Macroeconomics Chapter 1-3 (exam 1) – Flashcards
Unlock all answers in this set
Unlock answersquestion
scarcity
answer
unlimited wants exceed the limited resources available to fulfill those wants
question
opportunity cost
answer
the highest valued alternative (or benefit of that alternative) that must be given up to engage in an activity
question
economics
answer
the study of the choices people make to attain their goals, given their scarce resources
question
economic models
answer
simplified versions of reality used to analyze real-world economic situations
question
positive analysis
answer
analysis concerned with what is (facts, data)
question
normative analysis
answer
analysis concerned with what ought to be (opinion)
question
microeconomics
answer
the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
question
macroeconomics
answer
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
question
trade-off
answer
the idea that, because of scarcity, producing more of one good or service means producing less of another good or service
question
production possibilities frontier (PPF)
answer
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
question
economic growth
answer
the ability of the economy to increase the production of goods and services
question
trade
answer
the act of buying and selling
question
absolute advantage
answer
the ability of an individual, a firm, or a country to produce more of a good or service than competitors in a given amount of time
question
comparative advantage
answer
the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
question
imports
answer
goods and services bought domestically but produced in other countries
question
exports
answer
goods and services produced domestically but sold in other countries
question
free trade
answer
trade between countries that is without government restrictions
question
market
answer
a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
question
product market
answer
a market for goods (computers) and services (medical treatment)
question
factor market
answer
a market for the factors of production, such as labor, natural resources, capital, and entrepreneurial ability
question
factors of production
answer
the inputs used to make goods and services
question
capital
answer
manufactured goods that are used to produce other goods and services
question
entrepreneur
answer
someone who operates a business, bringing together the other factors of production-labor, capital and natural resources- to produce goods and services
question
market economy
answer
economy in which the decisions of households and firms interacting in markets allocate economic resources
question
property rights
answer
the rights individuals/firms have to the exclusive use of their property, including the right to buy or sell it
question
quantity demanded
answer
the amount of a good or service that a consumer is willing and able to buy at a given price
question
demand schedule/curve
answer
a table/curve that shows the relationship between the price of a product and the quantity of the product demanded
question
law of demand
answer
the rule that, ceteris paribus, decreases in P cause increases in Qd, and increases in P cause decreases in Qd
question
ceteris paribus condition
answer
the requirement that when analyzing the relationship between 2 variables-like P and Qd- other variables must be held constant
question
substitutes
answer
goods and services that can be used for the same purpose
question
complements
answer
goods and services that are used together
question
quantity supplied
answer
the amount of a good or service that a producer is willing and able to sell at a given price
question
supply schedule/curve
answer
a table/curve that shows the relationship between the price of a product and the quantity of the product supplied
question
law of supply
answer
the rule that, ceteris paribus, increases in P cause increases in Qs, and decreases in P cause decreases in Qs
question
market equilibrium
answer
a situation in which Qd=Qs
question
shortage
answer
a situation in which Qd>Qs
question
surplus
answer
a situation in which Qs>Qd
question
competitive market equilibrium
answer
a market equilibrium with many buyers and many sellers
question
what causes movement along a curve?
answer
a change in price
question
what causes a curve to shift?
answer
changes in price of a complement, changes in income in the market for an inferior good, changes in expected future price, changes in income in the market for a normal good
question
If a product's complement has a price decrease then the demand for the original product...
answer
increases
question
If a product's complement has a price decrease then the quantity supplied of that product...
answer
increases
question
if a shortage exists in a market, then the actual price is...
answer
below the equilibrium price and quantity supplied is less than quantity demanded
question
Does an expected future price increases cause a shortage or surplus at equilibrium price? how is it eliminated?
answer
shortage, increase in current price
question
effect on demand when change in income in the market for a normal product- if income increases? decreases?
answer
demand increases (shift right), demand decreases (shift left)
question
effect on demand when income changes in the market for an inferior product- income increases? decreases?
answer
demand decreases(shift left), demand increases (shift right)
question
if the price of a product's substitute increases, what happens to the Qd of the product's substitute? the Demand for the product?
answer
Qd decreases, D increases (shifts right)
question
if the price of a product's substitute decreases, what happens to the Qd of the product's substitute? the Demand for the product?
answer
Qd increases, D decreases (shifts left)
question
if the price of a product's complement increases, what happens to the Qd of the product's complement? the Demand for the product?
answer
Qd decreases, D decreases (shifts left)
question
if the price of a product's complement decreases, what happens to the Qd of the product's complement? the Demand for the product?
answer
Qd increases, D increases (shifts right)
question
how is demand affected when the taste for a product increases? decreases?
answer
demand increases (shift right), demand decreases (shift left)
question
how is demand affected when the number of buyers in a market increases? decreases?
answer
D increases (shift right), D decreases (shift left)
question
how is demand affected when expected future price increases? decreases?
answer
D increases NOW (shift right), D decreases NOW (shift left)
question
how is supply affected when input prices increase? decrease?
answer
S decreases (shift left), S increases (shift right)
question
how is supply affected when technology increases?
answer
S increases (shift right)
question
how is supply affected when the number of sellers increases? decreases?
answer
S increases (shift right), S decreases (shift left)
question
how is supply affected when expected future price increases? decreases?
answer
S decreases NOW (shift left), S increases NOW (shift right)
question
as D decreases, what happens to Qs?
answer
it decreases
question
as S decreases, what happens to Qd?
answer
it decreases
question
as D increases, what happens to Qs?
answer
it increases
question
as S increases, what happens to Qd?
answer
it increases
question
who faces scarcity? is it ever eliminated
answer
everybody, no
question
does opportunity cost refer to all of the alternatives that are given up to engage in an activity?
answer
no, just the next best option
question
should economic models incorporate unrealistic assumptions?
answer
yes, this is what makes them helpful and useful
question
steps to calculating a summary of gains from trade table: production and consumption without trade, production with trade, trade, consumption with trade, gains from trade??
answer
production and consumption is given, production with trade is comparative advantage, trade (given), consumption with trade (calculate by adding or subtracting prod. w/ trade and trade), gains from trade (calculate increase in consumption)
question
can a country produce outside its PPF on its own?
answer
no because of scarcity
question
can a country produce inside its PPF on its own?
answer
yes but it's inefficient. this can happen if all of it's resources aren't being used because of things like unemployment
question
can a country produce on its PPF?
answer
yes, this is the most efficient way and they can't produce more of 1 product without producing less of another
question
how to calculate marginal opportunity cost?
answer
set max number of one product equal to the other and solve for one variable.
question
if the marginal opportunity cost for a country is 1 textbook= 5 footballs and 1 football=.2 textbooks, what does this mean?
answer
the marginal opportunity cost for 1 textbook is constant at 5 footballs, so in order to produce one additional textbook, it would have to give up producing 5 footballs.
question
what does a linear PPF mean?
answer
marginal opportunity costs are constant
question
what does a bowed-out PPF mean?
answer
marginal opportunity cost is increasing
question
how is a PPF affected when there is an increase in the labor force that produces the goods?
answer
it gets enlarged (shifts up and out)
question
how is a PPF affected when there is an improvement in technology in the market that produces one of the goods?
answer
it moves out for that one good
question
how is a PPF affected when there is destruction of a resource used in the market that produces both of the goods?
answer
the PPF shrinks (moves down and in)
question
how is a PPF affected when there is unemployment in the labor force that produces one of the goods?
answer
the PPF stays the same but there will be a point inside the PPF that represents where production will lie
question
how is a PPF affected when consumer preferences change where they want more of one product and less of another, so works quit their jobs to produce the product people want?
answer
movement to a different point on the curve
question
what happens if a variable shown on an axis changes? if it's a variable not shown on an axis?
answer
move along the curve, shift the curve
question
what happens to Qd if P increases? decreases?
answer
Qd decreases, Qd increases
question
what happens to Qs if P increases? decreases?
answer
Qs increases, Qs decreases
question
what do P* and Q* represent?
answer
equilibrium price and quantity
question
what do we adjust to bring a market back to equilibrium?
answer
price
question
how do firms react when there is a shortage? surplus?
answer
shortage they increase their price, surplus they decrease their price
