Macro Unit 1

Question 1

Scarcity

Answer 1

The problem of human’s unlimited wants but limited resources; Scarcity forces us to make choices.

Question 2

Factors of production

Answer 2

Land, Labor, Capital, and Entrepreneurship.

Land- all natural resources
Labor- paid work
Capital- physical

Question 3

Human Capital

Answer 3

The skills or knowledge gained by a worker through educaion and experience.

Question 4

Capital goods

Answer 4

Goods created for indirect consumption; Used to create consumer goods

Question 5

Consumer Goods

Answer 5

Created for direct consumption

countries that produce more capital goods than consumer goods will experience more economic growth in the long run.

Question 6

Microeconomics

Answer 6

the study of small units such as households, firms, and industries; small individualized decisions.

Question 7

Macroeconomics

Answer 7

the study of the large economy as a whole; economic growth, inflation, unemployment

Question 8

Marginal Analysis

Answer 8

Making decisions based on increments; youll continue to do something as long as the marginal benefit is greater than or equal to the marginal cost.

“marginal” means additional

Question 9

Positive statements

Answer 9

based on facts; avoids value statements

Question 10

Normative statements

Answer 10

Includes value judgements and is subjective (debatable)

what SHOULD be (whereas positive statements are what IS)

Question 11

Price vs Cost

Answer 11

Price is how much the buyer or consumer pays for a given product whereas cost is what the seller pays to make/produce that product.

Question 12

Investment

Answer 12

the money spent by businesses to improve their production

Question 13

Absolute Advantage

Answer 13

The producer that can produce the most output OR requires the least amount of resources to produce a given product

Question 14

Comparative Advantage

Answer 14

The producer with the lowest opportunity cost

(comparative advantage is never the same for two countries, only one can have the comparative advantage)

Question 15

Terms of Trade

Answer 15

The agreed upon conditions that would benefit both countries; they should trade at a rate that lies between the two opportunity costs.

Question 16

Demand

Answer 16

The different quantities of goods that customers are both willing and able to buy at different prices.

Question 17

What does the Law of Demand state?

Answer 17

There is an inverse relationship between price and quantity demanded (if price increases, demand decreases and vice versa)

Question 18

The Law of Demand is the result of which three patterns?

Answer 18

1. The Substitution Effect
2. The Income Effect
3. The Law of Diminishing Marginal Utility

Question 19

What are the five shifters of Demand?

Answer 19

1. Tastes and Preferences
2. Number of Buyers
3. Change in Buyer Income
4. Price of Related Goods
5. Future Expectations

A shift to the right on the demand graph is always an increase in demand whereas a shift to the left is always a decrease in demand

Question 20

Why is the Demand Curve downward sloping?

Answer 20

Because it shows the inverse relationship between price (y) and quantity demanded (x)

Question 21

Supply

Answer 21

The different quantities of a good that sellers are both willing and able to produce/sell at different prices

Question 22

What does the Law of Supply state?

Answer 22

There is a direct (or positive) relationship between price and quantity supplied

Question 23

Why is the supply curve upward sloping?

Answer 23

because at higher prices, businesses have an incentive to produce more and therefore earn more profit

Question 24

What are the five shifters of supply?

Answer 24

1. Price/availability of inputs (resources)
2. Number of sellers
3. Technology
4. Government action (taxes and subsidies)
5. Expectation of future profit

Question 25

The Substitution Effect

Answer 25

If the price of a product goes up, customers buy less of that product and more of a substitute product.

Question 26

The Income Effect

Answer 26

As product price decreases, the purchasing power for customers increases allowing them to purchase more.

Question 27

What does the Law of Diminishing Marginal Utility state?

Answer 27

As you consume anything, the additional satisfaction you recieve from continually consuming that product will eventually decrease.

Question 28

Subsidies

Answer 28

A government payment that supports a business or market. Can cause supply to increase.

Question 29

Price Ceiling

Answer 29

The maximum legal price a seller can charge for a product. The goal of these is ti make goods affordable by keeping price from reaching equilibrium.

in order for a price ceiling to have an effect, it has to be below equilibrium

Question 30

Price Floor

Answer 30

A minimum legal price a seller can sell a product for. Goal of this is to keep prices high by preventing them from falling to equilibrium.

in order to have an effect, price floor must be above equilibrium

Question 31

What is the double shift rule?

Answer 31

If two curves shift at the same time, either price or quantity will be indeterminate.