Economic Concepts Flashcards
(48 cards)
The equation for the graphic plot of a linear economic variable is D = b + m(a). Which of the following represents the value of the "intercept"? A. D B. b C. m D. a
B. b
In the equation, “b” is a constant and is the value of the intercept, i.e., where the plotted graph intersects the Y axis.
Graphs are a means of depicting the relationship between two variables. These variables are usually identified as A. positive and negative. B. horizontal and vertical. C. dependent and independent. D. qualitative and quantitative.
C. dependent and independent.
The variables depicted in graphs are identified as dependent and independent. The relationship between the two variables (usually the change in the dependent variable as a result of a change in the independent variable) is shown as the graphed line or curve plotted along the horizontal and vertical axes.
Which of the following statements regarding the use of graphs to depict economic relationships is not correct?
A. When the dependent variable moves in the same manner or direction as the independent variable, then the relationship between the variables is positive.
B. When the dependent variable does not change as the independent variable changes, the relationship between the variables is neutral.
C. The plotted relationship between variables shown in graph form can be negative, as well as positive.
D. The vertical axis of an economic graph is referred to as the X axis.
D. The vertical axis of an economic graph is referred to as the X axis.
This statement is not correct. The vertical axis of an economic graph is not referred to as the X axis, but rather as the Y axis. The horizontal axis is referred to as the X axis. (Remember: The letter Y has a vertical stem to it (vertical axis); the letter X has no vertical element.)
Measures of the economic activity of an entire nation would be included in the study of A. Microeconomics. B. Macroeconomics. C. International economics. D. Governmental economics.
B. Macroeconomics.
Macroeconomics is concerned with the study of the economic activities of an entire nation (or major sectors of a national economy). It is concerned with such matters as demand/supply, employment/unemployment, inflation/deflation, etc. for an entire country.
Which of the following is not a characteristic of a free-market economy?
A. Economic decisions are made by individual decision makers.
B. There is an interdependent relationship between individual consumers and business firms.
C. Economic resources are unlimited.
D. What gets produced depends on the preferences of end-use consumers.
C. Economic resources are unlimited.
Under any economic system, economic resources–labor, capital, and natural resources–are scarce.
In a free-market economy, which of the following should be the least significant factor in determining resource allocation and use?
A. Preferences of individuals.
B. Availability of economic resources.
C. Government regulation of commerce.
D. Level of technological development.
C. Government regulation of commerce.
In a free-market economy, government regulation of commerce should be the least significant factor (of those listed) in determining resource allocation and use.
The free-market economy flow model depicts four major interrelated flows:
I . Individuals provide economic resources to business firms.
II. Firms provide payment to individuals for economic resources.
III. Firms provide goods and services to individuals.
IV. Individuals provide payment to firms for goods and services.
If financial institutions and businesses suddenly and severely restrict the availability of consumer credit, which one of the above flows would be most likely to be the first to be impacted adversely? A. I. B. II. C. III. D. IV.
D. IV.
Initially, a sudden and severe restriction in the availability of consumer credit likely would adversely impact the ability of individuals to provide payment to firms for goods and services. The lack of credit likely would reduce consumer demand, which would then begin to impact other flows.
Which of the following are considered economic resources?
Labor Capital Natural resources
Yes Yes Yes
Yes Yes No
Yes No No
No Yes Yes
Labor Capital Natural resources
Yes Yes Yes
Labor (human work, etc.), capital (financial and man-made), and natural resources (land, minerals, etc.) are all economic resources and they are scarce.
The free-market economy flow model depicts four major interrelated flows:
I . Individuals provide economic resources to business firms.
II. Firms provide payment to individuals for economic resources.
III. Firms provide goods and services to individuals.
IV. Individuals provide payment to firms for goods and services.
If the cost of imported oil declined suddenly and significantly, which one of the above flows would be most likely to be the first impacted? A. I. B. II. C. III. D. IV.
C. III.
Initially, a sudden and significant decline in the cost of imported oil likely would impact a firm’s ability to provide goods and, to a lesser extent, services to individuals. A decline in the cost of imported oil will decrease the cost of inputs to the production process, both for goods produced with oil and its by-products and for the cost of transportation of all goods and services. A decrease in the cost of inputs would be likely to result in more goods and services provided at lower prices.
An increase in taxes on cigarette production would cause which one of the following to occur?
A. The supply curve will shift outward.
B. The demand curve will shift outward.
C. The supply curve will shift inward.
D. The demand curve will shift inward.
C. The supply curve will shift inward.
An increase in taxes on cigarette production effectively causes an increase in the cost of cigarette production and would cause the supply curve to shift inward.
When a demand schedule is plotted on a graph, the resulting demand curve will be A. positively sloped. B. negatively sloped. C. completely vertical. D. completely horizontal.
The demand schedule of an individual or of the market shows that more units of a commodity are demanded as the price decreases. Therefore, the demand curve would be negatively sloped; the quantity demanded would be lower at higher gprices and would increase as price decreases. The quantity demanded varies inversely with price along a given demand curve:
Thus, a demand curve has a negative slope; quantity is inversely related to price.
The demand for a commodity would increase when the price of a
Substitute Commodity Complementary Commodity Increases Increases Increases Decreases Decreases Increases Decreases Decreases
Increases Decreases
A substitute commodity is one which satisfies the same basic need or want as another commodity. When the price of a substitute commodity increases, consumers will shift demand away from that commodity to other commodities which satisfy the same basic purpose. For example, as the price of cable TV increases customers shift to satellite-based TV, a substitute commodity for cable.
A complementary commodity is one which is used together with another commodity. When the price of a complementary commodity decreases, the demand for that commodity increases and so does the demand for the commodity for which it is complementary. For example, automobiles and tires are complementary.
As the price of automobiles decrease, the demand for automobiles and for tires increases.
The demand curve for a product reflects which of the following?
A. The impact of prices on the amount of product offered.
B. The willingness of producers to offer a product at alternative prices.
C. The impact that price has on the amount of a product purchased.
D. The impact that price has on the purchase amount of two related products.
C. The impact that price has on the amount of a product purchased.
The demand curve reflects the impact that price has on the amount of a product purchased. A demand curve (or schedule) for a product shows the quantity of a commodity that will be demanded at various prices during a specified time, ceteris paribus (holding variables other than price constant).
An increase in taxes on cigarette production would cause which one of the following to occur?
A. The supply curve will shift outward.
B. The demand curve will shift outward.
C. The supply curve will shift inward.
D. The demand curve will shift inward.
C. The supply curve will shift inward.
An increase in taxes on cigarette production effectively causes an increase in the cost of cigarette production and would cause the supply curve to shift inward.
When the cost of input factors to the production process increases, which one of the following will occur?
A. The demand curve will shift outward.
B. The supply curve will shift outward.
C. The demand curve will shift inward.
D. The supply curve will shift inward.
D. The supply curve will shift inward.
An increase in the cost of input factors to the production process will cause the supply curve to shift inward. An increase in input costs will cause the per-unit cost to increase and the supply curve will shift upward and to the left (inward).
If the price for a good is fixed by government fiat below market equilibrium price, which one of the following will occur?
A. Excess supply.
B. Demand shortage.
C. Excess demand.
D. Actual price will be greater than equilibrium price.
C. Excess demand.
If the price for a good is fixed by government fiat below market equilibrium price, an excess demand will result. Because the price that can be charged is limited (price ceiling), less supply will be provided, such that demand will exceed supply. There will be an excess demand.
If both demand and supply have traditional curves, a higher equilibrium price may be caused by which one of the following? A. A decrease in demand. B. An increase in demand. C. An increase in supply. D. A production technology innovation.
B. An increase in demand.
A higher equilibrium price (and quantity) would be caused by an increase in demand.
Which one of the following would not be a purpose of the General Agreement on Tariffs and Trade (GATT)?
A. Eliminating import quotas.
B. Harmonizing intellectual property laws.
C. Eliminating subsidies to export industries.
D. Establishing procedures for collection of international debt.
D. Establishing procedures for collection of international debt.
Establishing procedures for collection of international debt is not a purpose of the General Agreement on Tariffs and Trade (GATT). GATT has as its primary purposes the liberalizing and encouraging international trade by eliminating tariffs, subsidies, import quotas, and other trade barriers, to harmonize intellectual property laws and to reduce transportation costs.
Over the past 50 years, how has the share of total U.S. purchases and output represented by imports and exports, respectively, changed?
Imports as Share of Purchases Exports as Share of Output Increased Increased Increased Decreased Decreased Increased Decreased Decreased
Imports as Share of Purchases Exports as Share of Output
A. Increased Increased
Over the past 50 years, U.S. imports as a share of GDP and exports as a share of GDP have both increased. B
Outco, Inc., a U.S. firm, has a contract to acquire spare parts from a foreign supplier. The contract provides that the parts are to be manufactured to Outco’s specifications and Outco is to pay in U.S. dollars. Which of the following risks will Outco encounter as a direct result of the contract?
Currency Exchange Risk Quality Risk Yes Yes Yes No No Yes No No
Currency Exchange Risk Quality Risk
No Yes
Outco will not face currency exchange risk because payment is to be made in U.S. dollars. Any change in exchange rate will be a risk for the foreign supplier. Outco will face quality risk, i.e., the risk that the quality of the spare parts does not meet Outco’s specifications.
Which of the following, if either, would serve to mitigate risks associated with outsourcing?
I. Negotiate for payment to the foreign supplier be made in the foreign currency.
II. Include an arbitration clause in the contract with the foreign supplier. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
B. II only.
Including an arbitration clause in the contract with the foreign supplier would mitigate the risk associated with outsourcing by providing a predetermined mechanism for resolving differences between the buyer and the supplier (Statement II). Negotiating for payment to the foreign supplier to be made in the foreign currency would not mitigate the risk because it would subject the domestic buyer to foreign currency exchange risk, i.e., the risk that changes in the exchange rate between the currencies will increase the cost of acquiring goods (Statement I).
Which one of the following is least likely an advantage associated with the acquisition of a pre-existing foreign entity?
A. It may block competition from entering the foreign market in which the acquired entity operates.
B. Provides quicker entry into a market than developing a new entity in the foreign market.
C. Assures synergies between the acquiring entity and the acquired entity.
D. Provides historical financial information that is useful to the acquiring entity.
C. Assures synergies between the acquiring entity and the acquired entity.
Acquiring a pre-existing foreign entity does not assure synergies between the acquiring entity and the acquired entity. Studies have shown that most mergers and acquisitions to not result in creating value for the acquiring entity.
Which of the following statements regarding importing and exporting, if any, is/are correct?
I. Goods with a low value-to-weight ratio are less likely to be suitable for importing than goods with a high value-to-weight ratio.
II. In the exporting of goods, one may encounter import restrictions imposed by the country of destination. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
C. Both I and II.
Both statements are correct. Goods with a low value-to-weight ratio are less likely to be suitable for importing than goods with a high value-to-weight ratio (Statement I) and when exporting goods, one may encounter import restrictions imposed by the country of destination (Statement II).
Which of the following statements regarding foreign licensing and foreign franchising, if any, is/are correct?
I. Licensors typically remain more involved with a licensee than a franchisor remains involved with a franchisee.
II. Franchising typically provides greater quality control than does simple licensing. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
B. II only.
Franchising is a special form of licensing in which the franchisor sells intangible assets to a franchisee and mandates strict operating requirements of the franchisee. Thus, franchising does typically provide greater quality control than simple licensing (Statement II). Licensors typically do not remain more involved with a licensee than a franchisor does with a franchisee (Statement I).
