Macro Economics Unit 1 Flashcards

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Questions and Answers

An improvement in production technology will:

Shift the supply curve to the right (correct)

Increase equilibrium price

Shift the supply curve to the left

Shift the demand curve to the left

The law of supply indicates that, other things equal:

Consumers will purchase less of a good at high prices than at low prices

Producers will offer more of a product at low prices than at high prices

The product supply curve is downsloping

Producers will offer more of a product at high prices than at low prices (correct)

In market economies, the incentive that draws entrepreneurs into industry is:

Government assumption of the risk of failure

The opportunity to gain profit (correct)

Government assistance with making output and pricing decisions

A guaranteed minimum income level

Government bonuses for meeting production quotas

In the product market of the circular flow model:

Consumers buy finished products from firms Signup and view all the answers

Capital goods:

I and III only Signup and view all the answers

Assume steak is a normal good and bologna is an inferior good. If consumer incomes fall:

The price for steak will decrease and the price for bologna will increase Signup and view all the answers

Each of the following is a factor of production EXCEPT:

Money Signup and view all the answers

If demand for Product X decreases when the price of Product Y decreases, then:

Products X and Y are complements Signup and view all the answers

Economics is best defined as the study of:

How people satisfy unlimited wants with scarce resources Signup and view all the answers

The study of macroeconomics would include:

The federal government's decision to increase military spending Signup and view all the answers

In the resource market, income flows to households in each of the following forms EXCEPT:

Taxes Signup and view all the answers

A normative statement is one that:

Is based on value judgments Signup and view all the answers

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and potatoes are a consumer substitute for bread, we would expect the price of wheat to:

Rise, the supply of bread to decrease, and the demand for potatoes to increase Signup and view all the answers

In the circular flow model, the factor market determines all of the following EXCEPT:

Price of used student textbooks in the bookstore Signup and view all the answers

The production possibilities curve:

Is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced Signup and view all the answers

While resources and products flow in one direction of the circular flow model, what flows the other direction?

Money Signup and view all the answers

Which situation is the best example of the Law of Demand?

When the price of books increases, consumers buy fewer books Signup and view all the answers

For economists, the word 'utility' means:

Pleasure or satisfaction Signup and view all the answers

Society's ability to produce more books and computers is limited by:

Available resources and technology Signup and view all the answers

A market:

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

Each of the following could result in an increased demand for bicycles EXCEPT:

The price of bicycle helmets increases significantly Signup and view all the answers

Study Notes

Supply Curve and Production Technology

Improvement in production technology shifts the supply curve to the right, indicating an increase in supply.

Law of Supply

Law of supply states that at higher prices, producers are willing to offer more of a product, while at lower prices, they provide less.

Entrepreneurial Incentives

In market economies, profit opportunities are the main incentive for entrepreneurs to engage in industry.

Circular Flow Model

In the product market, consumers buy finished products from firms, while firms purchase factors of production from households in the resource market.

Capital Goods

Capital goods are created by the economy to produce future goods and services and represent investments in production capabilities.

Demand Shift with Changing Incomes

When consumer incomes fall, the price of normal goods like steak tends to decrease, while the price of inferior goods like bologna typically increases.

Factors of Production

Money is not considered a factor of production, unlike entrepreneurial ability, capital, and land/natural resources.

Substitute Products

If demand for Product X decreases when the price of Product Y decreases, Products X and Y are classified as substitutes.

Economics Definition

Economics entails examining how individuals satisfy unlimited wants using scarce resources, focusing on resource allocation and decision-making.

Macroeconomics Focus

Macroeconomics studies larger-scale economic issues, such as government spending decisions, rather than individual firms or consumer choices.

Income in Resource Market

In the resource market, common forms of income include rents, interest, profits, and wages, but taxes are not included as a form of received income.

Normative Statements

Normative statements reflect value judgments about what ought to be, unlike positive statements which describe facts.

Impact of Drought on Prices

A drought that decreases wheat supply would lead to rising wheat prices, a decrease in bread supply, and an increase in potato demand due to substitution.

Factor Market and Prices

The factor market determines wages, rents, and other factor pricing, but not the price of used student textbooks in a bookstore.

Production Possibilities Curve

The production possibilities curve illustrates the maximum combinations of two goods that can be produced, separating feasible from unattainable combinations.

Circular Flow of Money

In the circular flow model, while resources and products move one direction, money flows in the opposite direction, facilitating transactions.

Law of Demand Example

A direct example of the Law of Demand is seen when the price of books increases, causing consumers to buy fewer books, demonstrating inverse price relationship.

Utility in Economics

Economists define "utility" as the pleasure or satisfaction derived from consuming goods and services.

Production Limitations

Society’s ability to produce is constrained by the available resources and technology, impacting output capabilities.

Definition of Market

A market is defined as an institution that connects buyers and sellers for the exchange of goods and services, not requiring direct interaction.

Influences on Bicycle Demand

An increase in bicycle helmet prices could decrease the demand for bicycles, as it may discourage consumers from purchasing bikes due to increased associated costs.

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Description

Test your understanding of key concepts from Macro Economics Unit 1 with these flashcards. Each card presents an important term or principle and its definition, helping you grasp the fundamentals of supply and production technology.