Economics Exam chpt. 1, 2, 3, & 4

What is the difference between microeconomics and macroeconomics?

-Microeconomics studies the behavior of individual households and firms in making decisions on the allocation of limited resources. -Macroeconomics is the study of economies of the national, regional, or global scale

Marie has a weekly budget of $24, which she likes to spend on magazine and pies. What is the maximum number of pies ($12) she could buy in a week

$24/12 = 2 pies

If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage. Why?

-If price is above equilibrium level, then there would be a surplus. Therefore, they will expand their production and supply more whereas buyers will demand less at a higher price -If the price is below equilibrium level, then there would be a shortage

Which of the following will not cause a change in the supply for a product? A.) A change in the price of the product B.) A change in producer expectations C.) A change in weather D.) A change in the price of a related good

A.) A change in the price of the product

command economy

An economic system in which the government controls a country's economy.

Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by _____________. A.) the recession B.) new technologies C.) the rise of global markets D.) inflation

B.) new technologies

The imposition of a price ceiling on a market often results in: A.) an increase in investment in the industry. B.) a surplus. C.) a shortage. D.) a decrease in discrimination on the part of sellers.

C.) A shortage

The government should levy higher taxes on the rich and use the additional revenues to provide better housing for the poor." This statement illustrates: A.) the fallacy of composition. B.) the basic principle of economics. C.) a normative economic statement. D.) a positive economic statement.

C.) a normative economic statement.

The leader of a federal political party made the following campaign promise: "My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if: A.) the economy moves along the production possibilities in the direction of a greater quantity of defense. B.) the economy moves from a point inside the production possibilities curve toward a point on the production possibilities curve. C.) the production possibilities frontier shifts outward due to an improvement in technology. D.) either b) or c) occurs.

D.) either b) or c) occurs.

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending. Ex: Congress and President

Could a nation be producing in a way that is allocatively efficient, but productively inefficient?

No. Allocative efficiency requires productive efficiency, because it pertains to choices along the production possibilities frontier

Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?

Even though they are small countries, they export a higher ratio of goods and services rather than the U.S.

Slope of a possibilities curve

Shows opportunity cost

Marie has a weekly budget of $24, which she likes to spend on magazine and pies. If the price of a magazine is $4 each, what is the max number of magazines she could buy in a week?

We can calculate this by dividing the total budget with the price of the magazine 24/4= 6

Identify the most accurate statement. A price floor will have the largest effect if it is set: a. substantially above the equilibrium price b. slightly above the equilibrium rice c. slightly below the equilibrium price d. substantially below the equilibrium price

a. substantially above the equilibrium price

A price ceiling will have the largest effect: a. substantially below the equilibrium price b. slightly below the equilibrium price c. substantially above the equilibrium price d. slightly above the equilibrium price

a. substantially below the equilibrium price

Economies of scale

factors that cause a producer's average cost per unit to fall as output rises

productive efficiency

given the available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good

The imposition of a price floor on a market often results in: A.) an increase in investment in the industry. B.) a surplus. C.) a shortage. D.) a decrease in discrimination on the part of sellers.

B.) A surplus

How do apple growers react to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known? A.) They increase the supply of apples. B.) They increase the quantity of apples supplied. C.) They decrease the supply of apples. D.) They decrease the quantity of apples supplied.

B.) They increase the quantity of apples supplied.

The circular flow diagram of economic activity is a model of the: A.) flow of goods, services, and payments between households and firms. B.) Influence of government on business behavior. C.) role of unions and government in the economy. D.) interaction among taxes, prices, and profits.

A.) flow of goods, services, and payments between households and firms.

In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made. A.) government B.) market C.) firm D.) business sector

A.) government

The demand curve for a typical good has a(n): A.) negative slope because some consumers switch to other goods as the price rises. B.) negative slope because consumer incomes fall as the price of the good rises. C.) negative slope because the good has less "snob appeal" as its price falls. D.) inverse slope because as the price goes up, the good has more profitability.

A.) negative slope because some consumers switch to other goods as the price rises.

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options. A.) sunk costs B.) opportunity costs C.) marginal analysis budget constraints

A.) sunk costs

Microeconomics primarily examines: A.) the behavior of individual households and firms. B.) how prices are determined within individual markets. C.) broad issues such as national output, employment and inflation. D.) the output levels that maximize the profits of business firms.

A.) the behavior of individual households and firms.

According to the law of supply: A.) there is a direct relationship between price and the quantity supplied. B.) there is an inverse relationship between price and the quantity supplied. C.) there is a direct relationship between price and quantity demanded. D.) there is an inverse relationship between price and quantity demanded.

A.) there is a direct relationship between price and the quantity supplied.

The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to: A.) a decline in college tuition. B.) a sharp increase in the demand for and construction of wood-frame homes. C.) an increase in the supply of lumberjacks. D.) an end to government regulations that limit timber harvesting in national forests.

B.) a sharp increase in the demand for and construction of wood-frame homes.

Positive statements are: A.) prescriptive, making claims about how the world ought to be. B.) descriptive, making claims about how the world is. C.) optimistic, putting the best possible interpretation on things. D.) affirmative, justifying existing economic policy.

B.) descriptive, making claims about how the world is.

Along a supply curve: A.) supply changes as price changes. B.) quantity supplied changes as price changes. C.) supply changes as technology changes. D.) quantity supplied changes as technology changes.

B.) quantity supplied changes as price changes.

hy is there scarcity? A.) Because the opportunity set determines this. B.) Because theory dictates it. C.) Because our unlimited wants exceed our limited resources. D.) Because human wants are limited.

C.) Because our unlimited wants exceed our limited resources.

The labor ____________ curve(s) will shift _______________ if there is an increase in productivity or an increase in the demand for the final product. A.) demand; left B.) supply; left C.) demand; right D.) supply; right

C.) Demand; right

_____________ is a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines. A.) Skill B.) Specialization C.) Economies of scale D.) Division of labor

C.) Economies of scale

Improvements in the productivity of labor will tend to: A.) decrease wages. B.) decrease the supply of labor. C.) Increase wages D.) Increase the supply of labor

C.) Increase wages

A straightforward example of a _______________, often used for simplicity, is the interest rate. A.) price ceiling B.) financial investment C.) rate of return D.) price floor

C.) Rate of return

When the price of automobile insurance increases sharply, the likely impact on the market for automobiles is A.) an increase in demand. B.) an increase in quantity demanded. C.) a decrease in demand. D.) a decrease in quantity demanded.

C.) a decrease in demand.

Which of the following lies primarily within the realm of microeconomics? A.) an empirical analysis of the relationship between the growth of the money supply and the rate of inflation B.) an economic model forecasting the impact of a tax increase on consumer spending and national output C.) a study of supply and demand conditions in the market for orange juice D.) a model forecasting the impact of a change in interest rates on the level of investment in the economy

C.) a study of supply and demand conditions in the market for orange juice

The marginal benefit of a slice of pizza is the: A.) total amount that a consumer is willing to pay for a whole pizza, divided by the number of slices B.) difference between the value of the slice to the consumer and the price of the slice. C.) maximum amount that a consumer is willing to pay for the slice. D.) price of the slice of pizza

C.) maximum amount that a consumer is willing to pay for the slice.

A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will: A.) shift to the right, increasing the price of the drug. B.) shift to the left, increasing the price of the drug. C.) shift to the right, decreasing the price of the drug. D.) shift to the left, decreasing the price of the drug.

C.) shift to the right, decreasing the price of the drug.

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is: A.) $0 B.) $4 C.) $40 D.) $44

D.) $44

Which of the following statements most likely lies within the realm of microeconomics? A.) Unemployment rises during a recession and falls during an expansion. B.) An increase in government spending will increase the aggregate demand for goods and services in the economy. C.) A rapid acceleration of the supply of money may create inflation. D.) An increase in labor costs will increase the additional cost for a company of producing another bus.

D.) An increase in labor costs will increase the additional cost for a company of producing another bus.

The branch of economics that focuses on outcomes in highly aggregated markets, such as the markets for labor or consumption goods, is called: A.) macroeconomics. B.) positive economics. C.) normative economics. D.) microeconomics.

D.) microeconomics.

Whenever there is a surplus at a particular price, the quantity sold at that price will equal: A.) (quantity demanded plus quantity supplied)/2. B.) the quantity supplied at that price. C.) the quantity supplied minus the quantity demanded. D.) the quantity demanded at that price.

D.) the quantity demanded at that price

Explain why individuals make choices that are directly on the budget constraint, rather than inside the budget constraint or outside it.

Individuals will make choices based directly off of the budget constraint so that they're getting the most use out of their income (Maximizing money>>maximizing utility)

Name some factors that can cause a shift in the supply curve in markets for goods and services.

Input prices, natural conditions, changes in technology, government taxes, regulations, or subsidies

Price and quantity supplied have a positive relationship in law of demand. True or False?

False. Price and quantity demanded have a negative relationship in the law of supply Ex: Price goes up then demand goes down

Price and quantity supplied have a negative relationship in law of supply. True or False?

False. Price and quantity demanded have a positive relationship in the law of supply Ex: Price goes down then quantity supplied goes down

A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?

It would make more sense for her to spend her time at the consulting job because then, the consultant would have enough money to buy the vegetables that the consultant needs instead of growing them

Normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. Ex: Central bank

Scarcity

Human wants for goods, services, and resources exceed what is available

Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will happen to the demand for hamburgers?

I think you would need to know more information

What does a production possibilities frontier show?

Illustrates the concepts of opportunity cost, trade-offs and also show the effects of economic growth

What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of price ceiling on quantity supplied? Why exactly does price ceiling cause shortage?

In summary: Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below equilibrium price, quantity demanded will exceed quantity supplied and excess demand or shortages will result. Price floors prevent a price from falling below a certain level

The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied. A.) price B.) demand C.) supply D.) quantity

Price

Why do you think that most modern countries economies are a mix of command and market types?

Market economies have proven very good at raising standards of living. Yet markets also have some failings that only can be solved by central direction; an example of such failing is pollution, which markets generally do not handle very well. Another reason for command elements in economies is that political elites are always reluctant to give up their authority

Name some factors that can cause a shift in the demand curve in markets for goods and services.

Tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices

When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time?

They create the ceteris paribus when other factors are also affecting the market, or they create a shifted demand curve

Is price ceiling expected with shortage? True or False

True Ex: Rent control. The max amount you can charge on something. Low price=high demand

Is price floor expected with surplus? True or False

True Ex: Would be minimum wage. High price=low quality demanded

***(go back to this problem)**** Suppose Alphonso's town raised the price of bus tickets to $1 per trip (while the price of burgers stayed at $2 and his budget remained $10 per week.) Draw Alphonso's new budget constraint. What happens to the opportunity cost of bus tickets?

The opportunity cost of bus tickets is the number of burgers that must be given up to obtain more bus tickets.

Utility example

When Alphonso chooses between burgers and bus tickets, for example, the first few bus rides that he chooses might provide him with a great deal of utility—perhaps they help him get to a job interview or a doctor's appointment. However, later bus rides might provide much less utility—they may only serve to kill time on a rainy day. Similarly, the first burger that Alphonso chooses to buy may be on a day when he missed breakfast and is ravenously hungry

division of labor/specialization

When workers devote their energies to a single component of a productive task, they can produce more goods than if each performed the tasks.

inferior good

a good that consumers demand less of when their incomes increase

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

negative relationship

a relationship between variables characterized by an increase in one variable that occurs with a decrease in the other variable

positive relationship

an association between two variables in which they increase or decrease together

Select the correct answer. A price ceiling will usually shift: a. demand b. supply c. both d. neither

d. neither

Select the correct answer. A price floor will usually shift: a. demand b. supply c. both d. neither

d. neither

private enterprise

economic system that allows individuals to pursue their own interests without undue governmental restriction

Globalization

expanding cultural, political, and economic connections between people around the world

underground economies (black markets)

markets where the buyers and sellers make transactions without the government's approval

marginal analysis

means examining the benefits and costs of choosing a little more or a little less of a good. People naturally compare costs and benefits, but often we look at total costs and total benefits, when the optimal choice necessitates comparing how costs and benefits change from one option to another.

allocative efficiency

means that the particular combination of goods and services on the production possibility curve that a society produces represents the combination that society most desires.

normative statement

statement which describes how the world should be

positive statement

statement which describes the world as it is (factual)

invisible hand

term economists use to describe the self-regulating nature of the marketplace

comparative advantage

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

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

budget constraint

the limited amount of income available to consumers to spend on goods and services

law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

law of diminishing marginal utility

which means that as a person receives more of a good, the additional (or marginal) utility from each additional unit of the good declines. In other words, the first slice of pizza brings more satisfaction than the sixth.

Wage and quantity supplied have a negative relationship. True or False

False

Wage and quantity demanded have a negative relationship. True or False

True

market economy

Economic decisions are made by individuals or the open market.

How do we see globalization today?

Exports, Imports, and Gross domestic product

Give three reasons that explain why the division of labor increases an economy's level of production

1.) Specialization- allows workers to focus on the parts of the production process where they have an advantage 2.) workers who specialize in a particular task often learn to produce more quickly and with higher quality 3.) Economies of scale- For many goods, as the level of production increases, the average cost decreases

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. Typically an agricultural economy

utility

Economists typically assume that the more of some good one consumes (for example, slices of pizza), the more utility one obtains. the utility a person receives from consuming the first unit of a good is typically more than the utility received from consuming the fifth or the tenth unit of that same good.

Can you think of ways that globalization has helped you economically? Can you think of ways it has not?

For the average American, globalization has reduced the prices paid for many goods, but it has also made it harder to find a job if you are not well educated

oppertunity cost

cost of the loss of the next most desireable good or service that could have been produced with a resource Ex: For Alphonso, the opportunity cost of a burger is the four bus tickets he would have to give up

Sunk costs

costs that were incurred in the past and cannot be recovered, should not affect the current decision. Ex: Selena, who pays $8 to see a movie, but after watching the film for 30 minutes, she knows that it is truly terrible. Should she stay and watch the rest of the movie because she paid for the ticket, or should she leave?