Economics Macro Test 1 Flashcards

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Questions and Answers

For economists, the word 'utility' means:

Rationality

Purposefulness

Pleasure or satisfaction (correct)

Versatility and flexibility

Economics may best be defined as the:

Empirical testing of value judgments through the use of logic

Interaction between macro and micro considerations

Social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity (correct)

Use of policy to refute facts and hypothesis

This statement indicates that: 'Other things equal, the lower the price of bananas, the greater the amount of bananas purchased.'

Economists can conduct controlled laboratory experiments

All factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant (correct)

The quantity of bananas purchased determines the price of bananas

One cannot generalize about the relationship between the price of bananas and the quantity purchased

Macroeconomics can best be described as the:

Study of the large aggregates of the economy or the economy as a whole Signup and view all the answers

Microeconomics:

Is concerned with individual economic units and specific markets Signup and view all the answers

The economizing problem is one of deciding how to make the best use of:

Limited resources to satisfy virtually unlimited wants Signup and view all the answers

The four factors of production are:

Land, labor, capital, and entrepreneurial ability Signup and view all the answers

The production possibilities curve illustrates the basic principle that:

If all the resources of an economy are in use, more of one good can be produced only if less of another good is produced Signup and view all the answers

A point inside a production possibilities curve best illustrates:

Unemployment Signup and view all the answers

Opportunity cost is best defined as:

The amount of one product that must be given up to produce one more unit of another product Signup and view all the answers

Which of the following might shift a nation's production possibilities curve inward?

Devastation by war Signup and view all the answers

An incentive is:

Something that causes people to behave in a certain way by changing the trade-offs they face Signup and view all the answers

Which type of statement is most likely to include the word 'should'?

Normative statement Signup and view all the answers

The price elasticity of demand is a measure of the:

Responsiveness of quantity demanded to a change in price Signup and view all the answers

As monthly rain levels rise, golf course revenue falls because casual golfers prefer to stay dry. This is an example of:

Correlation and causation Signup and view all the answers

The simple circular flow model shows that:

Households are on the selling side of the resource market and on the buying side of the product market Signup and view all the answers

The term 'ceteris paribus' means:

Other things equal Signup and view all the answers

In deciding whether to study for an economics test or go to a movie, one is confronted by the idea(s) of:

Scarcity and opportunity costs Signup and view all the answers

When a producer has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:

Has a comparative advantage at producing that good Signup and view all the answers

The invisible hand refers to:

The coordination that occurs from everyone working in their own self-interest Signup and view all the answers

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Product; resource Signup and view all the answers

A market:

Is an institution that brings together buyers and sellers Signup and view all the answers

Economists use the term demand to refer to:

A schedule of various combinations of market prices and amounts demanded Signup and view all the answers

The relationship between quantity supplied and price is and the relationship between quantity demanded and price is _.

Direct, inverse Signup and view all the answers

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:

Bicycles are normal goods Signup and view all the answers

Which would cause an increase in the demand for product A? (Hint: hot dog buns)

A decrease in the price of a complementary product B Signup and view all the answers

The demand curve for a product might shift as the result of a change in:

All of these Signup and view all the answers

What are the two characteristics that differentiate private goods from public goods?

Rivalry and excludability Signup and view all the answers

The location of the supply curve of a product depends on:

All of these Signup and view all the answers

A government subsidy to the producers of a product:

Increases product supply Signup and view all the answers

If a product is in surplus supply, its price:

Is above the equilibrium level Signup and view all the answers

Black markets are associated with:

Ceiling prices and the resulting product shortages Signup and view all the answers

Productive efficiency refers to:

The use of the least-cost method of production Signup and view all the answers

Allocative efficiency involves determining:

The mix of output that will maximize society's satisfaction Signup and view all the answers

Which of the following statements is correct?

If supply increases and demand decreases, equilibrium price will fall Signup and view all the answers

Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:

Demand has increased and equilibrium price has increased Signup and view all the answers

Suppose that the price of product X rises by 25 percent and the quantity supplied of X increases by 10 percent. The coefficient of price elasticity of supply for good X is:

Less than 1 and therefore supply is inelastic Signup and view all the answers

The main determinant of elasticity of supply is the:

Amount of time the producer has to adjust inputs in response to a price change Signup and view all the answers

If a 5 percent cut in the price of a product causes the quantity demanded to rise by 10 percent, the demand is:

Elastic Signup and view all the answers

The price elasticity of supply measures how:

Responsive the quantity supplied of X is to changes in the price of X Signup and view all the answers

The formula for price elasticity of demand is percentage change in:

Quantity demanded of X / percentage change in price of X Signup and view all the answers

A quasi-public good is:

A good for which exclusion could take place but that has such large spillover benefits that government provides it to prevent an underallocation of resources Signup and view all the answers

When a market is in equilibrium:

Total surplus is maximized Signup and view all the answers

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called:

Consumer surplus Signup and view all the answers

Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

Supply would decrease Signup and view all the answers

At a price of $15 per unit, which of the following would exist?

A surplus of 1,000 units Signup and view all the answers

An effective price floor will:

Result in product surplus Signup and view all the answers

When externalities cause substantial spillover costs for third parties, a competitive market:

Underallocates resources to the production of the good Signup and view all the answers

Study Notes

Economic Concepts and Definitions

Utility: Represents pleasure or satisfaction in economic terms.
Economics: Defined as a social science focused on optimal choice-making under scarcity among individuals and institutions.
Ceteris Paribus: Latin term meaning "other things equal," used to denote all other factors being held constant.

Principles of Demand and Supply

Law of Demand: The quantity of a good purchased increases as its price decreases, assuming all other factors are constant.
Opportunity Cost: The sacrifice made to produce one more unit of another product, expressed as the amount of one product given up.

Types of Economics

Macroeconomics: Involves the study of the economy as a whole, analyzing large-scale economic factors.
Microeconomics: Focuses on individual economic units and specific markets.

Production and Efficiency

Factors of Production: Include land, labor, capital, and entrepreneurial ability.
Production Possibilities Curve: Illustrates trade-offs between two goods; producing more of one good requires sacrificing another.
Productive Efficiency: Achieved when using the least-cost production methods.
Allocative Efficiency: Occurs when resources are distributed in a way that maximizes societal satisfaction.

Market Dynamics

Price Elasticity of Demand: Measures how responsive the quantity demanded is to price changes.
Price Elasticity of Supply: Indicates the responsiveness of quantity supplied to changes in price.
Market Equilibrium: Achieved when quantity supplied equals quantity demanded, maximizing total surplus.

Externalities and Market Failures

Negative Externalities: Occur when a product's production causes costs for third parties, often leading to overproduction.
Quasi-Public Goods: Characterized by non-excludability but rivalry in consumption, prompting government intervention.

Characteristics of Goods

Private Goods: Have rivalry and excludability, meaning consumption by one individual prevents consumption by another.
Public Goods: Non-rival and non-excludable, available for everyone without depleting availability.

Demand and Supply Shifts

Demand may shift due to changes in consumer preferences, incomes, or prices of related goods.
Supply shifts can occur due to technological changes, resource prices, and market competitiveness.

Price Controls

Price Floor: Minimum legal price, often leading to surpluses when set above equilibrium.
Price Ceiling: Maximum legal price, potentially causing shortages when below equilibrium.

Economic Models and Theories

Circular Flow Model: Demonstrates how households and businesses interact in both product and resource markets.
Invisible Hand: Concept explaining how individual self-interest can lead to positive social outcomes.

Consumer Behavior

Consumer Surplus: The difference between what consumers are willing to pay and what they actually pay.
Incentives: Factors that influence individuals' decisions, changing trade-offs in economic choices.

Market Structures

Competitive markets tend to allocate resources towards the goods with the greatest perceived value, sometimes leading to inefficiencies in the presence of externalities.

Government Intervention

Policies like subsidies can impact supply, while taxes on production can decrease supply and increase product prices.

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Description

Prepare for your Economics Macro Test with these flashcards! Each card presents essential concepts and definitions, helping you to understand the foundational aspects of economics, such as utility and the nature of the discipline. Test your knowledge and reinforce your understanding in a concise manner.