Economics Chapter 1-6 Flashcards

Questions and Answers

Which of the following would an economist classify as physical capital?

a lawyer's computer (correct)

a credit card

100 shares of IBM stock

$50 bill

Economics can best be defined as the study of how:

to eliminate the problem of scarce resources

individuals decide to use scarce resources to satisfy unlimited wants (correct)

to run a business

the government should deal with unemployment and inflation

The assumption that individuals act in their rational self-interest implies:

that people think only of themselves and disregard the well-being of others

that people undertake all those activities that yield benefits to themselves

that people only consider the costs of an activity to decide whether it is worthwhile

none of the above (correct)

Your friend reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You point out to him that he:

has mistakenly inferred causation from observed association Signup and view all the answers

Behavioral assumptions:

describe how individuals are expected to behave Signup and view all the answers

A decline in the amount of resources available to a nation would:

shift its production possibilities curve inward Signup and view all the answers

The opportunity cost of your education includes:

all of the above Signup and view all the answers

The presence of increasing opportunity costs suggests that the production possibilities frontier will:

be bowed out Signup and view all the answers

In a pure capitalist economy, the question of how goods should be produced is answered by:

producers Signup and view all the answers

A production possibilities curve shows:

that in order to acquire more of one good, some of the alternative good must be given up Signup and view all the answers

Which of the following represents the largest source of U.S. personal income?

wages and salaries Signup and view all the answers

Which form of business organization is the most common in the United States?

sole proprietorship Signup and view all the answers

If supply remains unchanged, an increase in demand will be followed by:

higher equilibrium price and higher equilibrium quantity Signup and view all the answers

If the price of cameras increases, ceteris paribus, there will be:

a decrease in the quantity demanded of cameras Signup and view all the answers

There would be an increase in supply with all but which one of the following occurrences?

an increase in the price of the good Signup and view all the answers

A decrease in supply means that:

the quantity supplied at every price will decrease Signup and view all the answers

Demand for pumpkins increases, but because of poor weather, supply decreases. What will happen to price and quantity?

Price will rise; effect on quantity is indeterminate Signup and view all the answers

A minimum wage that is set below the equilibrium wage:

will have no effect on employment Signup and view all the answers

If the equilibrium price of milk is $0.75 per gallon and a price ceiling of $0.60 per gallon is imposed, we would expect:

a shortage to occur, since the price ceiling is lower than the equilibrium price Signup and view all the answers

Assume normally sloped demand and supply curves. A simultaneous increase in both demand and supply:

must increase the equilibrium quantity but the effect on equilibrium price is indeterminate Signup and view all the answers

Scarcity:

is when the amount desired exceeds the amount available at a zero price Signup and view all the answers

Economics can best be defined as the:

study of how people use their scarce resources to satisfy their unlimited wants Signup and view all the answers

Resource markets include the:

market of auto workers Signup and view all the answers

Which of the following would be described as physical capital by an economist?

the laptop computer used by a teacher Signup and view all the answers

Which of the following is not a part of the scientific method in economics?

normative statements Signup and view all the answers

In a pure market economy, the question of how goods should be produced is answered by:

producers Signup and view all the answers

The U.S. economy most closely resembles a:

mixed economy Signup and view all the answers

An economy's production possibilities frontier will shift outward as a result of:

an increase in the amount of resources Signup and view all the answers

Assume that a person may travel by plane or bus from Detroit to New York. The price of an airline ticket is $500 while a bus ticket is $100. Traveling by plane will take 2 hours compared with 10 hours by bus. Ceteris paribus:

this individual will choose air travel if he values his time at more than $50 per hour Signup and view all the answers

A production possibilities frontier shows:

what a society can produce Signup and view all the answers

The largest portion of U.S. personal income is spent on:

services Signup and view all the answers

The least common form of business organization in the United States is:

the partnership Signup and view all the answers

If steel workers accept a decrease in their hourly wage, then one would expect:

a rightward shift of the steel supply curve Signup and view all the answers

If an increase in consumer income leads to a decline in the demand for hamburger:

then hamburger is an inferior good Signup and view all the answers

A decline in the supply of coffee will result in:

a rise in price and a fall in quantity demanded of coffee Signup and view all the answers

An analysis of the market for Good X shows that the price of a complement, Good Y, is declining. At the same time, there is a technological advance that increases the supply of Good X. Which of the following must be true for Good X?

Equilibrium quantity will rise, and the change in equilibrium price cannot be determined. Signup and view all the answers

All but which one of the following could shift the demand curve?

a shift of the supply curve Signup and view all the answers

At the equilibrium price of $3.50 a bushel, with no price controls, 10,000 bushels of oats are sold. If the government imposed a price floor of $4.50, we would expect:

the quantity demanded of oats to fall below 10,000 bushels Signup and view all the answers

A market supply curve:

is the sum of the supply curves of all the individual suppliers in the market Signup and view all the answers

Suppose the French government reduces the amount of French wine allowed to be exported to the U.S. We would predict:

a shortage of French wine if the price is not permitted to rise Signup and view all the answers

Study Notes

Economic Concepts

Physical capital refers to tangible assets that aid in production, such as a lawyer's computer.
Economics studies how individuals utilize scarce resources to meet unlimited wants.
Rational self-interest implies individuals act to maximize personal benefits while considering costs and benefits.

Economic Relationships and Assumptions

Correlation does not imply causation; observed associations may lead to false conclusions.
Behavioral assumptions describe expected individual behaviors in economic scenarios.
A decrease in a nation's resources shifts its production possibilities curve inward.

Opportunity Cost and Production

Opportunity cost of education includes tuition, potential earnings, and other related expenses.
Increasing opportunity costs lead to a production possibilities frontier that is bowed outward.
A production possibilities curve illustrates the trade-off in production between different goods.

Market Dynamics

In a capitalist economy, producers determine how goods should be produced based on market conditions.
Higher demand with unchanged supply results in increased equilibrium price and quantity.
A price increase causes a decrease in the quantity demanded for that good, all else equal.

Supply and Demand Interactions

Supply increases when technology improves, resource prices decline, or the number of producers rises; increased price can deter supply.
Demand increases in some cases but may lead to indeterminate effects on quantity depending on supply factors.
Price ceilings below equilibrium create shortages, while price floors can lead to surpluses.

Scarcity and Resource Allocation

Scarcity arises when the demand surpasses availability at zero price, highlighting the need for resource allocation strategies.
The U.S. economy is a mixed economy, combining elements of capitalism with government regulation.

Business Structures and Income

Sole proprietorships are the most common form of business organization in the U.S.
Wages and salaries represent the largest source of personal income, while services account for the largest expenditure.

Market Analysis and Behavioral Effects

A rightward shift in supply can occur following wage reductions in labor inputs.
Good X's market equilibrium can be affected by changes in prices of complementary goods and advancements in production technology.

Shifts in Demand and Market Curves

Demand shifts can occur due to external factors like advertising or changes in consumer preferences, but not by supply shifts.
A market supply curve aggregates all individual suppliers' offerings in a market.

Impact of Government Intervention

Government interventions like price floors or ceilings can distort market equilibrium, affecting supply and demand dynamics.
Restrictions on exports, such as limits on French wine exports, can create shortages in the importing market.

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Test your knowledge of key concepts from Chapters 1 to 6 of your economics course with these flashcards. Each card challenges you with important questions related to physical capital and the fundamental definitions in economics. Perfect for quick reviews and retention!