Econ T1, T2, T3

Opportunity cost of good on vertical (y) axis

1 divided by the absolute value of PPC slope

Supply curves are upward sloping in part because as prices rise: A. Firms with a higher opportunity cost of producing the product will be willing to start supplying the product. B. Individuals suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product. C. Marginal benefit to consumers of consuming the product increases as price increases.

A & B

Sunk cost

A cost that has already been committed and cannot be recovered, ignore it

Explicit cost

A cost that involves spending money

Which of the following would shift the supply curve for a good rightward? - An increase in population (buyers) - A cost-saving technological advancement in producing the good - A rise in the price of an input used in producing the good - A rise in the price of a complement

A cost-saving technological advancement in producing the good

Supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied Upward sloping with respect to price

Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon? - A decrease in supply - An increase in demand and an increase in supply - An increase in demand and an increase in supply greater than the increase in demand - A decrease in demand and an increase in supply

A decrease in supply

Production Possibilities Curve

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.

Which of the following event will shift a nation's production possibilities curve inward, assuming that only two goods are produced (airplane and houses)? - A hurricane that devastates population and infrastructure - An increase in human capital - A decrease in the quantity of lumber - A technological advancement that affects the output of airplanes

A hurricane that devastates population and infrastructure

Implicit costs

A non-monetary opportunity cost

Trade-off

An alternative that we sacrifice when we make a decision

Which of the following would cause a rightward shift of the demand curve in the market for fresh eggs in San Diego? - A technological advancement in the egg-producing industry - An increase in the number of firms in the egg-producing industry - An increase in the price of powdered eggs, a substitute for fresh eggs - An increase in the price of chicken feed

An increase in the price of powdered eggs, a substitute for fresh eggs

Cost-Benefit Principle

An individual (or a firm or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.

Efficient point

Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other along the PPC

Inefficient point

Any combination of goods for which currently available resources enable an increase in the production of one good without a reduction in the production of the other lies within the PPC

Normative Economics

Based on value and judgements

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Factors that affect a country's comparative advantage

Culture, institutions, climate, natural resources

Downsides of free trade

Does not guarantee each individual will be better off

Outsourcing

Hiring workers in other countries to do a set of jobs

Principle of Increasing Opportunity Cost

In expanding the production of any good, first employ those resources with the lowest opportunity cost, and only afterward turn to resources with higher opportunity costs.

How are increasing opportunity costs reflected?

In the outward bow of the PPC

As population increases, specialization ___

Increases

Which of the following is correct as it applies to pollution mitigation and recycling programs? - Reaching zero pollution increases MC above MB in most cases - Reaching zero pollution increases MB above MC in most cases - The optimal level of pollution is 0 bc that's where MB = MC for all pollutants - Optimal pollution levels are always less than zero

Reaching zero pollution increases MC above MB in most cases

Supply will increase as the number of _____.

Sellers in the market increases

Comparative advantage

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

Benefit

The absolute dollar amount you save not the proportion

Marginal Benefit (MB)

The additional benefit received from the consumption of the next unit of a good or service

Optimal combination of goods

The affordable combination that yields the highest total utility

Marginal Cost (MC)

The change in total costs that results from 1 extra unit of activity

Which of the following is a normative economic statement? - When the price of gasoline rises, transportation costs rise - When the price of gasoline rises, the quantity of gasoline purchased falls - The price of gasoline is too high - The current high price of gasoline is the result of strong worldwide demand

The price of gasoline is too high

Equilibrium price

The price that balances quantity supplied and quantity demanded

Law of Diminishing Marginal Utility

The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.

Utility Maximization

The proposal that people make decisions by selecting the option that has the greatest utility.

Seller's reservation price

The smallest dollar amount for which a seller would be willing to sell an additional unit of a good, generally equal to marginal cost

Economics

The study of how people make choices under conditions of scarcity and the results of these choices for society

Which of the following is NOT correct? - Trade is based on absolute advantage - There are potential gains from trade for nations - Trade allows individuals to consume outside of their individual production possibilities frontier - Trade allows for specialization

Trade is based on absolute advantage

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other

Economic models

Useful in predicting behavior regardless of if costs and benefits are weighed

Which of the following is a macroeconomics question? - What determines the wage of auto workers? - What determines the production of tablets? - What factors determine the price of diamonds? - What impacts the national unemployment rate?

What impacts the national unemployment rate?

Which of the following would not cause a shift in the demand curve? - change in population - change in price of the good - change in consumer expectations about future prices - change in tastes

a change in price of good

Economic efficiency

a condition that occurs when all goods and services are produced and consumed at their respective socially optimal levels MB = MC

Demand curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded downward-sloping with respect to price

Decrease in demand

a decrease in both equilibrium price and quantity a leftward shift of the demand curve

Increase in supply

a decrease in equilibrium price and an increase in equilibrium quantity a rightward shift of the supply curve

A decrease in the demand for eggs due to changes in consumer tastes, accompanied by a decrease in the supply of eggs as a result of an outbreak of salmonella, will result in: - a decrease in the equilibrium price of eggs and no change in the equilibrium quantity - a decrease in the equilibrium quantity of eggs; the equilibrium price may increase or decrease - a decrease in the equilibrium price of egg; the equilibrium quantity may increase or decrease - a decrease in the equilibrium quantity of eggs and no change in the equilibrium price

a decrease in the equilibrium quantity of eggs; the equilibrium price may increase or decrease

If pasta is a normal good, and the price of pasta increases, then the income effect will lead to

a decrease in the quantity of pasta demanded.

A movement along a production possibilities curve would suggest that - capital has become more efficient - there has been a technological change - a different combination of goods has been chosen - the labor force has grown

a different combination of goods has been chosen

An increase in the demand for bananas will NOT be caused by: - a drop in the market price of bananas - news that bananas help relieve stress in people - a rise in the price of apples - buyers switching to a healthier diet

a drop in the market price of bananas

Inferior good

a good for which, other things equal, an increase in income leads to a decrease in demand

Normal good

a good that consumers demand more of when their incomes increase

Change in quantity demanded

a movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price

Change in quantity supplied

a movement along the supply curve that occurs in response to a change in price

Change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

Change in supply

a shift of the supply curve, which changes the quantity supplied at any given price

Opportunity cost of good on horizontal (x) axis

absolute value of PPC slope

Cash on the table

an economic metaphor for unexploited gains from exchange

Technological innovations that decrease a firm's marginal cost lead to - an increase in supply - a decrease in supply - no change in supply

an increase in supply

Decrease in supply

an increase in the equilibrium price and a decrease in the equilibrium quantity a leftward shift of the supply curve

An outward shift of a nation's production possibilities curve can occur due to: - an increase in the labor force - a natural disaster like a hurricane or bad earthquake - a change in the amounts of one good desired - a reduction in unemployment

an increase in the labor force

If tires and gasoline are complements, then - an increase in the price of gasoline will reduce the consumption of tires - an increase in the price of gasoline will increase the consumption of tires - tires and gasoline consumption are normal goods - an increase in the price of tires will increase the consumption of gasoline

an increase in the price of gasoline will reduce the consumption of tires

Attainable point

any combination of goods that can be produced using currently available resources along or within the PPC

Unattainable point

any combination of goods that cannot be produced using currently available resources outside the PPC

If we observe there are more people willing to buy tickets to a popular sporting event than there are tickets, we would conclude that for this event, the existing price is - above the market equilibrium - unable to determine - at the market equilibrium - below the market equilibrium

below the market equilibrium

Assume that both the demand curve and the supply curve for monitors shift to the right but the demand curve shifts more than the supply curve. As a result: - the equilibrium price of monitors will decrease; the equilibrium quantity may - the equilibrium price of monitors may increase or decrease; the equilibrium quantity will increase - the equilibrium price of monitors will increase; the equilibrium quantity may increase or decrease - both the equilibrium price and quantity of monitors will increase

both the equilibrium price and quantity of monitors will increase

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

Technological innovations in the production process tend to increase supply because they: - increase marginal cost - decrease marginal cost

decrease marginal cost

If the dollar price of a bus ticket falls and the average dollar price of other goods falls by less, then the nominal price of bus tickets will ____ and the real price of bus tickets will _____. - increase; decrease - decrease; decrease - decrease; increase - increase; increase

decrease; decrease

Positive Economics

focuses on facts and cause-and-effect relationships

If the dollar price of a good increases relative to the average dollar price of all other goods, then the real price of a good will _______. increase or decrease?

increase

If the dollar price of gold doesn't change, but the average dollar price of all other goods decreases, then the real price of gold will - stay the same - increase - decrease

increase

Increase in demand

increase in both equilibrium price and quantity a rightward shift of the demand curve

Suppose Elsa owns an ice cream shop. If she expects the price of ice cream to fall next month, then this should ______. - lead her current supply of ice cream to increase - lead her current supply of ice cream to decrease - have no effect on her current supply of ice cream - lead her future supply of ice cream to increase

lead her current supply of ice cream to increase

Regardless of its truth or falsehood, the statement "an income tax cut will cause faster growth in the GDP than an increase in government spending" is an example of: - positive microeconomics - normative microeconomics - normative macroeconomics - positive macroeconomics

positive macroeconomics

Normative economic principle

predicts how people should behave

Positive economic principle

predicts how people will behave

If input prices decrease, supply will shift _____. - leftward - rightward

rightward

As prices _____, individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product. - stabilize - fall - rise

rise

Marginal utility

satisfaction or usefulness obtained from acquiring one more unit of a product

The Rational Spending Rule

spending should be allocated across goods so that the marginal utility per dollar is the same for each good

Absolute advantage

the ability to produce more of a given product or in less time

Nominal price

the absolute price of a good in dollar terms

Income effect

the change in consumption that results when a price increase causes real income to decline

Substitution effect

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

If the price of automobiles was to increase, then - the demand for gasoline would decrease - the supply of gasoline would increase - the demand for gasoline would increase - the quantity demanded of gasoline would decrease

the demand for gasoline would decrease

Buyer's surplus

the difference between the buyer's reservation price and the price he or she actually pays

Real price

the dollar price of a good relative to the average dollar price of all other goods

Buyer's reservation price

the largest dollar amount the buyer would be willing to pay for a good

Total utility

the total amount of satisfaction obtained from consumption of a good or service

Average Benefit

the total benefit of undertaking n units of an activity divided by n

If marginal utility is positive

total utility is increasing

Complements

two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)