ECON 104 FINAL EXAM Penn State York Part 1
Shifts in the Supply Curve 3.) Weather & other "Acts of God"
- adverse event --> decrease in supply (flood, earthquake) -Beneficial event --> increase in supply (good rain)
Shifts in the Demand Curve 5.) change in the expected future price
- expect higher price in the future --> increase in demand - expect lower prices in the future --> decrease in demand now
Trading and PPF
- in absence of trade a country must consume goods & services -the PPF shows the combos of goods a country can produce - w/ trade a country can consume outside the PPF -trade lets you consume more than production can create beyond the capacity
Shifts in the Demand Curve 4.) change in the # of potential buyers
- more buyers --> increase demand - less buyers --> decrease demand
Matthew and Emma can make 16 toys each if they devote 8 working hours in a day. Further, Matthew can repair 4 cars and Emma can repair 2 cars, if they devote 8 working hours in a day. What is the opportunity cost of repairing one car to Emma?
8 toys
Which of the following doesn't change demand?
Fall/change in price
market supply schedule
a chart that lists how much of a good all suppliers will offer at different prices
sunk cost
a cost that has already been committed and cannot be recovered
Which of the following results in a decrease in the demand for labor?
a decrease in the firm's product price
Which of the following would cause a movement along the demand curve?
a decrease in the number of sellers
A graph of the prices and corresponding quantities demanded of a good or service is called
a demand curve.
Anthracite coal found underground in Pennsylvania is an example of
a land resource.
market
a place or service that enables buyers and seller to exchange goods and services
impossible
a point outside the productions possibilities curve is considered ___ to produce
consumpution goods
all the non-capital goods & services that are produced
the amount that people want to purchase at the market price =
amount available for sale at the market price
Shifts in the Demand Curve 1.) change in the tastes/preferences
away --> decrease in demand in favor --> increase in demand
increase in demand
bigger quantities demanded at every possible price
Investors =
borrowers = demanders
Macroeconomics
deals w/ entire national economy - looks at total production of goods & services - including gross domestic product & economic growth - concerned w/ inflation rate, a measure how the average price of all goods & services has changed - explain what effects the overall level of employment & unemployment in the economy
2008 Financial Crisis
decrease in the demand for financial capital as borrowers became more pessimistic about their ability to pay back loans - increase in the supply of financial capital households reduced their spending & save more
As technology that is a substitute for low-skill labor becomes available, the _________ curve for low-skill labor will shift to the________.
demand; left
In the market for financial capital, borrowers are the ________ and lenders are the ________.
demanders; suppliers
Shifts in the Supply Curve 4.) change in the expected future price
expect higher price in the future --> decrease in supply now expect lower price in the future --> increase supply now
Suppose that there is a price ceiling in the market for butter. Removal of this price ceiling on butter would result in
farmers supplying more butter to the market.
Labor
human input workers -limited amount b/c # of people is limited to the population
marginal benefit
is the additional benefit obtained from consuming one or more unit of a good or service
marginal cost
is the additional cost of obtaining one or more unit of a good or service
supply
is the willingness & ability of firms to offer goods and services for sale in a market
increase supply =
larger quantities supplied at each and every price
unlimited wants
people want more goods & services than they already have
subsititution
people will switch their purchases towards goods whose price has risen towards relatively less expensive goods
How are they produced?
minimizes costs
financial capital
money used to buy the tools and equipment used in production
Excess supply causes
prices to fall
excess demand causes
prices to rise
Land
raw materials & natural resources ex: coal, oil, tin, land home sits on, water, air
decrease in demand =
smaller quantities demanded at each and every price
decrease in supply =
smaller quantities supplied at every possible price
Economics
study of economy of the production, exchange & consumption of goods and services
Which of the following is the best example of opportunity cost?
the Thai food that you gave up when you chose to eat pizza.
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer ex: Lebron James can mow the lawn in 2 hrs. --> opportunity cost = $20,000 Neighborhood kid: 4 hrs --> opportunity cost = $36 (comparative advantage)
absolute advantage
the ability to produce a good using fewer inputs than another producer ex: Lebron James can mow the lawn in 2 hrs. (absolute advantage) Neighborhood kid: 4 hrs.
If resources are used more efficiently in the production of electricity as a result of an improvement in technology,
the supply of electricity would increase.
opportunity cost
the value of the next best alternative - value of what is given up when choosing a particular action
demand graphically quantity demanded
the whole curve of the graph is a single point on the curve
Resources are scarce because
there are not enough resources available to produce the goods and services necessary to satisfy people's unlimited wants.
law of demand
there is a negative relationship btw price & quantity of demanded decrease P --> increase Qd, increase in P --> decrease Qd, inverse relationship
Shifts in the Supply Curve 5.) Change in the # of producers
more sellers --> increase in supply less sellers --> decrease in supply
financial market
move funds btw saves and investors
Consider a demand curve for watermelons. Which of the following movements will be observed if the price of watermelons decreases at a point in time?
there will be a movement down along the demand curve
who gets the goods & services that are produced?
those who have income
Scarcity
unlimited wants but limited resources - forces people to make choices
In economics, scarcity means
not having sufficient resources to produce all the goods and services we want.
productive efficiency
not possible to produce more of both goods
A point inside the production possibilities frontier is
where unemployment of resources is occurring
Shifts in the Labor Supply #1
1.) # of workers increase in workers --> increase n supply of workers decrease in workers --> decrease in supply of workers
factors of production
1.) Land 2.) Labor 3.) Capital
Alternatives to the market
1.) Standing in line 2.) preferred customers 3.) rationing by coupon 4.) black market
Shifts in the Labor Demand #1
1.) demand for output increase in demand for output --> increase in labor decrease in demand for output
Shifts in PPF
1.) increase in the quantity of resources 2.) improvement in technology (swings out PFF) - money does not shift PPF
Shifts in the Labor Demand #3
3.) technology: substitute or complement complement --> helps in labor --> increase in labor demand substitute --> decrease in demand --> decrease in labor demand
Shifts in the Labor Demand #4
4.) # of Companies more companies --> increase in labor demand less companies --> decrease in labor demand
Shifts in the Labor Demand #5
5.) Government regulations - G.R requires more regulations --> increase in demand for educated --> decrease in trained nurse
Which of the following will not cause a decrease in the demand of bananas?
A.) consumers income falls B.) price of apples falls C.) price of bananas rises D.) monkeys die in zoos C.) price of bananas rises (this shows demand along the demand curve)
command economy
An economic system in which the government controls a country's economy.
Traditional Economy
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
market economy
Economic decisions are decentralized & resources are owned by private individuals
What do economists mean by the phrase "resources are scarce"?
Resources are scarce because there are a limited amount of resources available on Earth. For example, there is a limited amount of labor resources and this is because of the population. This forms the concept of scarcity where people have unlimited wants but limited resources.
Suppose that the price of pumpkins falls. What happens in the market for pumpkin pies?
The equilibrium price falls and the equilibrium quantity rises.
The market supply curve is found by
adding up the quantities that producers in a market are willing and able to offer for sale at each price.
If the price of mozzarella cheese (an ingredient in making pizzas) decreases due to a major technological breakthrough in the dairy industry, there would be
an increase in the supply of pizza.
Suppose an economy produces only guns and butter. The production possibilities curve for guns and butter is concave. If this economy devotes all of its resources to the production of guns and is operating efficiently, it is able to produce 240 guns. If this economy continues to operate efficiently, it can also produce 200 guns and 20 tons of butter. If this economy decides to increase butter production to 40 tons, then gun production will
be less than 160 guns.
capital goods
buildings, factories, machinery, etc
demand curve shifts in response to change in...
business consumer confidence
movement along the demand curve =
change in the quantity demanded 1.) change in the price of the good in question
movement along the supply curve =
change in the quantity supplied 1.) change in the price of the good in question
Individuals acting in their own rational self-interest
choose options that give them the greatest amount of satisfaction.
Demand for financial capital
comes from borrowers
Shifts in the Demand Curve 3.) Change in the price of related goods
complements (- relationship) - price of hotdogs decreases --> quantity of hotdogs increases --> demand of hotdogs increase -price of pencils increases --> people start writing more w/ pens instead of pencils --> demand for easers decreases substitutes (+ relationship) - price of coffee increase --> people drink less coffee --> demand for tea increases -price of white American cheese decreases --> people buy more white American --> decrease in demand for yellow American cheese
What goods & services are produced & what quantities?
consumer demands
The ________ is the amount of a product at which the quantity demanded and quantity supplied are equal at a certain price.
equilibrium quantity
Trade-off
give up some of one good to obtain another good
Shifts in the Supply Curve 1.) Change in the costs of production
higher costs --> decrease in supply lower costs --> increase in supply
Shifts in the Supply Curve 2.) New technology
improvement in tech --> increase in supply
a change in wage results
in a movement along the demand curve
Concave PPF
increasing opportunity cost - has to be less than what was given up originally
price ceilings
is a legal maximum price - creates a shortage of the good
price floor
is a legal minimum price that buyers must pay for a product - creates a surplus of a good
Equilibrium
is a situation in which there is no tendency for change - the market will be in equilibrium when there is no reason for the market price of the product to rise or fall
A point lying outside or above the production possibilities frontier
is not achievable at this time for this nation, given its current resources.
unlimited quantities of resources=
limited resources of goods and services
demand schedule
list of the quantities demanded @ every possible price - amounts that buyers are willing & able to purchase at each price
Microeconomics
looks at the production, exchange, & consumption of goods & services at the level of an individual producer of the good - deals w/ the behavior of the individual entities make up -ex: Harley Davidson production choices
In a ________ economy, the wants of the consumers and the profit motive of the producers will decide what will be produced
market
attainable
points inside the PPF
Law of Supply
positive relationship btw the price & quantity supplied
Supply Curve
shifts in the demand curve have no effect in the supply curve
product possibilities frontier
shows the maximum combos of two goods an economy can produce w/ existing resources & technology
Shifts in the Supply Curve 6.) Changes in prices of related goods
substitutes in production (- relationship) - price of strawberry milk decreases -> less profitable to sell strawberry milk --> supply of chocolate increase - price of cupcakes increases --> more profitable to bake cupcakes --> decrease in muffins supply joint products (+ relationship) - price of beef increase --. more dead cows --> supply of leather increases -price of lumber decreases --> less profitable --> supply of sawdust decreses
Technology & wage inequality
technology as a substitute for low-skill labor and a complement to high-skill labor
marginal opportunity cost
the amount of one good (guns) that must be given up to obtain one additional unit of good (butter) -gave up/ gained
price
the amount paid for a specified quantity & quality of a good or service
Correct ways to say demand statements
the fall in the price of coffee has caused the quantity demanded to increase - the fall in price of coffee has no effect on the demand for coffee
market demand schedule
the market demand schedule found by adding up the quantity demanded @ each price over all the buyers
allocative efficiency
the mix of goods being produced is the mix that society desires
When consumers and businesses have greater confidence that they will be able to repay any funds they borrow in the future,
the quantity demanded of financial capital at any given interest rate will increase.
Shifts in the Labor Demand #2
2.) Education & training of workers better educated --> increase in output --> increase in demand less educated --> decrease in output --> decrease in demand
Shifts in the Labor Supply #2
2.) Required education more rules --> less supply less rules --> more supply
Consider the market for bananas. Discuss how an increase in the price of apples would effect the supply and demand for bananas and the equilibrium price and quantity of bananas.
Since bananas and apples are both in the fruit market there can be seen as substitutes for one another. When viewing the demand for bananas as the price increases on apples people would be less interested in buying apples so the quantity demanded for bananas would increase. This will cause the demand curve to shift to the right. Then as we view the supply for bananas since apples have increased in price it is seen as more profitable to sell apples the supply of bananas would decrease. The supply curve would shift to the left causing the price of bananas to increase as well. (substitutes in production)
Explain why markets are in equilibrium at the price at which the quantity supplied is equal to the quantity demanded.
When markets are at an equilibrium means that where the wants of consumers and the wants of producers come to an agreement at a certain price they will pay for the good or service. It is a situation where there is no tendency for change. The price doesn't fall or rise. This is where the amount of the quantity demanded is equal to the amount producers want to sell at the quantity supplied.
demand curve
a graph of the demand schedule
Shifts in the Demand Curve 2.) Change in income
- normal goods (+ relationship) - increase income --> increase demand - decrease income --> decrease demand inferior goods (- relationship) -increase income --> decrease demand - decrease income --> increase demand ex: potatoes, ramen
Economy w/ economic growth affect the PPF
- the whole PPF curve moves outwards for both goods
Prices provide
-incentives -means of rationing scarce supplies - signaling mechanisms
Shifts in the Labor Supply #3
Government policies: (a) rules setting qualifications (b) subsidies for education 7 training, (c) relative desirability of working versus not working a desire to work --> increase in supply less desire --> decrease in supply b paying people way to career --> increase in supply not paying people way to a career --> decrease in supply
Matthew and Emma can make 16 toys each if they devote 8 working hours in a day. Further, Matthew can repair 4 cars and Emma can repair 2 cars, if they devote 8 working hours in a day. When these two individuals engage in trade, it would be advantageous for both if
Matthew specializes in car repairing and Emma specializes in the production of toys.
The table below represents the output per hour (using equivalent amounts of resources) of tobacco and bricks in Pennsylvania and New Jersey. Tobacco (pounds)Bricks (pounds) Pennsylvania 6 24 New Jersey 12 96 ________ has the absolute advantage in producing tobacco and ________ has the absolute advantage of producing bricks.24
New Jersey; New Jersey
productive inefficiency
a situation in which it is possible to increase the amount produced of some good, without decreasing the amount produced of any other good (in such cases the society will be producing a combination of outputs below its PPF).
A graph of the prices and quantities supplied of a good or service at each of those prices is called
a supply curve.
A price above the equilibrium price causes
a surplus to develop and drive prices down.
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms - one person's spending is another person's income - households --> spending goods and services on firms - households provide --> labor services to firms --> firms give wages (income) - firms provide --> goods & services to households
supply curve shifts in response to...
changes in how much income households choose to save rather than spend - savings decrease --> supply shifts left --> interest rates increase --> decrease supply - savings increase --> supply shifts right --> interest rates decrease --> increase supply
demand
is willingness & ability of buyers to purchase goods and services
The production possibilities frontier in the figure above indicates that
it is possible to produce more of good X without sacrificing some of the good Y only if production is occurring at a point inside the PPF such as point C.
Labor Markets
labor demand curve shows the number of workers employers whish to hire at any given wage, everything else the same -use the supply and demand to look at the labor market
savers =
lenders = suppliers
The exhibit above shows how supply and demand might shift in response to specific events. Suppose the technology for producing automotive gasoline improves. Which panel best describes how this will affect the market for sports utility vehicles, a complement of automotive gasoline?
panel (a) - D1 shifts to the right and makes a new demand curve called D2
The exhibit above shows how supply and demand might shift in response to specific events. Suppose the technology for producing automotive gasoline improves. Which panel best describes how this will affect the market for automotive gasoline?
panel (b) technology improves the supply of gasoline, supply curve shift s to the right
The exhibit above shows how supply and demand might shift in response to specific events. Suppose a winter frost destroys one-third of the nation's orange crop. Which panel best describes how this will affect the market for oranges?
panel (c) supply decrease shifts to the left because the frost killed crops
The exhibit above shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for used furniture, an inferior good?
panel (d) demand decreases shifts to the left because inferior goods would be purchased less with an increase in income
If people have unlimited wants, this means that
people always want more goods and services than they have or can purchase with their incomes.
gains from trade
people can get more of what they want through trade than they could if they tried to be self-sufficient
rational self-interest
people make choices that will give them the greatest amount of satisfaction
investment
purchases of new capital
Concave PPF curve =
resources are specialized (resources are not equally well suited to produce both goods) --> increasing opportunity cost --> Concave PPF
We generally expect a production possibilities frontier to bow outward away from the origin (to have a concave shape) because
resources are specialized.
Psychologists argue that it seems to people that the Internet has made the number of choices individuals have infinite. This means that
scarcity continues to exist because resources have not become unlimited.
excess demand
when quantity demanded is more than quantity supplied (shortage)
excess supply
when quantity supplied is more than quantity demanded (surplus)
