Exam 1 Flashcards
(130 cards)
1
Q
shows the maximum attainable combinations of two goods that may be produced with available resources.
A
Production possibilites frontier
2
Q
We can show economic efficiency:
A
with points on the production possibilities frontier.
3
Q
We can show economic inefficiency:
A
with points inside the production possibilities frontier.
4
Q
The production possibilities frontier will shift outward
A
if resources are used to produce capital good
5
Q
What does increasing marginal opportunity costs mean?
A
Increasing the production of a good requires larger and larger decreases in the production of another good.
6
Q
What are the implications of this idea for the shape of the production possibilities frontier?
A
The production possibilities frontier will be bowed outward.
7
Q
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods.
Is it likely that the production possibilities frontier in this situation would be a straight line or bowed out?
A
The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.
8
Q
Which point(s) are unattainable?
A
Points outside the production possibilities frontier.
9
Q
Which point(s) are efficient? Briefly explain why.
A
Point where maximum output is produced with available resources.
10
Q
Which point(s) are inefficient? Briefly explain why.
A
Point inside the curve because production there is not using all available resources.
11
Q
At which point is the country’s future growth rate likely to be the highest? Briefly explain why. (try to add graph from chapter 2 question 9)
A
Point because it is where the most resources are used to produce capital goods.
12
Q
Which of the following may have caused an outward shift of the production possibilities frontier?
A
Advances in technology, a larger labor force, and
an increase in the capital stock.
13
Q
Prepping for a next-day exam over the course of an evening (and possibly into the wee hours of test day) poses increasing costs since
A
the longer you choose to study will result in an increase in the number and value of foregone activities.
14
Q
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
A
smaller
15
Q
What is absolute advantage?
A
The ability to produce more of a good or service than competitors using the same amount of resources.
16
Q
What is comparative advantage?
A
The ability to produce a good or service at a lower opportunity cost than other producers.
17
Q
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
A
will have a comparative advantage if it has a lower opportunity cost of producing that good.
18
Q
What is the basis for trade?
A
Comparative advantage
19
Q
How can a country gain from specialization and trade?
A
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
Your answer is correct.
20
Q
n discussing dividing up household chores, Emily Oster, an economist at the University of Chicago, advises that: “No, you shouldn’t always unload the dishwasher because you’re better at it.” Even if you are better at unloading the dishwasher than your spouse, you shouldn’t always be the one to unload it because
A
you may be even better at some other household task and must consider the opportunity cost.
21
Q
One of the great benefits of trade is
A
that it makes it possible for society to become better off by increasing its consumption.
22
Q
What is a free market?
A
A free market is one where the government does not control the production of goods and services.
23
Q
In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,
A
centrally planned economies have extensive government controls.
24
Q
What is an entrepreneur?
A
Entrepreneurs operate businesses that produce goods and services.
25
Why do entrepreneurs play a key role in a market system?
They bring together factors of production.
26
What are private property rights? Private property rights are:
the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.
27
What role do they play in the working of a market system? Private property rights:
Encourage a significant number of people to be willing to risk funds by investing them in business, and encourage firms to spend money on research and development. (both a and b)
28
Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
To make their decisions free of influence from people with powerful political connections, to make their decisions based on the law, to make their decisions free of influence from other parts of the government, and to make their decisions free of intimidation by criminal gangs.
(all of the above)
29
Evaluate the following argument: "Adam Smith's analysis is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn't true. I'm not selfish, and most people I know aren't selfish."
This statement is based on the misconception that following your self-interest and being selfish are the same thing.
30
According to an article in the Economist magazine:
"In all rich countries, property rights are secure...Legally recognising land ownership has boosted farmers' income and productivity in Latin America and Asia...More than two-thirds of Africa's land is still under customary tenure, with rights to land rooted in communities and typically neither written down nor legally recognized."
Which of the following statements regarding secure property rights is true?
Property rights provide incentives for people to maintain and increase the value of the property they own.
31
Which of the following statements is true?
A.
Protecting property rights has no impact on a country's standard of living.
B.
By protecting private property rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.
C.
It is easy for a country to become rich even without having secure property rights.
D.
Only rich countries have recognized governments that would even be capable of securing property rights.
By protecting private property rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.
32
What problems might African farmers have because they lack secure property rights?
A.
Without secure property rights, farmers in Africa may be reluctant to make the investments in their farms that would raise the farms' productivity.
B.
Without secure property rights, farmers are not able to obtain funds by selling some of their land.
C.
Without secure property rights, it is harder for farmers to borrow because they cannot use their land as collateral.
D.
All of the above.
All of the above
33
In economics, the term capital refers to
goods used to produce other goods
34
In economic terminology, the inputs used to produce output are referred to as
factors of production
35
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of productionlabor, capital, natural resources, and entrepreneurial ability.
36
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
For markets to work, people must be free to pursue their self-interest.
37
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
prices
38
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
39
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
40
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
41
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
42
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
43
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
44
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
45
Centrally planned economies allocate resources based on decisions by ______, while market economies answer these questions through decisions made by ________.
government, households and firms
46
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
47
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
48
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
49
Indicate which of the following statements represent positive analysis and which represent normative analysis.
a. A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents ____
b. The federal government should spend more on AIDS research. This represents ____
c. Rising paper prices will increase textbook prices. This represents
____
d. The price of coffee at Starbucks is too high. This represents
____
Positive, normative, positive, normative
50
____________ is concerned with what is. Can be tested.
Positive analysis
51
_________ is concerned with what ought to be. Cannot be tested.
Normative analysis
52
Economics is about __________, which measures the costs and benefits of different courses of action.
positive analysis
53
Economics is a social science because
It is based on studying the actions of individuals, it applies the scientific method to the study of the interactions among individuals, it considers human behavior particularly decision-making behavior.(all of the above.)
54
Why are models based on assumptions
Because models have to be simplified to be useful.
55
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
56
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
57
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ________ issue.
macroeconomic
58
However, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a ________ issue.
microeconomic
59
Indicate whether each of the following is primarily a microeconomic issue or a macroeconomic issue.
a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a _____ issue.
b. The effect of higher income taxes on the total amount of consumer spending. This is a _____ issue.
c. The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a ______ issue.
d. The reasons for low rates of profit in the airline industry. This is a _____ issue.
Micro, macro, macro, micro
60
Assume that tastes change so that tennis is no longer as desirable to play as it is now. What would happen to the market for tennis balls?
Demand decreases, the equilibrium quantity is smaller, and the price is lower.
61
Okra was $13.00 per bushel in 2015, and 1.5 million bushels were sold. Okra was $14.00 per bushel in 2016, and 2.0 million bushels were sold. “If in both cases the okra market was in equilibrium, this must be an example of an exception to the law of demand."
False
62
Indicate which of the following will cause a movement along a demand curve. Which will shift the demand curve to the left? Which will shift the demand curve to the right? Will demand increase or decrease?
an increase in the price of the good
a movement along the demand curve, no change in demand
63
Indicate which of the following will cause a movement along a demand curve. Which will shift the demand curve to the left? Which will shift the demand curve to the right? Will demand increase or decrease?
an increase in income for a normal good
shift the demand curve to the right and an increase in demand
64
Indicate which of the following will cause a movement along a demand curve. Which will shift the demand curve to the left? Which will shift the demand curve to the right? Will demand increase or decrease?
a decrease in the price of a substitute good
shift the demand curve to the left and a decrease in demand
65
Indicate which of the following will cause a movement along a demand curve. Which will shift the demand curve to the left? Which will shift the demand curve to the right? Will demand increase or decrease?
expectations of falling income in the near future
shift the demand curve to the left and a decrease in demand (if the good is normal)
66
Indicate which of the following will cause a movement along a demand curve. Which will shift the demand curve to the left? Which will shift the demand curve to the right? Will demand increase or decrease?
expectations of rising prices in the near future
shift the demand curve to the right and an increase in demand now
67
"Falling oil prices have caused a sharp decrease in the supply of oil." Speaking precisely, is this quotation correct or incorrect?
Incorrect; a decrease in price causes a decrease in the quantity supplied, not a decrease in supply.
68
Will an increase in the prices of inputs cause the equilibrium price to increase or decrease? What about the equilibrium quantity?
increase; decrease
69
How would new technology lowering the costs of production affect the equilibrium price? The equilibrium quantity?
decrease; increase
70
Would an increase in the price of a substitute (in consumption) good cause the equilibrium price of its substitute to increase or decrease? Would the equilibrium quantity increase or decrease?
increase; increase
71
Would a decrease in the price of a complementary good cause its complement’s equilibrium price to increase or decrease? What about the equilibrium quantity?
increase; increase
72
If (1) the cost of manufacturing computers decreases and (2) at the same time the quality improves, making computers more useful for households, which of the following is most likely to happen?
Equilibrium price may increase or decrease; equilibrium quantity will increase.
73
"The winds of the recent hurricanes in Florida are bringing significant financial gain to California orange growers. Due to the extensive damage to the Florida orange crop, many oranges were destroyed. The ones remaining were just as good as the previous oranges. California oranges are commanding their highest prices ever." If Florida and California oranges are substitute goods, which of the following statements best explains the economics of the quotation?
The supply of Florida oranges has decreased, causing their price to increase and the demand for the California oranges to increase also.
74
“Many Coca-Cola bottlers increased the price of Coke because the price of corn syrup (an important ingredient in Coke production) has increased." Other things constant, this most recent change in the market for Coca-Cola can best be explained as which of the following?
a decrease in supply
75
If income decreases and, at the same time, a new technology is discovered that lowers the cost of producing a normal good, which of the following will happen?
One cannot tell the change in equilibrium quantity. The equilibrium price will decrease.
76
Christmas card sales increase during the last three months of the year, and the sale of fresh strawberries in the north increase during the early summer months. However, the equilibrium price movement of these two commodities is quite different during their peak sales seasons. Christmas cards increase in price when the equilibrium quantity increases, whereas strawberries decrease in price when the equilibrium quantity increases. Why does this difference occur?
Demand for Christmas cards increases; supply of strawberries increases.
77
Oil-based products are a significant part of the materials used to build sailboats. What is likely to happen in the market for new sailboats and in the market for sails, if the price of oil begins to rise?
Equilibrium quantity will be lower for sailboats and sails; equilibrium price will be higher for sailboats; and the change in equilibrium price for sails is ambiguous.
78
Oprah Winfrey made comments about the possibility of contracting mad cow disease from eating beef. Some observers said that those comments had negative effects on the beef market. In the same period of time, there were increases in the rate of beef production. If only Oprah's comments affected the market, the equilibrium price would have _, and the equilibrium quantity would have _.
decreased; decreased
79
What would be the initial change in the market for beer if a city suddenly restricted the number of bar licenses they permitted? (Note: A bar requires a license to operate.)
Supply would decrease and there would be a shortage.
80
23. What would be the initial change in the market for beer if a city suddenly restricted the number of bar licenses they permitted? (Note: A bar requires a license to operate.)
Continuing from question 23, what would be the next two steps that follow after the shortage?
Consumers will pay a higher price and producers will be able to raise their price while still selling all of their inventory.
81
23 answer: Consumers will pay a higher price and producers will be able to raise their price while still selling all of their inventory.
Continuing from question 24, how will this new equilibrium compare to the initial equilibrium?
Equilibrium price will be higher and equilibrium quantity will be lower.
82
Which of the following best explains a decrease in the equilibrium price of gasoline and an increase in the equilibrium quantity of gasoline?
The price of oil, which is used to produce gasoline, decreases.
83
Quantity demands > Quantity supplied = Excess demand =
Shortage
84
Quantity supplied > Quantity demanded = Excess supply=
Surplus
85
A shortage puts pressure to _____ price to go back to equilibrium
increase
86
A surplus puts pressure to _____ price to go back to equilibrium
decrease
87
Law of supply
When the price of a product falls, the quantity supplied will decrease; when the price of a product rises, the quantity supplied will increase
88
Law of demand
When the price of a product falls, the quantity demanded will increase; when the price of a product rises, the quantity demanded will decrease
89
Factors that shift the demand curve
Income, price of related good, tastes and preferences, population and demographics, and expectations
90
Factors that shift the supply curve
Price of inputs, technological change, price of related goods, number of firms in the market, expectations
91
Change in supply
-Caused by anything other than price of good
-Shifts the entire curve
92
Change in quantity supplied
-Caused by change in price of good
-Movement along the curve
93
Change in quantity demanded
- Caused by a change of price
- Movement along the curve
94
Change in demand
- Caused by anything other than change in price of good
- Shifts the entire curve
95
Supply Curve
Upward sloping
96
Demand curve
Downward sloping curve
97
Three Key Economic Ideas
o People are rational
o People respond to economic incentives.
o Optimal decisions are made at the margin.
98
Three Fundamental Questions
o What goods and services will be produced?
o How will the goods and serviced be produced?
o Who will receive the goods and services?
99
Centrally Planned Economy
An economy in which the government decides how economic resources will be allocated.
100
Market Economy
An economy in which the decisions of HH and firms interacting in markets allocate economic resources. Tend to be more efficient; they produce more of what consumers want and usually can do so at a lower cost.
101
Mixed Economy
An economy in which most decisions are made by buyers and sellers in markets, but the government plays a significant role in the allocation of resources.
102
Efficiency
A good or service is produced at the lowest possible cost in accordance with consumer preferences.
103
Equity
The fair distribution of economic benefits. Hard to achieve due to different understanding and interpretations of what is fair. Can come at the cost of efficiency.
104
Economic choice is a result of
scarcity
105
What do economists mean when they say a good is scarce?
The amount of the good that people would like exceeds the supply freely available from nature.
106
The expression, "There's no such thing as a free lunch," implies that
opportunity costs are incurred when resources are used to produce goods and services.
107
What types of economies require that we answer the questions of what, how, and for whom to produce
goods and services?
a) Market economies
b) Centrally planned economies
c) Mixed economies
d) All of the above (This is the answer)
108
Which of the following terms best relates to a fair distribution of economic benefits?
Equity
109
Positive economics differs from normative economics in that
positive economic statements are testable, and normative statements are not.
110
Which one of the following is a positive economic statement?
a) An increase in the minimum wage will reduce employment.
b) The minimum wage should be increased.
c) Social justice will be served by increasing the minimum wage.
d) Thoughtful people oppose an increase in the minimum wage.
An increase in the minimum wage will reduce employment.
111
The basic difference between macroeconomics and microeconomics is that
macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned
with the individual trees (subcomponents).
112
Which of the following sayings best reflects the concept of opportunity cost?
a) "You can't teach an old dog new tricks."
b) "Time is money."
c) "I have a baker's dozen."
d) "There's no business like show business."
Time is money
113
If an economy is operating at a point inside the production possibilities curve,
its resources are not being used efficiently.
114
If the production possibilities frontier is linear, then
opportunity costs are constant as more of one good is produced.
115
With voluntary exchange,
both the buyer and seller will be made better off.
116
Absolute advantage is the ability of an individual, a firm, or a country to
produce more of a good or service than competitors using the same amount of resources.
117
If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who
have a comparative advantage in the productive activity
118
What is the role of the entrepreneur?
a) to bring together the factors of production: labor, capital, and natural resources
b) to take risks
c) to operate a business that produces a good or service
d) All of these.
All of these
119
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic
activity?
Price
120
Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
121
"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an
increase in demand for large cars, causing their prices to rise." These statements
contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an
increase in demand.
122
Which of the following would most likely increase the demand for peanut butter?
a decrease in the price of jelly, a good that is often used with peanut butter
123
If cable TV service and satellite TV service are substitutes,
a decrease in the price of cable will decrease the demand for satellite TV.
124
According to the law of supply, as the price of a good decreases
sellers will produce less of the good.
125
Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn
will
decrease the supply of soybeans.
126
Which of the following would most likely decrease the price of beef?
lower prices of grains used to produce cattle feed
127
If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing
the quantity demanded to increase and the quantity supplied to decrease until they are equal.
128
A decrease in the supply of a good will
lead to an increase in the price of the good.
129
Over the past 20 years both the quantity of health care provided and health care prices have been rising rapidly.
Economic theory would suggest that the observed data could best be explained as
an increase in demand, while supply remained relatively constant.
130
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources
even when each market participant cares only about their own self-interest rather than about the overall efficiency
of resource use.
