## AEB2014 SP17

Efficiency means that
society is getting the maximum benefits from its scarce resources.
Using up something that has been produced is called
consumption
The satisfaction created by the consumption of goods and services is called
incentive
A marginal change is a
small, incremental adjustment
Economics is the study of
how society makes decisions to manage its scarce resources
The diamond-water paradox illustrates the principle of
scarcity
The value of what you give up to obtain an item is called your
opportunity cost
When economists are trying to explain the world using facts and data, they are acting in the realm of
scientists using positive economics
In a market economy (or capitalistic economy), economic activity is guided by
buyers and sellers in a market.
is a shorthand way of saying “let one economic variable change (the cause) and see how another economic variable reacts (the effect), assuming everything else stays constant
Ceteris paribus
In the simple circular-flow diagram, the participants in the economy are
households and firms.
Which of the following is a correct statement about the production possibilities frontier?
An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier
Which of the following statements is correct?
Buyers determine demand and sellers determine supply
When studying changes in the economy over time, economists want to measure total quantity of output in terms of
real values
Which of these statements about economic models is correct?
All of the selections are correct. (For economists, economic models provide insights about the world.
Economic models are often composed of equations and diagrams.
Economic models are built with assumptions.)
Factors of production are
inputs into the production process
Refer to Figure below, what is the area of the triangle made up of the following three points (\$0, \$16, and Quantity of 80 units)? Do not include \$ sign or units
640
An agricultural farm-supply store regularly sells a piece of equipment for \$79.88 but at a sale to reduce inventory they have reduced the price to \$69.99. What is the percent decrease of the sale price from the regular price? Round your answer to one decimal place using regular rounding rules.
-12.4 %
A production possibilities frontier shifts outward when
the economy experiences economic growth.
A certain factory has a cost function represented by the following linear equation: C = 100x + 2000. The slope of this equation represents the cost of producing each individual item. We call this cost, the “variable cost” of production. The variable cost of production for this factory is:
\$100
If quantity demanded decreases at price P1, we know that the demand curve has
shifted to the left.
If a good is normal then an increase in income will result in
HINT Normal goods have a positive correlation with changes in the income variable; inferior goods have a negative correlation with changes in the income variable.
A likely example of substitute goods for most people would be
a PC computer and a Mac computer
Individual demand curves are summed horizontally to obtain the market demand curve
True
A market demand curve shows
the sum of all prices that the individual buyers are willing and able to pay for each possible quantity of the good.
The difference between a supply schedule and a supply curve is that
a supply schedule is a table and a supply curve is drawn on a graph
A movement along the supply curve might be caused by a change in
the price of the good or service that is being supplied
Which of the following events would cause the supply curve to shift to the right?
The price of fertilizer decreases, and fertilizer is an input in the production of tomatoes.
Which of the following events could cause an increase in the supply of beef cattle?
The number of beef cattle producers (sellers) increases
A wheat farmer recently has come to expect higher prices for his crop in the near future and is able to store his harvest in silos until that time. We would expect
the wheat farmer to supply less wheat now than s/he was supplying previously.
Individual demand curves are summed horizontally to obtain the market demand curve.
True
The term market always refers to
a group of buyers and sellers of a particular good or service.
What would happen to the equilibrium price and quantity of peanut butter if fewer firms decided to produce peanut butter and health officials announced that eating peanut butter was good for you?
Price will rise and the effect on quantity is ambiguous.
Suppose that demand decreases and supply decreases. What would you expect to occur in the market for the good
Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
The excess created when the quantity supplied of a commodity exceeds the quantity demanded at a price above equilibrium.
surplus
The market in which factors of production are traded is called the
factor market
Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line. If the demand for sandwiches is elastic, y
should decrease the price of sandwiches
If the price elasticity of demand for a good is 0.94, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?
a 3.760 percent increase in the price of the good
Other things equal, the demand for a good tends to be more inelastic, the
fewer the available substitutes
A measure of the sensitivity of quantity demanded to changes in consumers’ income.
Income elasticity
Buyers and sellers who have no influence on market price are referred to as
price takers.
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous
Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?
a decrease in supply and an increase in demand
The market in which final goods and services are traded is called the
product market
An increase in price causes an increase in total revenue when
demand is inelastic
If the price elasticity of demand for a good is 1.65, then a 3 percent decrease in price results in a
4.95 percent increase in the quantity demanded
Which of the following is not a determinant of the price elasticity of demand for a good?
the steepness or flatness of the supply curve for the good
The quantitative measure (a value) of the degree of responsiveness to price changes for a product in the market. Equal to the rate of change of quantity demanded (or supplied) divided by the rate of changes of the other variable which may include: price, income, or related products.
Elasticity coefficient
A competitive market is one in which
there are so many buyers and so many sellers that each has a negligible impact on the price of the product
If the table represents the willingness to pay of four buyers and the price of the product is \$18, then their total consumer surplus is
\$46
mike50,sandy30,jonathan20,haley10
A seller is willing to sell a product only if the seller receives a price that is at least as great as
the sellers’s cost of production
One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of
welfare economics
When a buyer’s willingness to pay for a good is equal to the price of the good
the buyer is indifferent between buying the good and not buying it
Ray buys a new tractor for \$118,000. He receives consumer surplus of \$13,000 on his purchase. Ray’s willingness to pay is
\$131,000
If the market price is \$1,000, the producer surplus in the market is
\$750
Abe \$1,500
Betsy \$1,200
Carlos \$1,000
Doug \$750
Evelyn \$500
Which of the following is an example of a positive externality?
The mayor of a small town plants flowers in the city park.
A command-and-control policy is another term for a
government regulation
Private markets fail to account for externalities because
decision-makers in the market fail to include the costs of their behavior to third parties
A group of buyers and sellers of a particular good or service is called a
Market
Which of the following is correct?
All of the selections are correct.
(In an economy-wide sense property rights are an important prerequisite for the price system to work.
An absence of well-established and well-enforced property rights appears to associated with a reduced standard of living.
Property rights give people the ability to exercise authority over the resources they own)
A nation’s standard of living is determined by
its productivity.
The inputs used to produce goods and services are also called
factors of production
_________ measures the level of output per unit of input; crop yield is an example
Productivity
The stock of equipment and structures that are used to produce goods and services is called ____
Physical capital
Society’s understanding of the best way to produce goods and services is called ________
Technological knowledge
Which of the following is human capital?
understanding how to use a company’s accounting software
The Peapod Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital?
The tables and chairs in the restaurant
The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases is called
Diminishing returns
The average amount of goods and services produced from each hour of a worker’s time is called
productivity
Which of the following is human capital?
for an accounting firm, the accountants knowledge of tax laws and computer software
Which of the following is considered human capital?
All of the selections are correct.
The property whereby countries that start off poor tend to grow more rapidly than countries that start out rich is called _________.
Catch-up effect
Other things equal, relatively poor countries tend to grow
faster than relatively rich countries; this is called the catch-up effect
People are willing to pay more for a diamond than for a bottle of water because
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
In an economy in which decisions are guided by prices and individual self-interest, there is
the motivation to achieve efficiency in using factors of production
The figure represents a circular-flow diagram. If Box A represents firms, then which box represents households?
Box B
box a left, box c top, box b right, box d bottom
The figure represents a circular-flow diagram. If the outer loop represents flows of dollars, then the inner loop includes
flow of inputs, of which firms are buyers
box a left, box c top, box b right, box d bottom
Which of the following would most likely have caused the production possibilities frontier to shift outward from A to B?
a general technological advance
a curve inside, arrow moving out, b curve outside
Microeconomics is best described as the study of
how households and firms make decisions and how they interact in specific markets.
When economists are trying to explain the world, they are
scientists.
Economists consider normative statements to be
prescriptive, making a claim about how the world ought to be
What is the opportunity cost of moving from point A to point B?
20 barrels
6bathtubs,30barrel[a],14bt,10brrl[b]
In a market economy, supply and demand are important because they
All of the selections are correct (determine how much of each good gets produced, can be used to predict the impact on the economy of various events and policies. play a critical role in the allocation of the economy’s scarce resources. )
A market is a
group of buyers and sellers of a particular good or service.
Each of the following is a determinant of demand except
technology
Refer to Figure 4-1. The movement from point A to point B on the graph would be caused by
a decrease in price. (q1,p1)A (q2,p2)b b lower, both on Demand line
Refer to Table 4-1. When the price of the good is \$1.00, the quantity demanded in this market would be
31 units.
Refer to Table 4-1. Whose demand does not conform to the law of demand?
Austin’s
Wheat is the main input in the production of flour. If the price of wheat decreases, all else equal, we would expect the
supply of flour to increase.
The greater the price elasticity of demand, the
greater the responsiveness of quantity demanded to a change in price.
When the price of kittens was \$25 each, the pet shop sold 20 per month. When they raised the price to \$35 each, they sold 14 per month. The price elasticity of demand for kittens is about
1.06.
If, at the current price, there is a shortage of a good,
the price is below the equilibrium price.
The impact of one person’s actions on the well-being of a bystander is called
an externality.
Nancy loves to landscape her yard, but her neighbor Lee places a low value on his landscaping. When Lee’s grass is neglected and gets long, Nancy will mow it for Lee. This is an example of
a private solution to a negative externality problem.
Markets fail to allocate resources efficiently when
property rights are not well established
Excludability is the property of a good whereby
a person can be prevented from using it.
If one person’s use of a good diminishes another person’s enjoyment of it, the good is
rival in consumption
An example of a common resource would be
the environment
Because of the free-rider problem,
private markets tend to undersupply public goods.
The key determinant of a person’s standard of living in a country is
the amount of goods and services produced from each hour of a worker’s time
Human capital is the
knowledge and skills that workers acquire through education, training, and experience.
The largest single item in the food marketing bill is
labor
Agribusiness firms that transport agricultural commodities, processed foods, and manufactured food products between different parts of the agri-food system are called _________.
Food Distributors
The linkage of successive stages in marketing and production of a commodity within one company is called _________.
Vertical Integration
_________ are the link between farmers and the firms that sell their product; these are the companies that buy ingredients and/or raw agricultural commodities and process them into retail products.
Food Processors
Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs. Given this, we know that
Mike has an absolute advantage in chairs.
If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn.
A country that currently does not trade with other countries could benefit by
not restricting trade.
By definition, exports are
goods produced domestically and sold abroad
By definition, imports are
goods produced abroad and sold domestically
The ability to produce a good at a lower opportunity cost than any other producer is called _________.
comparative advantage
In a 100-percent reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits
M1 would not change.
Under a fractional reserve banking system, banks
generally lend out a majority of the funds deposited.
The part of disposable consumer income not spent on current consumption is called _________.
Savings
Deposits that banks have received but have not loaned out are called _________.
Reserves
The set of assets used in an economy that people regularly use to buy goods and services from other people is called _________.
Money
_________ is a banking system in which banks only hold a fraction of deposits as reserves/
Fractional Banking
What is the future value of \$450 at an interest rate of 11 percent one year from today?
\$499.50
Your parents put \$500 into an account paying 7 percent interest for you when you were ten. Ten years later they tell you that you can take the money out of the account. What is the balance to the nearest penny?
\$983.58
The future value of a deposit in a savings account will be smaller
The future value of a deposit in a savings account will be smaller
George knows that he has about \$95 dollars in his account. He knows he earned an interest rate of 4 percent, but he doesn’t remember how much he opened the account with a year ago. How much did he put in?
\$91.35
_________ means the ability to borrow money with the promise to pay it back.
Credit
_________ is a number that indicates how reliable you are at paying back your debts; it is generated by a computer program that analyzes your entire credit history and generates a single number usually ranging from 300 to 850 and helps lenders decide if you’re a good credit risk or not.
Credit Score
Having good credit may impact your ability to do the following: get a credit card, get service from the utility company, purchase a home, rent an apartment.
True
According to your readings, economists state that the possible reasons for rising income inequality are: growth in foreign trade, changes in government policy, and _________.
Technological Change
Income _________ is defined to be the disparity between high-income and low-income households.
inequality
The share of total income that a household pays in taxes is called their _________.
effective tax rate
A description of an economy’s share of households reflecting different income levels is called income _________.
distribution
A quintile represents a population divided into _________ parts or expressed as _________ percent of the whole.
5; 20
According to your readings, the pay gap between college-educated individuals and those with less education is called an _________.
education premium
The portion of the business that is owned free of debt is know as the owner’s _____.
equity
The property tax
taxes land and buildings using current market value to determine the taxes owed.
The tax that is computed as a percentage of employees’ income (also matched by the employer) and is intended to provide for income in retirement and also extended to cover disability and hospitalization is the
Social Security Tax
A tax that requires persons with higher incomes to pay a higher fraction of their income in taxes than persons with lower incomes is called a _________.
progressive tax
Public education and food stamps are two types of public policy goods that are considered to be an _________ transfer payment in which taxes are redistributed from one income group within the economy to provide a specific good or service to a second group.
not implicit lolq
If annual federal government spending on obligations is greater than federal tax revenues for the year, the amount overspent for that year is referred to as the _________.
government deficit
A tax that is based on the percentage of the sales price is called ad valorum.
true
The decrease in total surplus that results from a market distortion, such as a tax, is called a
deadweight loss
When the Federal Reserve conducts open-market operations to increase the money supply, it
buys government bonds (Treasury securities) from the public
reserve the requirements are regulations concerning
the amount of reserves banks must hold against deposits.
Velocity is
(P x Y)/M and increases if dollars are exchanged more frequently
The 80/20 ratio provides a measure of the income gap between high-incomes (80th percentile) and low-incomes (20th percentile) and is calculated by the _________
census bureau
A description of an economy’s share of households reflecting different income levels is called income _________.
distribution
According to the reading, the largest category of unemployed persons in the U.S. is considered to be the _________.
job loser
The _________ is the total number of employed persons plus the total number of unemployed (who are currently looking for a job).
labor force
Cyclical unemployment is closely associated with_________.
short-run ups and downs of the economy like recessions and depressions
In order to be considered unemployed, an individual must:
not be working, be available to work, and actively sought employement during the past four weeks.
An agricultural price support program using price floors will
create surpluses
The program created to compensate producers for long-term efforts to protect their wetland, forest, grassland, and other environmentally important and sensitive natural habitat is called
the Conservation Reserve Program
Unemployment caused bya mismatch between the skills of prospective workers and the requirement of available jobs is known as:
structural unemployment
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