question

What is economics?

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Economics is the study of how agents choose to allocate their scare resources and how those choices affect society.

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Economics can be divided into what two kinds of analysis?

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positive analysis (what people actually do) and normative analysis (what people ought to do)

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Economics is based on what three key principles?

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optimization, equilibrium, and empiricism

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What is optimization?

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Optimization is choosing the best feasible option, given the available information.

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What is equilibrium?

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Equilibrium is a situation in which nobody would benefit personally by changing his or her own behavior.

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What is empiricism?

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Empiricism is evidence based analysis.

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economic agent

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an economic agent is an individual or a group that makes choices e.g. consumer, parent, student, etc

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scarce resources

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scarce resources are things that people want, whee the quantity that people exceeds the quantity that is available

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why does scarcity exist

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scarcity exists because people have unlimited wants in a world of limited resources

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macroeconomics

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macroeconomics is the study of the economy as a whole

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trade-offs

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trade-offs arise when some benefits must be given up in order to gain others

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budget constraints

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a budget constraint is the set of things that a person can choose to do (or buy) without breaking her budget.

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opportunity cost

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the best alternative activity

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cost-benefit analysis

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cost-benefit analysis is a calculation that adds up costs and benefits using a common unit of measurement, like dollars

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For every choice a person makes it can be assumed that a. the choose has full knowledge of the situation. b. a good is involved and satisfaction is gained. c. there is a fifty-fifty chance the choice was the wrong one. d. some opportunity cost was involved

answer

d. some opportunity cost was involved.

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Which of the following statements is FALSE about opportunity cost? a. John wants a burger and fries. The concept of opportunity cost applies even though he has enough funds to buy both. b. Opportunity cost is the next best alternative. c. cost is always forgone opportunity. d. opportunity cost exist only for goods with monetary values.

answer

d. opportunity cost exist only for goods with monetary values.

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Mariko is buying a soft drink. She can choose between iced tea, cola, and diet cola. She doesn't like diet cola, and after some thought, she chooses iced tea. What is the opportunity cost of this choice? a. the iced tea, the cola, and the diet cola b. the cola, and the diet cola c. the diet cola d. the cola

answer

d. the cola

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opportunity cost is a. the highest valued alternative that must be given up to engage in an activity. b. when unlimited wants exceed the limited resources available to fulfill those wants. c. when consumers and firms use all available information as they act to achieve their goals. d. the idea that because of scarcity, producing more of one good or service means producing less of another good or service.

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a. the highest valued alternative that must be given up to engage in an activity.

question

Bill Bonecrusher graduates from college witha choice of playing professional football at 2 million a year or coaching for 50,000 a year. HE decides to play football, but eight years later he quits football to make movies for 3 million a year. His opportunity cost at graduation was_____ and eight years later was ____. a. 2 million; 3 million b. 2 million; 2 million c. 50,000; 2 million d. 50,000; 50,000

answer

c. 50,000; 2 million

question

Steven and Karen decide to attend the same concert when they are each given free tickets to it. We know that a. neither bears an opportunity cost since the tickets were given free to them. b. both bear the same opportunity cost because the tickets have the same face value. c. both bear the same opportunity cost because they are seeing the same thing. d. both bear an opportunity cost that depends on what each person is giving up to attend the concert.

answer

d. both bear an opportunity cost that depends on what each person is giving up to attend the concert.

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A student has a job that pays a wage rate of $10 per hour. The night before the economics exam, the student has set aside four hours to study for the exam, estimating that for each hour spent studying, her grade will rise by 5 points. That night, she gets a call from her employer to come to work for a wage rate of $15 per hour for that night. She decides to work for three hours and earn an extra $45.00. The next day she takes the test and gets a grade of 75. The opportunity cost of her work is a. the $45 she earned. b. the entire four hours she set aside for studying. c. the 15 extra points she estimates that she could have earned on the exam if she had studied the extra three hours. d. the three hours she did not study.

answer

c. the 15 extra points she estimates that she could have earned on the exam if she had studied the extra three hours.

question

Fred and Ann both decide to see the same movie when they are given free movie tickets. We know that a. both bear an opportunity cost since they could have done other things instead of see the movie. b. both bear the same opportunity cost since they are doing the same thing. c. the cost of going to the movie is greater for the one who had more choices to do other things. d. neither bears an opportunity cost because the tickets were free.

answer

a. both bear an opportunity cost since they could have done other things instead of see the movie.

question

Opportunity cost a. only is considered for goods in short supply b. is the value of all alternative forgone as a result of choosing some given alternative. c. is the value of the next best alternative as a result of choosing some given alternative. d. either B or C.

answer

c. is the value of the next best alternative as a result of choosing some given alternative.

question

Suppose that you grade point average and academic record are the most important thing to you. What is the opportunity cost of spending 2 hours studying for a biology exam? a. time spent bowling with friends b. you lost income from not working. c. time spent studying for one of you other classes. d. basic leisure time.

answer

c. time spent studying for one of you other classes.

question

which of the following is true regarding the concept of causation? a. it states that if event A causes event B, then event B cannot have a causal effect on event A. b. For any two events that occur, economists state that the first must have caused the second, since it came first. c. It describes how one even can bing abut change in another. d. it states that if event A causes event B, then event B must also cause event A.

answer

c. It describes how one even can bing abut change in another.

question

which of the following could be considered an economic agent? a. sports teams b. senators c. parents d. consumers

answer

all of the above

question

scarcity is the situation of having____ wants in the world of _____ resources.

answer

unlimited and limited

question

which of the following are considered scarce resources? a. time b. oil c. pepperoni pizzas d. gold.

answer

all of the above

question

How does microeconomics differ from macroeconomics?

answer

microeconomics is the study of how individuals, households, firms, and governments make choices, whole macroeconomics is the study of the economy as a whole.

question

which of the following is NOT an item studied under microeconomics? a. individual preferences b. cigarette taxes c. the inflation rate d. prices of individual goods

answer

c. the inflation rate

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economists study______; therefore, the unifying feature of economics is a focus on_____.

answer

all human behavior; choice

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economics, anthropology, psychology, sociology, and political science all study human behavior. economics differs from these other social sciences because it also addresses these three key concepts:

answer

optimization, equilibrium, and empiricism

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the concept of opportunity cost is a measure of_____.

answer

the value of the best alternative use of resource.

question

suppose that you allocate $20 each week for your entertainment budget. This money is spent of two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Which of the following would represent your budget constraint for entertainment?

answer

amount spent on iTunes + amount spend at Redbox = $20

question

a budget constraint illustrates the concept of _____, since as you increase your purchases of one item, you must__________.

answer

trade-offs; must decrease your purchases of the other item

question

suppose the market price of corn is $5.50 per bushel. which of the following is NOT one of the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price? a. the cost to corn farmers of growing the corn must be less than $5.50 per bushel. b. the buyers of corn will only use it for activities that they feel are worth at least $5.50 per bushel. c. both the buyers and sellers of corn could benefit by making small changes to their market behaviors. d. the quantity of corn produced by corn farmers will equal the quantity purchased by buyers.

answer

c. both the buyers and sellers of corn could benefit by making small changes to their market behaviors.

question

free riding occurs when_______ are out of sync with ________.

answer

people's private benefits; the public interest

question

which of the following is subject to the free-rider problem? a. public libraries b. a neighborhood watch c. national security d. all of the above

answer

all of the above

question

which of the following is more susceptible to the free rider problem: government-funded symphonies or city-wide pest control?

answer

use of city-wide pest control is more susceptible since even those who don't pay taxes still benefit, while government-funded symphonies can charge for admission

question

free riding occurs because_______

answer

people sometimes pursue their own private interests and don't contribute voluntarily to the public interest.

question

a surge in cocoa prices is______ and a pest attack on the cocoa crop is the _____

answer

an effect; the cause

question

which of the following is true regarding the concept of causation a. it states that if event A causes event B, then event B cannot have a causal effect on event A. b. for any two events that occur, economists state that the first must have caused the second, since it came first. c. it describes how one event can bring about change in another. d. it states that if event A causes event B, then event B must also cause event A.

answer

c. it describes how one event can bring about change in another.

question

in which of the following areas will taking an economics course help benefit you throughout your life? a. it will help you analyze and predict human behavior in a variety of situations b. it will instill the concept that what activity is given up by a decision plays an important role when making choices. c. it will given you a logic behind using cost-benefit analysis when evaluating decisions. d. all of the above

answer

d. all of the above

question

economist say the opportunity cost of an activity

answer

includes the value of the alternative use of your time

question

positive economic analysis

answer

involves objective statements that can be disproven using data

question

normative economic analysis

answer

may include subjective and ethical judgements.

question

Market

answer

a market is a group of economic agents who are trading a good or service, and the rules and arrangements for trading

question

market price

answer

if all sellers and all buyers face the same price, that price is referred to as the market price.

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in a perfectly competitive market...

answer

(1) sellers all sell an identical good or service (2) any individual buyer or and individual seller isn't powerful enough on his or her own to affect the market price

question

price takers

answer

buyers and sellers accept the market price and can't bargain for a better price

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quantity demanded

answer

is the amount of the good or service that buyers are willing to purchase at a given price

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holding all else equal

answer

everything other than the price of gas is held constant or fixed

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negatively related

answer

two variables are negatively related if the variables move in opposite direction

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law of demand

answer

the quantity demanded rises when the price falls (holding all else equal)

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willingness to pay

answer

is the highest price that a buyer is willing to pay for an extra unit of a good

question

diminishing marginal benefit

answer

as you consume more of a good, your willingness to pay for an additional unit declines

question

market demand curve

answer

the demand of all buyers in a market

question

demand curve shifts only

answer

when the quantity demanded changes at a given price

question

movements along the demand curve only

answer

when a good's price changes

question

the demand curve shifts when these factors change:

answer

1. taste and preferences 2. income and wealth 3. availability and priced of related goods 4. number and scale of buyers 5. buyer's belief about the future

question

the ONLY reason for a movement along the demand curve:

answer

a change in the price of the good itself

question

quantity supplied

answer

the amount of the good or service that sellers are willing to supply at a given price

question

positively related

answer

two variables are positively related if the variables move in the same direction eg price and supply of oil

question

willingness to accept

answer

the lowest price that a seller is willing to get paid to sell and extra unit of a good.

question

input

answer

an input is a good or service used to produce another good or service

question

the supply curve shifts when these factors change:

answer

1. prices of inputs 2. technology used 3. number and scale of buyers 4. seller's beliefs about the future

question

the ONLY reason for a movement along the supply curve:

answer

a change in the price of the good itself

question

the competitive equilibrium

answer

is the crossing point of the supply curve and the demand curve

question

the competitive equilibrium price

answer

equates quantity supplied and quantity demanded

question

the competitive equilibrium quantity

answer

is the quantity that corresponds to the competitive equilibrium price

question

excess supply

answer

occurs when the market price is above the competitive equilibrium price, so quantity supplied exceeds quantity demanded

question

excess demand

answer

occurs when the market price is below the competitive equilibrium price, so quantity demanded exceeds quantity supplied

question

what happens when prices are not free to fluctuate?

answer

when prices are not free to fluctuate, markets fail to equate quantity demanded and quantity supplied

question

income per capita

answer

income per person

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recession

answer

is an economic downturn lasting at least two quarters

question

unemployed

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he or she (1) does not have a job, (2) has actively looked for work in the prior four weeks

question

national income accounts

answer

measure the level of aggregate economic activity in a country

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the National Income and Product Accounts

answer

is the system of national income accounts that is used by the US government.

question

gross domestic product

answer

is a measure of aggregate economic activity. it is the market value of the final goods and services produced within the borders of a country during a particular period of time

question

economic flows

answer

production, expenditure, income, and factors of production

question

National income and accounting identity

answer

Y=C+I+G+X-M y is the total market value of goods and services c is consumption i is investments g is government expenditure x is exports m is imports

question

what isn't measured by GDP

answer

physical capital depreciation home production the underground economy negative externalities

question

gross national product

answer

is the market value of production owned by residents of a particular country

question

GDP per capita turns out to be an excellent predictor of

answer

life satisfaction

question

inflation rate

answer

the rate of increase in prices

question

GDP is defined in three equivalent ways:

answer

production=expenditure=income

question

GDP deflator

answer

is a measure of the overall level of prices in the economy

question

CPI

answer

is another measure of the overall level of prices in the economy

question

Both the GDP deflator and CPI can be used to measure the overall rate at which prices are rising:

answer

inflation rate

question

income per capita=

answer

GDP per capita= GPD/total population

question

we can compare income differences across countries using GDP per capita at current e

answer

GDP per capita at current exchange rates or adjusted for purchasing power parity differences

question

productivity

answer

refers to the value of the goods and services that a worker generates each hour of work

question

productivity differences:

answer

human capital physical capital technology

question

aggregate production function

answer

Y=A * F (K,H) y is GDP k is physical capital stock h is the efficiency units of labor the function F signifies that there is a relationship between physical capital, labor, and GDP A is an index of technology

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