Macro Quiz 1

Question 1

Scarcity

Answer 1

society has limited resources, and, therefore, cannot produce all the goods and services people want

Question 2

Economics

Answer 2

study of how society manages its scare resources

Question 3

How many principles of economics?

Answer 3

ten principles

Question 4

Principle 1

Answer 4

people face trade-offs, “no such thing as free lunch”

Question 5

Example of classic trade-off

Answer 5

“guns and butter”, the more a society spends on the military, the less it can spend on consumer goods

Question 6

Efficiency

Answer 6

society is getting the greatest benefits from its scarce resources

Question 7

Equality

Answer 7

those benefits are distributed uniformly among society’s members

Question 8

Principle 2

Answer 8

the cost of something is what you give up to get it

Question 9

Opportunity cost

Answer 9

what you give up to get an item

Question 10

Principle 3

Answer 10

Rational people think at the margin

Question 11

Rational people

Answer 11

systematically and purposefully do the best they can to achieve their goals, given the available opportunities

Question 12

Marginal change

Answer 12

incremental adjustment to an existing plan of action

Question 13

Margin

Answer 13

“edge” so marginal changes are small adjustments around the edges of what you are doing. rational people make decisions by comparing marginal benefits and marginal costs

Question 14

Principle 4

Answer 14

people respond to incentives

Question 15

Incentive

Answer 15

something that induces a person to act, such as the prospect of a punishment or reward

Question 16

Principle 5

Answer 16

trade can make everyone better off

Question 17

Principle 6

Answer 17

markets are usually a good way to organize economic activity

Question 18

Market economy

Answer 18

decisions of a central planner are replaced by those of millions of firms and households

Question 19

Invisible hand

Answer 19

sellers look at the price when deciding how much to supply, and buyers look at the price when deciding how much to demand

Question 20

Principle 7

Answer 20

governments can sometimes improve market outcomes

Question 21

Property rights

Answer 21

individuals can own and control scarce resources

Question 22

Market failure

Answer 22

situation in which the market does not produce an efficient allocation of resources on its own

Question 23

Externality

Answer 23

impact of one person’s actions on the well-being of a bystander

Question 24

Market power

Answer 24

refers to the ability of a single person or firm to unduly influence market prices

Question 25

Productivity

Answer 25

amount of goods and services produced by each unit of labor

Question 26

Principle 9

Answer 26

prices rise when the government prints too much money

Question 27

Inflation

Answer 27

increase of overall level of prices in the economy

Question 28

Principle 10

Answer 28

society faces a short-run trade-off between inflation and unemployment

Question 29

Short-run effects of money growth

Answer 29

-stimulates overall level of spending and thus the demand for goods and services -higher demand will, overtime, cause firms to raise their prices, but in the meantime, it encourages them to hire more workers and produce a larger quantity of goods/services -more hiring means lower employment

Question 30

business cycle

Answer 30

irregular and largely unpredictable fluctuations in economic activity, as measured by the production of goods and services or the number of people employed

Question 31

Purpose of graphs

Answer 31

offer visual way to express idea that might be less clear if described with equations or words, provide powerful way of finding and interpreting patterns

Question 32

Supply and demand

Answer 32

forces that make market economies work, determining the quantity of each good produced and the price at which it is sold

Question 33

Market

Answer 33

group of buyers and sellers of a good or service. Buyers determine the demand for the product, and the sellers determine the supply of the product

Question 34

Competitive market

Answer 34

describe a market in which there are so many buyers and sellers that each has little effect on the market price

Question 35

Perfectly competitive

Answer 35

goods offered for sale are all exactly the same, and buyers/sellers are so numerous that no single buyer has any influence over the market price

Question 36

Price takers

Answer 36

since perfectly competitive, markets must accept the price the market determines

Question 37

Monopoly

Answer 37

markets with only one seller and they set the price

Question 38

Demand curve

Answer 38

relationship between price and the quantity demanded

Question 39

Quantity demanded

Answer 39

amount that buyers are willing and able to purchase

Question 40

Law of demand

Answer 40

other things being equal, when the price of a god rises, the quantity demand falls, and when the price falls, the quantity demanded rises

Question 41

Market demand

Answer 41

sum of all the individual demands for a particular good or service

Question 42

Normal good

Answer 42

demand for something falls when income falls

Question 43

Inferior good

Answer 43

demand for something rises when income falls

Question 44

Substitutes

Answer 44

when a fall in price of one good, reduces the demand for another good

Question 45

Complements

Answer 45

when a fall in the price of one good, raises the demand for another good

Question 46

Other shifts in demand curve

Answer 46

tastes, expectations, number of buyers

Question 47

Supply curve

Answer 47

relationship between price and quantity supplied

Question 48

Quantity supplied

Answer 48

amount that sellers are willing and able to sell

Question 49

Law of supply

Answer 49

relationship between price and the quantity supplied

Question 50

Shifts in supply curve

Answer 50

input prices, technology, expectations, number of sellers

Question 51

Equilibrium

Answer 51

quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell

Question 52

Surplus

Answer 52

excess supply, producers are unable to sell all they want at the going price

Question 53

Shortage

Answer 53

excess demand, consumers are unable to buy all they want at the going price

Question 54

Law of supply and demand

Answer 54

price of any good adjusts to bring the quantity supplied and the quantity demanded into balance