ECON120 - Exam 1 - Study Guide Flashcards
<p>A person should consume more of something when its marginal</p>
<p>benefit exceeds its marginal cost</p>
<p>Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates</p>
<p>opportunity costs</p>
<p>Economic theories</p>
<p>are generalizations based on a careful observation of facts`</p>
<p>Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that</p>
<p>all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant</p>
<p>Microeconomics</p>
<p>is concerned with individual economic units and specific markets</p>
<p>Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that</p>
<p>Holly's statement is normative, but Ben's is positive</p>
<p>The economizing problem is</p>
<p>the need to make choices because economic wants exceed economic means</p>
<p>The shift of the budget line from cd to ab in the figure is consistent with</p>
<p>a decrease in money income</p>
<p>Refer to the budget line shown in the diagram. If the consumer's money income is $20, the</p>
<p>price of C is $4 and the price of D is $2</p>
Money is not an economic resource because
money, as such, does not produce anything
The production possibilities curve illustrates the basic principle that
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced
When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because
resources are limited
<p>Refer to the diagram. Other things equal, this economy will achieve the most rapid rate of growth if</p>
<p>it chooses point A</p>
<p>Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost</p>
<p>will be 4 units of bicycles</p>
The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that
the principle of increasing opportunity costs is relevant.
The optimal point on a production possibilities curve is achieved where
B.
each good is produced at a level where marginal benefits equal marginal costs.
The marginal benefit curve is
downsloping because successive units of a specific product yield less and less extra benefit
The marginal cost curve is
upsloping because of increasing marginal opportunity costs
A direct cost of going to college is
tuition, while an indirect cost (opportunity cost) is forgone income while in college
<p>Refer to the diagram. The equation that shows the relationship between Y and X is</p>
<p>Y = 50 + 1/4X</p>
An economic system
is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
Economic systems differ according to which two main characteristics
Who owns the factors of production and the methods used to coordinate economic activity
A fundamental difference between the command system and laissez-faire capitalism is that, in command systems
the division of output is decided by central planning rather than by individuals operating freely through markets
The regulatory mechanism of the market system is
competition
Specialization in production is economically beneficial primarily because it
permits the production of a larger output with fixed amounts of resources
The use of money contributes to economic efficiency because
it promotes specialization by overcoming the problems with barter
An increase in consumer desire for strawberries is most likely to
increase the number of strawberry pickers needed by farmers
The economic function of profits and losses is to
signal that resources should be reallocated
If a competitive industry is neither expanding nor contracting, we would expect
economic profits to be zero
The most efficient combination of resources in producing a given output is the combination that
minimize the cost per unit of output
The market system’s answer to the fundamental question “How will the system accommodate change?” is essentially
Through the guiding function of prices and the incentive function of profits
The market system’s answer to the fundamental question “What will be produced?” is essentially
Goods and services that are profitable
The market system’s answer to the fundamental question “How will the goods and services be produced?” is essentially
“In ways that minimize the cost per unit of output
Consumer sovereignty” means that
buyers determine what will be produced based on their “dollar votes” for the goods and services offered by sellers
The invisible hand refers to the
B.
notion that, under competition, decisions motivated by self-interest promote the social interest.
The incentive problem under communist central planning refers to the idea that
workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products
The simple circular flow model shows that
households are on the selling side of the resource market and on the buying side of the product market.
<p>Refer to the diagram. Flow 4 represents</p>
<p>consumer expenditures</p>
<p>Refer to the diagram. Arrows (1) and (2) represent</p>
<p>resources and goods respectively</p>
Which of the following best illustrates the circular flow model in action?
ALL OF THESE ANSWERS
Bobbie goes to work and builds cars, and uses the income she receives to buy food at the grocery store
Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier, and uses the rest to take her family out to dinner
Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers
<p>Refer to the diagram. A decrease in demand is depicted by a</p>
<p>shift from D2 to D1</p>
<p>Refer to the diagram. A decrease in quantity demanded is depicted by a</p>
<p>move from point y to point x</p>
<p>Refer to the diagram. A surplus of 160 units would be encountered if the price was:</p>
<p>$1.60</p>
<p>Refer to the diagram. A price of $20 in this market will result in a</p>
<p>shortage of 100 units</p>
Refer to the diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $1.60, this nation will experience a domestic
surplus of 160 units, which it will export
<p>Refer to the diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $.50, this nation will experience a domestic:</p>
<p>shortage of 160 units, which it will meet with 160 units of imports</p>
<p>Refer to the diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that:</p>
<p>world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage</p>
<p>Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs below.<br></br>
<br></br>
</p>
<p>Greece has a comparative advantage in chemicals</p>
<p>Refer to the graphs. These production possibilities curves</p>
<p>demonstrate that there can be gains from specialization and trade between the two nations.</p>
<p>Refer to the given diagram in which line AB is the U.S. production possibilities curve and AC is its trading possibilities curve. The international exchange ratio between beef and cheese (terms of trade):</p>
<p>is the absolute value of the slope of line AC</p>
<p>Refer to the graph. Each of the three labor demand curves shown slopes downward because of the:</p>
<p>law of diminishing returns</p>
