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Questions and Answers
An improvement in production technology will:
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:
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:
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:
In the product market of the circular flow model:
Capital goods:
Capital goods:
Assume steak is a normal good and bologna is an inferior good. If consumer incomes fall:
Assume steak is a normal good and bologna is an inferior good. If consumer incomes fall:
Each of the following is a factor of production EXCEPT:
Each of the following is a factor of production EXCEPT:
If demand for Product X decreases when the price of Product Y decreases, then:
If demand for Product X decreases when the price of Product Y decreases, then:
Economics is best defined as the study of:
Economics is best defined as the study of:
The study of macroeconomics would include:
The study of macroeconomics would include:
In the resource market, income flows to households in each of the following forms EXCEPT:
In the resource market, income flows to households in each of the following forms EXCEPT:
A normative statement is one that:
A normative statement is one that:
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:
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:
In the circular flow model, the factor market determines all of the following EXCEPT:
In the circular flow model, the factor market determines all of the following EXCEPT:
The production possibilities curve:
The production possibilities curve:
While resources and products flow in one direction of the circular flow model, what flows the other direction?
While resources and products flow in one direction of the circular flow model, what flows the other direction?
Which situation is the best example of the Law of Demand?
Which situation is the best example of the Law of Demand?
For economists, the word 'utility' means:
For economists, the word 'utility' means:
Society's ability to produce more books and computers is limited by:
Society's ability to produce more books and computers is limited by:
A market:
A market:
Each of the following could result in an increased demand for bicycles EXCEPT:
Each of the following could result in an increased demand for bicycles EXCEPT:
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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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.