prius had decreased, and the supply of the Prius had increased. - The demand for the Prius had increased, and the supply of the Prius remained unchanged.

The demand for the Prius had decreased, and the supply of the Prius had increased.

Consumer surplus

The difference b/w the highest price a consumer is willing to pay for a good/service & the actual price the consumer pays

Producer surplus

The difference b/w the lowest price a firm would be willing to accept for a good/service and the price it actually receives

Which of the following is evidence of a surplus of bananas? - The price of bananas is lowered in order to increase sales. - The quantity of bananas demanded is greater than the quantity supplied. - Long line of customers who can't buy banana. - Firms raise the price of bananas to erase surplus.

The price of bananas is lowered in order to increase sales.

If consumers' tastes change, they may buy more or less of ___________

The product EX: if consumers become more concerned about eating healthily, they might decrease their demand for fast food

The substitution effect

The product has become cheaper relative to other goods, so consumers substitute toward it

Ceteris Parubis // "All else equal" condition

The requirement that when analyzing the relationship b/w 2 variables - such as price & quantity demanded - other variable must be held constant

The Law of Supply

The rule that, holding everything else constant increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

The Law of Demand

The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease

Positive analysis

The study of "what is?"; and/or Ex: climate change

Normative analysis

The study of "what ought to be?" Ex: climate change is bad

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

Suppose a drought resulted in a major reduction in the California lettuce crop. In the market for lettuce, - the supply curve shifted to the left resulting in an increase in the equilibrium price. - the demand curve shifted to the left resulting in a decrease in the equilibrium price. - the supply curve shifted to the left resulting in a decrease in the equilibrium price. - the demand curve shifted to the right resulting in an increase in the equilibrium price.

The supply curve shifted to the left resulting in an increase in the equilibrium price.

In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States? The supply curve shifted to the right. The demand curve shifted to the left. The demand curve shifted to the right. The supply curve shifted to the left.

The supply curve shifted to the left.

Market demand

Total amount desired at specific price

Scarcity requires _________

Trade-offs

Voluntary exchange

Transactions that make both the buyer and seller better off

True or false: Private ownership is encouraged in market economies

True

Positive supply shock

Usually come in the form of overnight technological advances that quickly improve

Which of the following is a macroeconomics question? What determines the wages and benefits of flight attendants? What factors determine the price of iPhones? What determines the unemployment rate? How is the production quantity of digital cameras determined?

What determines the unemployment rate?

Shortage

When there are less products available than consumers want to buy

Surplus

When there are more products available than consumers want to buy

Which of the following would shift the supply curve for smartphones to the right? - an increase in the price of a substitute in production - a decrease in the number of firms that produce smartphones - a decrease in the price of an input used to produce smartphones - an increase in consumer income (assuming that all smartphones are normal goods)

a decrease in the price of an input used to produce smartphones

If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is a neutral good. a necessity. a normal good. a complement.

a normal good.

Which of the following is a factor of production? - 20 shares of Ford stock - an acre of forested land - a U.S. Treasury bond - $25,000 in cash

an acre of forested land

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are both inferior goods. both luxury goods. substitutes in consumption. complements in consumption.

complements in consumption

A worker is hired in a: - goods and services market. - product market. - factor market. - government market.

factor market.

Adam Smith's ________ refers to the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole. - Utopian society - survival of the fittest theory - invisible hand - comparative advantage model

invisible hand

More firms in the market will result in ______ product available at a given price, meaning ______ supply

more, greater

Price & quantity of demand are ______ related

negatively/inversely

Free market

one with few govt restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed

Allocative efficiency is achieved when firms produce goods and services - that consumers value most. - at a marginal cost of zero. - at the lowest possible cost. - at the lowest opportunity cost.

that consumers value most.

The points outside the production possibilities frontier are inefficient. unattainable. efficient. attainable.

unattainable