ECON Final

Question 1

Richer countries with a higher GDP have better

Answer 1

healthcare, education, jobs, etc.

Question 2

What is the function of the price system?

Answer 2

To coordinate economic activity

Question 3

Productivity is defined as the

Answer 3

amount of goods and services produced from each unit of labor input

Question 4

What is the most important factor that explains differences in living standards among countries?

Answer 4

Productivity

Question 5

To have better living standards one needs

Answer 5

living stability and property rates

Question 6

What is the difference between nominal and real interest rates?

Answer 6

Real does not factor in inflation, nominal does.

Question 7

Assume a market is perfectly competitive. When a new product enters the market, the price

Answer 7

in the market does not change

Question 8

Comparative advantage is related most closely to which of the following?

Answer 8

Opportunity cost

Question 9

Suppose the U.S. has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

Answer 9

the U.S. should produce more pork than what it requires and export some of it to Mexico

Question 10

Who wins from trade?

Answer 10

Countries that have a comparative advantage

Question 11

What causes minimum wage unemployment?

Answer 11

A price floor

Question 12

A price floor causes…

Answer 12

1. Surpluses
2. Lost gains from trade (deadweight loss)
3. Wasteful increases in quality
4. A misallocation of resources

Question 13

What causes inflation in the long run?

Answer 13

When the money supplied increases at a faster rate than the increase in GDP.

Question 14

What are the limitations of GDP? (PIES)

Answer 14

Population
Inequality
Environment
Shadow Economy

Question 15

What causes inflation in the long run?

Answer 15

An increase in real GDP

Question 16

Goods and services are purchased by

Answer 16

Households, firms, and governments

Question 17

Name the difference between Equality and Efficiency.

Answer 17

Efficiency: when society gets the most from its scarce resources

Equality: when prosperity is distributed uniformly among society’s members

Question 18

According to Adam Smith, the success of decentralized market economies is primarily due to

Answer 18

individuals’ pursuit of self-interest.

Question 19

What causes a shift in demand?

Answer 19

Income, population, tastes, related goods

Question 20

What are the laws of supply and demand? (draw it out!)

Answer 20

S- As price increases, Quantity Supplied increases
D- As price increases, Demand decreases

Question 21

The pricing system controls

Answer 21

the equilibrium

Question 22

Equilibrium is when

Answer 22

Supply and demand are equal

Question 23

Elasticity allows for a little more

Answer 23

precision of the price of a good.

Question 24

A good is inelastic if the demand curve is

Answer 24

more vertical than horizontal

Question 25

What happens to equilibrium when supply and demand shift?

Answer 25

The price will adjust until there is a new equilibrium

Question 26

If the market functions below a price ceiling, it is

Answer 26

non-binding

Question 27

If there is a price ceiling imposed on the housing market, rent control means that there will be a

Answer 27

shortages and a decrease in quality

Question 28

What is deadweight loss?

Answer 28

The loss of all transactions

Question 29

If there is a tax, the deadweight loss

Answer 29

will be higher.

Question 30

What is the main cause of inflation?

Answer 30

If more money is printed, then the price of all goods increases.

Question 31

Inflation is a problem when

Answer 31

it cannot be predicted and planned for.

Question 32

Inflation is a hidden tax on

Answer 32

savings and raises.

Question 33

CPI or the Consumer Price Index measures

Answer 33

inflation.

Question 34

The essence of economics is

Answer 34

trade-offs.

Question 35

Resources in an economy are

Answer 35

limited for everyone (ex: time, land, manpower)

Question 36

What is an opportunity cost?

Answer 36

What you give up for what you get

Question 37

Who pays a tax when it is imposed?

Answer 37

Both the buyers and the sellers pay, but the side that is more inelastic pays the most (less substitute).

Question 38

What do we mean by the word “economy”?

Answer 38

Goods and services

Question 39

Production equals

Answer 39

economy

Question 40

GDP or Gross Domestic Product is

Answer 40

what the economy can produce.