question

Scarcity refers to the _____ nature of society's resources.

answer

limited

question

Which of the following statements refers to a macroeconomic issue?

answer

The national unemployment rate is currently 7.7%

question

Economics is the study of how people allocate their _____ resources to satisfy their nearly _____ wants.

answer

limited, unlimited

question

Incentives can be classified as

answer

positive, negative, direct or indirect

question

Think about a country where most economic production comes from factories that create air pollution. What could be a possible trade-off of lower pollution?

answer

more factory jobs

question

Opportunity cost is the _____ alternative that must be sacrificed in order to get something else.

answer

highest-valued

question

The opportunity cost of attending college is likely to be the highest for a high school graduate

answer

who capable of playing a well-paid professional sport

question

Judy spent eight hours studying for an exam. Normally, she would have spent that time watching TV instead of studying. She figures she could have made a "B" after only studying four hours, but she really wanted an "A." What is Judy's marginal cost in terms of TV viewing to improve her grade from a "B" to an "A"?

answer

four hours

question

Jewell attends a wedding reception where dinner is served. For her entrée, she has the option of steak, chicken, or pasta. If she chooses the pasta, then her opportunity cost is

answer

either the chicken or the steak-whichever would have been her second choice to the pasta

question

Suppose that Marie is buying bananas. She decides that she would like o purchase three bananas at the price of $0.25/banana but not a forth. Which of the five foundations of economic best describes Marie's thinking?

answer

marginal thinking

question

Suppose the government officials want to increase the population, so they offer a $1,000 payment for to the parents of each child born. Which of the five foundations of economics best describes the thinking of these government officials?

answer

incentives

question

Sam has two options this weekend. He could work at his job and earn $9/hour for the three hours, or he could go to a show at the theatre for that three hours. A ticket to the theatre costs $30. What is the opportunity cost of going to the theatre? $_____

answer

57

question

Suppose your friend can obtain concert tickets for $100 but you can't get them less than $300. Your friend sells the ticket to you for $200. Which of the following five foundations of economics best describes this activity?

answer

trade creates value

question

The concept of scarcity in economics refers to

answer

limited resources and unlimited wants

question

A physician who hires a plumber is an example of

answer

comparative advantage

question

What is the term for the voluntary exchange of goods and services between tow or more parties?

answer

trade

question

The difference between the study of microeconomics and the study of macroeconomics is a difference between

answer

the study of individual economic units and the study of the economy as a whole

question

The concept of _____ refers to weighing the costs and benefits of an action.

answer

marginal thinking

question

You order a $20 Seattle Mariners sweatshirt online for a Father's Day gift. There's a standard shipping charge of $10, but you see that orders $25 or more ship for free. You could also order a $5 Manners sticker, but you're not sure your father would like it. You decide to order the sticker. This is an example of

answer

incentives

question

What are the five foundations of economics?

answer

1). Incentives 2). Trade-offs 3). Opportunity cost 4). Marginal Thinking 5). The Principle that Trade Creates Value

question

You have to decide between going on a cruise with friends or going on a service trip with Alternative Spring Break; both of which cost the same amount. You could also work over the break and earn some extra money, but this would be less valuable to you than either experience. If you choose the cruise, what is your opportunity cost?

answer

Alternative Spring Break

question

What is Economics?

answer

Economics is the study of how people allocate their limited resources to satisfy their nearly unlimited wants. Because of the limited nature of society's resources, even the most abundant resources are not always plentiful enough everywhere to meet the wants and needs of every person. So how do individuals and societies make decisions about how to use the scarce resources at our disposal? This is the basic question economists seek to answer

question

Economics is divided into what two subfields?

answer

Microeconomics and Macroeconomics

question

Is economics the dismal science?

answer

Now that you have begun your exploration of economics, you know that this is not true. Economists ask, and answer, big questions about life

question

scarcity

answer

refers to the limited nature of society's resources, given society's unlimited wants and needs

question

economics

answer

is the study of how people allocate their limited resources to satisfy their nearly unlimited wants

question

microeconomics

answer

is the study of the INDIVIDUAL units that make up the economy

question

macroeconomics

answer

is the study of OVERALL aspects and workings of an economy

question

incentives

answer

are factors that motivate a person to ac or exert effort

question

positive incentives

answer

Positive incentives are those that encourage action. For example, end-of-the-year bonuses motivate employees to work hard throughout the year, higher oil prices cause suppliers to extract more oil, and tax rebates encourage citizens to spend more money.

question

negative incentives

answer

Negative incentives also encourage action. For instance, the fear of receiving a speeding ticket keeps motorists from driving too fast, and the dread of a trip to the dentist motivates people to brush their teeth regularly. In each case, a potential negative consequence spurs individuals to action.

question

direct incentives

answer

For instance, if one gas station lowers its prices, it most likely will get business from customers who would not usually stop there. This is a direct incentive. Lower gasoline prices also work as an indirect incentive, since lower prices might encourage consumers to use more gas. Example: Direct incentives are easy to recognize. "Cut my grass and I'll pay you $30" is an example of a direct incentive.

question

indirect incentives

answer

For instance, consider the indirect incentives at work in welfare programs. Almost everyone agrees that societies should provide a safety net for those without employment or whose income isn't enough to meet basic needs

question

opportunity cost

answer

the highest-valued alternative that must be sacrificed in order to get something else -No matter what choice you make, there is an opportunity cost, or next-best alternative, that must be sacrificed. -Every time we make a choice, we experience an opportunity cost -The key to making the best possible decision is to minimize your opportunity cost by selecting the option that gives you the largest benefit

question

economic thinking

answer

requires a purposeful evaluation of the available opportunities to make the best decision possible -The process of systematically evaluating a course of action is referred to as economic thinking -In this context, economic thinkers use a process called marginal analysis to break down decisions into smaller parts -Often, the choice is not between doing and not doing something, but between doing more or less of something

question

marginal thinking

answer

requires decision-makers to valuate whether the benefit of one more unit of something is greater than it costs -To a reader, the margin is the blank space bordering a page. A "margin" can also be thought of as the size of a victory -when economists say that you should think at the margin, what they really mean is that people weigh the costs and benefits of their actions and choose to do the things with the greatest payoff

question

markets

answer

bring buyers and sellers together to exchange goods and services

question

trade

answer

the voluntary exchange of goods and services between two or more parties; everyone benefits from it

question

comparative advantage

answer

refers to the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor Example: As a result, it is possible to be a physician, teacher, or plumber and not worry about how to do everything yourself. The physician becomes proficient at dispensing medical advice, the teacher at helping students, and the plumber at fixing leaks. The physician and the teacher call the plumber when they need work on their plumbing. The teacher and the plumber see the doctor when they are sick. The physician and the plumber send their children to school to learn from the teacher. On a broader scale, this type of trading of services increases the welfare of everyone in society. Trade creates gains for everyone involved.

question

a positive statement

answer

can be tested and validated; it describes "what is" Example: testable The moon is made of green cheese.

question

a normative statement

answer

is an opinion that cannot be tested or validated; it describes "what ought to be " Example: opinion More taxes on the tax on the rich will raise tax revenue.

question

ceteris paribus Latin meaning "other things being equal."

answer

is a concept under which economists examine a change in one variable while holding everything else constant

question

endogenous factors

answer

are the variables that can be controlled for in a model

question

exogenous factors

answer

are the variables that cannot be controlled for in a model

question

a production possibilities frontier

answer

a model that illustrates the combinations of outputs that a society can produce if all its resources are being used efficiently

question

a law of increasing relative cost

answer

states that the opportunity cost of producing a good rises as a society produces more of it

question

absolute advantage

answer

refers to the ability of one producer to make more than another producer with the same quantity of resources

question

consumer goods

answer

are produced for present consumption

question

capital goods

answer

help produce other valuable goods and services in the future

question

investment

answer

the process of using resources to create or buy new capital

question

a variable

answer

quantity that can take on more than one value

question

a scatterplot

answer

a graph that shows individual (x,y) points

question

positive correlation

answer

occurs when two variables move in the same direction

question

negative correlation

answer

occurs when two variables move it the opposite direction

question

slope

answer

refers to the change in the rise along the y-axis (vertical) divided by the change in the run along the x-axis (horizontal)

question

causality

answer

occurs when one variable influences the other

question

reverse causation

answer

occurs when causation is incorrectly assigned among associated events

question

in a market economy

answer

resources are allocated among households and firms with little or no government interference

question

a competitive market

answer

exists when there are so many buyers and sellers that each has only a small impact on the market price and output

question

an imperfect market

answer

is one in which either the buyer or the seller has an influence on the market price

question

a monopoly

answer

exists when a single company supplies the entire market for a particular good or service

question

the quantity demanded

answer

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

question

the law of demand

answer

states that, all other things being equal, quantity demanded falls when prices rise, and rises when prices fall

question

a demand schedule

answer

is a table that shows the relationship between the price of a good and the quantity demanded

question

a demand curve

answer

is a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices

question

market demand

answer

is the sum of all the individual quantities demanded by each buyer in the market at each price

question

consumers buy more of a normal good

answer

as income rises, holding other things constant

question

an inferior good

answer

is purchased out of necessity rather than choice

question

complements

answer

are two goods that are used together. When the price of a complementary good rises, the demand for the related good goes down

question

substitutes

answer

are two goods that are used in place of each other. When the price of a substitute good rises, the quantity demanded falls and the demand for the related good goes up

question

the quantity supplied

answer

is the amount of a good or service that producers are willing and able to sell at the current price

question

the law of supply

answer

states that, all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls

question

a supply schedule

answer

is a table that shows the relationship between the price of a good and the quantity supplied

question

a supply curve

answer

is a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices

question

market supply

answer

is the sum of the quantities supplied by each seller in the market at each price

question

inputs

answer

are resources used in the production process

question

equilibrium

answer

occurs at the point where the demand curve and the supply curve intersect

question

the equilibrium price

answer

is the price at which the quantity supplied is equal to the quantity demanded. This is also known as the market-clearing price

question

the equilibrium quantity

answer

is the amount at which the quantity supplied is equal to the quantity demanded

question

the law of supply and demand

answer

states that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance

question

a shortage

answer

occurs whenever the quantity supplied is less than the quantity demanded

question

price controls

answer

are an attempt to set prices through government involvement in the market

question

price ceilings

answer

are legally established maximum prices for goods or services

question

black markets

answer

are illegal markets that arise when price controls are in place

question

rent control

answer

is a price ceiling that applies to the housing market

question

price going laws

answer

place a temporary ceiling on the prices that sellers can charge during times of emergency

question

price floors

answer

are legally established minimum prices for goods or services

question

the minimum wage

answer

is the lowest hourly wage rate that firms may legally pay their workers

question

welfare economics

answer

is the branch of economics that studies how the allocation of resources affects economic well-being

question

willingness to pay

answer

is the maximum price a consumer will pay for a good

question

consumer surplus

answer

is the difference between the willingness to pay for a good and the price that is paid to get it

question

willingness to sell

answer

is the minimum price a seller will accept to sell a good or service

question

producer surplus

answer

is the difference between the willingness to sell a good and the price that the seller receives

question

total surplus, also known as social welfare

answer

is the sum of consumer surplus and producer surplus

question

an outcome is efficient

answer

when an allocation of resources maximizes total surplus

question

equity

answer

refers to the fairness of the distribution of benefits within the society

question

excise taxes

answer

are taxes levied on a particular good or service

question

incidence

answer

refers to the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on

question

deadweight loss

answer

is the decrease in economic activity caused by market distortions

question

Which of the following is NOT characteristics of a market economy?

answer

significant government intervention

question

In a competitive market, the price of the product is

answer

set by market supply and demand

question

Which of the following firms participants in a competitive market?

answer

a corn farmer

question

In an imperfect market, individual firms

answer

are able to influence the price of their product

question

Which of the following firms operates as a monopoly?

answer

a local water utility

question

According to the law of demand, what is the relationship between price and quantity demanded?

answer

inverse

question

The demand curve slopes downward because

answer

prices and quantity demanded move in opposite directions

question

A change in which of the following will cause a change in the quantity demanded of coffee?

answer

the price of coffee

question

Suppose that burgers and fries are complements in consumption. If the price of fries increases

answer

overall demand for burgers will decrease

question

Suppose that Coca Coal and Pepsi are substitutes in consumption. If the price of Coca Cola decreases, then

answer

both the equilibrium price and the quantity of Pepsi demanded will decrease

question

According to the law of supply, what is the relationship between price and quantity supplied?

answer

direct

question

A change in which of the following will cause a change in the quantity supplied of coffee?

answer

the price of coffee

question

Which of the following will cause a shift in the supply curve for tobacco?

answer

an improvement in the technology used in the production of tobacco

question

Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market fro cupcakes?

answer

overall supply will decrease

question

When a market is in equilibrium, which of the following is true?

answer

quantity supplied is equal to quantity demanded

question

Suppose pasta salad is a normal good. If the price of pasta (a major ingredient in pasta salad) increases and income also increases, the

answer

equilibrium quantity of pasta salad may either increases or decrease and the equilibrium price of past salad will increase.

question

What must happen to the market price in order for a shortage to be eliminated?

answer

price must rise

question

Suppose that many people who earn a living catching fish decide they can make more money selling t-shirts and switch occupations. How ill this affect the number of fish supplied by producers?

answer

there will be a decrease in supply

question

Suppose customers suddenly start preferring hamburgers to fish. How does this affect consumer demand for fish?

answer

demand increase

question

Suppose the cost of shipping fish drops. How will this affect the equilibrium price and equilibrium quantity of fish?

answer

equilibrium price decreases but equilibrium quantity increases

question

Suppose the cost of processing fish increases. How will this affect the demand for fish?

answer

demand will not change

question

Suppose that two things happen simultaneously in the market for fish. First, a new technology allows fishing boats to catch more fish while using the same number of crewmembers. At the same time a new study shows that eating fish at least three times week helps prevent heart attacks. How will the market fro fish respond?

answer

equilibrium quantity will increase but the effect on the price is unknown without more information

question

In the market for breakfast cereal, the market is currently in equilibrium.Suddenly there is a storm that destroys the wheat that farmers ad been growing for the cereal manufacturer.

answer

supply will decrease

Principles of Macroeconomics 2301-21286 Unit 1 – Flashcards

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