Test #1 (Chapters 1-7)

Question 1

What is Economics?

Answer 1

It is a social science primarily concerned with the description and analysis of the production, distribution, and consumption of goods and services. And also a social science that studies the choices that individuals, organizations, and sometimes entire societies make as they deal with the scarcity of resources. It also studies the things that impact those choices.

Question 2

What is Macroeconomics?

Answer 2

The study of the performance of the economy in an attempt to gain full employment in our societies with stable prices, acceptable wealth and income distribution, and a sufficient supply of what we need in the way of goods and services.

Question 3

What are the four major factors of production?

Answer 3

Land, Labor Capital and Entrepreneurship.

Question 4

What does land mean?

Answer 4

The space we occupy in order to produce goods and services.

Question 5

What does labor mean?

Answer 5

The people and time it takes to do the tasks.

Question 6

What does capital mean?

Answer 6

Refers to the tools and equipment that anyone uses to make production happen.

Question 7

What does entrepreneurship mean?

Answer 7

What makes the other three factors of production valuable.

Question 8

Tradeoffs

Answer 8

The sacrifice of some or all of one economic goal, good, or service to achieve some other goal, good, or service.

Question 9

The weakness of theories

Answer 9

When we make a theory, we make assumptions.

Question 10

Opportunity cost

Answer 10

Whatever must be given up to obtain some item.

Question 11

Marginal Analysis

Answer 11

A concept that helps us decide if it is wise to take a certain action, the question is between cost and analysis (is it worth it?)(don’t want to take action if the cost is more than the benefit).

Question 12

Marginal Cost

Answer 12

The added cost by taking one more action(effort and time).

Question 13

What does it mean if your production is inside the production possibility curve?

Answer 13

You are not using all your resources.

Question 14

What does it mean if your production is somewhere ON the production possibilities curve?

Answer 14

You are using all of your resources (but it is not ideal).

Question 15

What does it mean if your production is anywhere outside the production possibilities curve?

Answer 15

You cant go outside because you don’t have enough resources (unless you get more resources , capital accumulation and or better technology)

Question 16

What will give you economic growth?

Answer 16

You have to shift the production possibility curve out otherwise you will never grow.

Question 17

What is the principal of decreasing the marginal benefit?

Answer 17

The more you produce or have something the marginal benefit would decline( having one slice vs. 15 slices of pizza).

Question 18

What are the limits to producing ON the production possibility curve?

Answer 18

You don’t want to if the economy is bad, you don’t want to make more products if the marginal cost exceeds the benefit.

Question 19

What are the considerations for using the production possibilities curve?

Answer 19

There are many outside factors that can affect the curve.

Question 20

Where comparative advantage and absolute advantage can exist?

Answer 20

Between countries and companies.

Question 21

Comparative Advantage

Answer 21

The ability to produce a good at a lower opportunity cost than another producer.

Question 22

Absolute Advantage

Answer 22

The ability to produce a good using fewer inputs than another producer.

Question 23

Government Failure

Answer 23

Government intervention that fails to improve economic outcomes.

Question 24

Whether to use absolute advantage or comparative advantage?

Answer 24

Always best to produce products with comparative advantage because it doesn’t matter if you can do it cheaper it matters if you can do it better with more profit and lower opportunity cost.

Question 25

What is the need, if any, for market cooperation and coordination?

Answer 25

Huge amount of network coordination unless you don't specialize it.

Question 26

What is the nature of markets in this day and age?

Answer 26

They are no longer face to face.

Question 27

What is the need or the lack of need of property rights?

Answer 27

You have to have property rights from theft (huge need).

Question 28

Real property

Answer 28

Anything you can touch (furniture, buildings, equipment, land).

Question 29

Financial Property

Answer 29

Bank account, stocks, bonds.

Question 30

Intellectual Property

Answer 30

Copyrights, patents, books, music, computer programs.

Question 31

The law of demand

Answer 31

States that as sellers continue to raise their prices, the quantity demanded of those goods and services will decline (ceteris paribus).

Question 32

The law of supply

Answer 32

If the price that people are willing to pay a producer goes up, the producer is likely to supply more (ceteris paribus).

Question 33

The Substitution effect

Answer 33

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.

Question 34

The income effect

Answer 34

The change in quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.

Question 35

What must exist in order for someone to demand a products?

Answer 35

Want it, have the means to purchase it, and take action.

Question 36

The quantity demanded of a good or service

Answer 36

The amount that consumers plan to buy during a particular time period, and at a particular price.

Question 37

The demand curve

Answer 37

A graph of the relationship between the price of a good and the quantity demanded.

Question 38

The relationship between supply and a market price and how they are shown?

Answer 38

The supply curve shows the relationship between the two.

Question 39

What price changes of your firm will cause?

Answer 39

It will change YOUR demand and it will move you along the curve NOT shift it.

Question 40

What are the major determinants of demand?

Answer 40

Price, taste, income after taxes, other goods (know which will move along the demand curve).

Question 41

Which way does price move along the demand curve?

Answer 41

Price of substitutes rises and price of complements falls shift to the right, price of substitutes falls and price of complements rises shift to the left.

Question 42

Which way does taste move along the demand curve?

Answer 42

Shifts left to lesser popularity and right to greater popularity.

Question 43

Which way does income move after taxes move along the demand curve.

Answer 43

Income rises shifts to the right, income drops shift to the left.

Question 44

Which way does other goods move along the demand curve?

Answer 44

Population likely to buy shift to the right, population not likely to buy shift to the left.

Question 45

Aggregate Demand

Answer 45

The total demand for final goods and services in an economy at a given time (equal to GDP).

Question 46

Aggregate Supply

Answer 46

The sum of all the supply in the economy (equal to GDP).

Question 47

Equilibrium

Answer 47

Keep prices for things low and affordable, they set limits on how much anyone can charge for such things (prevent a price from rising above a certain level).

Question 48

The actual effect of a price floor

Answer 48

Price floors prevent a price from falling below a certain level, keep prices artificially high so producers will continue to produce such things we need.

Question 49

What happens when prices fall below the equilibrium point?

Answer 49

You have a shortage when they fall below, when they go above you have a surplus.

Question 50

What happens to prices when demand increases?

Answer 50

Prices tend to rise.

Question 51

What happens to prices when supply increases?

Answer 51

Prices tend to fall.

Question 52

What are the determinants of price elasticity of demand?

Answer 52

The need for the good (how much you are willing to pay for a phone example), issue of how much your budget this thing is.

Question 53

Income elasticity of demand

Answer 53

How much the quantity demanded of a good responds to a change in consumers' income.

Question 54

Cross elasticity of demand

Answer 54

When changes in the price of one product affect the demand for another item.

Question 55

Price elasticity of supply

Answer 55

What will you charge (how much your supply will change when the market price changes) how sensitive your price will change.

Question 56

Market Failure

Answer 56

Exists when the free market doesn't produce as much as we need.

Question 57

What you as a consumer will likely do if YOUR demand of a good or service is elastic?

Answer 57

A 1% price decrease will compel you to increase your purchases of they good by more than 1% (high end vehicles and electronics have high elasticity small change in price can lead to big demand)(customers are very responsive to a change in price).

Question 58

What you as a consumer will likely do if YOUR demand of a good or service is inelastic?

Answer 58

A 1% price decrease will compel you to increase your purchases of the good by less than 1% (low elasticity like gas and milk)(customers are not that price sensitive).

Question 59

What you as a consumer will likely do if YOUR demand of a good or service is unit elastic?

Answer 59

Your actions will remain the same because the price and demand will remain the same.

Question 60

If you as a firm have perfect price elasticity of demand (infinite) what your demand curve would look like?

Answer 60

The demand curve would be a horizontal line.

Question 61

The Short Run Supply Curve

Answer 61

Shows the changes, if any, of your supply curve on a short run basis, which usually is from a few days to a year.

Question 62

The Long Run Supply Curve

Answer 62

Shows the likely change of your supply curve on a long run basis, which is typically longer than a year.

Question 63

The Momentary Supply Curve

Answer 63

How quickly can I change supply when one of the determinants changes.

Question 64

Planned/Command/ Central economic system

Answer 64

Where a centralized entity, such as the government, decides what will be produced, how, and for whom. The only way it can succeed is if the government truly knows what people want and don't want to buy.

Question 65

Mixed economic system

Answer 65

An economy with varying degrees of free enterprise and government control.

Question 66

Socialist economic system

Answer 66

A system characterized by a large degree of government control of many of the decisions within the nation.

Question 67

Purely free market economic system

Answer 67

An economy in which private businesses provide goods and services to satisfy all our needs with no goods or services provided by our government.

Question 68

The different characteristics and tendencies of the circular flow and the effects of leakages and reinjections?

Answer 68

Circular flow is when someone like you or me is paid, we can once again become consumers, and we can take our money and buy more things from the product market. Leakage are things like taxes, savings, and imports. Taxes: when you are paid, you are not able to spend all of your money because a large part of that must be paid to the government thus that money is leaked out of the flow. Taxes find their way back into the circular flow when the government takes our tax money and buys things from the product market just as a consumer would. Savings: if people put money aside in their savings accounts after they have earned it, they money won't be spent, and that would create another leakage into the circular flow. Savings find their way back into the circular flow when people put it into financial institutions such as banks, mutual funds, or investment firms that sell stocks and bonds. Imports: if the American people are buying goods from other countries and not from here, that money once again escapes from the American circular flow. The reinjection of that money then comes from exports of our products that we sell to people abroad.

Question 69

What economists feel that the government should do to create an ideal economic environment?

Answer 69

To have a friendly one to business; don't over or under tax them and don't allow them to run their business in a way that they hurt the economy.

Question 70

Why the U.S. and other developed nations have an advantage with productivity?

Answer 70

Because we have more capital resources and technology.

Question 71

What is means to be capital intensive?

Answer 71

Through the use of capital equipment, we produce more goods for every hour of labor we employ

Question 72

Manufacturers' tendencies toward being capital intensive vs. that of the service sector of the economy?

Answer 72

Capital intensive is using all your equipment vs. services use labor/ people.