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| Economics primarily addresses the problems associated with |
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Definition
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| What are the main ideas of economics? |
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Resources used to make goods and services desired by society are scarce.
Because resources are scarce, we cannot make all the goods and services that society
desires.
Because we cannot make all the goods and services that society desires, individuals
must continually face trade-offs and make decisions.
These decisions should be made in such a way as to stretch the available resources to
their fullest and best use |
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| Why can’t we have all the goods and services we want? |
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Definition
Because humans wants are unlimited.
Because the resources used to make goods and services are limited. |
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| Physical capital is used by economists to mean |
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Definition
| goods that are used to help make other goods and services. |
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| Human capital is used by economists to mean |
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Definition
the education of the workforce.
training and on the job experience. |
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| Physical capital is used by economists to mean |
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Definition
| goods that are used to help make other goods and services. |
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| Human capital is used by economists to mean |
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Definition
the education of the workforce.
training and on the job experience. |
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Term
| Tradeoffs are required in any decision because wants are ____ while resources are ____. |
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| Which of the following statements is normative? |
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Definition
| The government should try to lower the unemployment level. |
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| An economic theory is valuable only if it |
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| simplifies reality in order to focus on crucial elements |
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Y = 50 – 3X
In the above equation, Y is the ________ and X is the _______. |
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Definition
| dependen tvariable;independent variable |
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Y = 50 – 3X
From the equation above, we know that |
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Definition
| X and Y are negatively related. |
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says that X and Y are negatively related.
says that plotting Y on the vertical axis and X on the horizontal axis yields a downward
sloping line. |
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| The production possibilities frontier demonstrates the |
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Definition
problem of scarcity.
concept of tradeoffs.
concept of opportunity cost.
available, efficient choices to society. |
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Term
| Combinations of goods outside the production possibilities frontier curve (PPF) |
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Definition
| are unattainable given society's technology and resources |
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Term
| Combination of goods that lie on the production possibilities frontier curve (PPF) are said to be |
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Definition
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| Combinations of goods that lie inside the production possibilities frontier curve (PPF) are said to be |
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Definition
| possible, but inefficient. |
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| On a PPF, economic growth is shown as a/an |
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Definition
| outward shift in the curve. |
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| On a PPF, a technological advance in the production of one good is shown as a/an |
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Definition
a rotation outward along the axis of the good with the technological advance in
production. |
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| In a typical market, the demand curve is composed of ___ and slopes ____. |
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| Along a typical downward sloping demand curve, what is NOT held constant? |
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Definition
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| Along a typical downward sloping demand curve, what is held constant? |
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Definition
income
tastes/preferences
prices of related goods
future price expectations |
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Term
| Which of the following would shift the demand curve? |
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Definition
a change in the incomes of consumers
a change in the tastes or preferences of consumers |
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Term
| When referring to a graph, a decrease in demand means that |
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Definition
| the demand curve has shifted left. |
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| When referring to a graph, a decrease in quantity demanded means that |
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Definition
| there has been a movement up along the demand curve. |
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| All of the following will cause an increase in demand EXCEPT |
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Definition
| a decrease in the price of the good |
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| In a typical market, the supply curve is made up of ___ and slopes ___. |
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| Which of the following is a supply shifter? |
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Definition
expected price (what sellers believe the price will do in the future)
price of inputs |
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| Which of the following would cause a movement along the supply curve? |
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Definition
| a change in the price of the good itself |
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| When referring to a graph, an increase in supply means that |
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Definition
| the supply curve has shifted right. |
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| When referring to a graph, an increase in quantity supplied means that |
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Definition
| there has been a movement up along the supply curve. |
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Definition
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Definition
the market clearing price
the equilibrium price
the price buyers pay and the price that sellers receive |
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| In competitive markets, who controls P*? |
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Definition
| combination of buyers and sellers – neither side “controls” the price |
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Term
| When a market for a good/service is in equilibrium, |
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Definition
buyers can buy as much of the product they want, if they pay price P*.
sellers can produce as much of the product they want, if they receive price P*.
there are no forces on price to rise or fall.
the amount of the good demanded by consumers exactly equals the amount of the good
supplied by sellers. |
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| When the price of a good/service is above the market clearing price (P*), then |
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Definition
The amount supplied of the good will exceed the amount demanded.
Market forces will begin to push the price downwards.
There will be a surplus of the good.
Some sellers will not sell all that they have produced. |
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| According to the model of supply and demand, in general what happens when consumers want more of the good or service? |
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Definition
| it causes the price to rise |
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| Generally, anytime there is an increase in demand, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. |
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Definition
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| Generally, anytime there is a decrease in demand, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. |
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| According to the model of supply and demand, in general what happens when sellers produce/provide less of the good or service? |
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Definition
| it causes the price to rise |
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Term
According to the model of supply and demand, in general what happens when sellers
produce/provide more of the good or service? |
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Definition
| it causes the price to fall |
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| Generally, anytime there is an increase in supply, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. |
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Definition
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| Generally, anytime there is a decrease in supply, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. |
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| Generally, anytime there is a rise in the price of a substitute good, the model of supply and demand would predict equilibrium price to ___ and quantity to ____. |
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| Consider the market for blue jeans. Suppose that khaki’s become more fashionable. In the model of supply and demand, this would shift the ____ curve to the ____. |
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Definition
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| Consider the market for blue jeans. Suppose that there is an improvement in the technology of blue jean production. In the model of supply and demand, this would shift the ___ curve to the _____. |
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| Suppose that the price of steel, an important input to automobiles, falls. What does the model of supply and demand will predict will happen in the market for automobiles? |
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Definition
| equilibrium price will decrease while quantity will increase |
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| Consider the market X. Recently, it has been noted that the price of X has decreased while at the same time the equilibrium quantity has increased. Which of the following would explain that result? |
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| Generally, anytime there is a simultaneous increase in supply and an increase in demand, the model of supply and demand would predict equilibrium price to _________ and quantity to _______. |
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Definition
| unable to determine; rise |
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| Generally, anytime there is a simultaneously increase in supply and a decrease in demand, the model of supply and demand would predict equilibrium price _______ and quantity to ________. |
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Definition
| fall; unable to determine |
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Term
| To say that demand for a good is elastic, it means that |
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Definition
| a 1% rise in price results in a drop in quantity demanded by more than 1%. |
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If quantity demanded would change by ___.
a good has a price elasticity of demand of 0.5, this means that if price changed by 6%, |
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Definition
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| If a good has a price elasticity of demand of 3, this means that if price changed by 6%, quantity demanded would change by ___. |
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Definition
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| A good generally tends to be more elastic (elasticity of demand) |
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Definition
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Term
| If a good is a necessity with no close substitutes, then demand will most likely be |
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Definition
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| If demand for a good or service is elastic, then an increase in price will lead to ___. |
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Definition
a decrease in revenue because the increase in price will be outweighed by the
loss in quantity demand. |
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Term
| What is the official formula for the price elasticity of demand? |
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Definition
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| What is the midpoint formula for the price elasticity of demand? |
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Definition
| Ed = [ΔQd / avg Qd] / [ΔP / avg P] |
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Definition
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Term
| A binding price floor in a market sets price |
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Definition
| above the equilibrium price and causes a surplus. |
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Term
| A binding price floor in the market for apples will cause |
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Definition
a surplus of apples.
the price to be higher than the free-market (equilibrium) price. |
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Term
| A $10 tax on the sellers of a good will cause the |
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Definition
| supply curve to shift up by $10. |
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Term
| A $2 tax on the buyers of sneakers will cause the |
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Definition
| demand curve for sneakers to shift down by $2 |
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Term
Which of the statements below concerning taxation is true?
i) ii)
iii) iv) v) vi)
vii) viii)
Buyers and sellers always split a tax evenly
The government levies the tax on either buyers or sellers, and this group will pay the majority of the tax
A tax $3 on buyers shifts the demand curve up by $3
A tax $4 on sellers shifts the supply curve up by $4.
The government can control how a tax is split between buyers and sellers Elasticity of supply and demand controls how a tax is split between buyers and
sellers
Whichever side of the market is the most inelastic will pay the majority of the tax Whichever side of the market is the most elastic will pay the majority of a tax |
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Definition
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| Which of the following is the most correct statement about tax burdens? |
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Definition
The tax burden falls the heaviest on the side of the market that is the most
inelastic. |
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Term
| If a tax is imposed on a market with an elastic demand and inelastic supply |
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Definition
| sellers will bear most of the tax burden. |
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| Suppose that in Knoxville the market for coffee, the equilibrium price for a cup is $1.00. Which of the following is the best example of a binding price ceiling? |
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Definition
The Knoxville City Council makes it illegal to sell coffee at any price higher than
$0.75 |
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Term
Suppose that in Knoxville the market for coffee, the equilibrium price for a cup is $1.00.
Which of the following is the best example of a binding price ceiling? |
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Definition
The Knoxville City Council makes it illegal to sell coffee at any price higher than
$0.75 |
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Term
| The motivating behavior we assume to drive ALL firm behavior is |
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Definition
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Term
| Marginal product of labor is defined as the additional |
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Definition
| output generated from employing 1 more unit of labor. |
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Term
| At Ken's Cookie Store, 4 workers can bake 44 cookies in one hour, while 5 workers can bake 70 cookies in one hour. The marginal product of the 5th worker is |
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Definition
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Term
| Diminishing returns to labor, or diminishing marginal product of labor implies that, holding other inputs fixed, eventually |
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Definition
| output rises by less and less as we add more units of labor. |
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Term
| The short-run production function assumes that |
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Definition
| at least one input is held fixed or constant. |
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Term
| The long-run production function assumes that |
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Definition
| all inputs are free to vary. |
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Term
| An example of an explicit cost of production would be the cost of |
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Definition
hiring extra labor for a busy season.
remodeling a store to expand business.
repaying a business loan.
purchasing raw materials (such as flour for a bakery). |
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| Economic profits are normally _____ than accounting profits because ____. |
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Definition
| lower; economic costs are greater than accounting costs |
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Term
| Marginal Cost (MC) can be thought of as the change in |
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Definition
| total cost from producing one more unit of output. |
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| Because the amount of labor can be changed in the short run, it is known as a(n) |
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Definition
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| What happens to fixed costs (FC) as the firm increases production in the short-run? |
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Definition
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| What happens to average fixed costs (AFC) as the firm increases production in the short-run? |
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Definition
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| What happens to variable costs (VC) as the firm increases production in the short-run? |
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Definition
| VC increase slowly at first and then increase faster and faster |
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| What happens to average variable costs (AVC) as the firm increases production in the short run? |
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Definition
| AVC decrease at first and then begin to increase |
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| What happens to total costs (TC) as the firm increases production in the short-run? |
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Definition
| TC increase slowly at first and then increase faster and faster |
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| What happens to average total costs (ATC) as the firm increases production in the short-run? |
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Definition
| ATC decrease at first and then begin to increase |
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| What happens to marginal cost (MC) as the firm increases production in the short-run? |
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Definition
| MC decrease at first and then begin to increase |
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Term
| Which of the following concerning typical cost curves is correct? |
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Definition
When marginal cost equals average total cost (ATC), the ATC is at its minimum.
When marginal cost is less than average total cost (ATC), the ATC is falling. |
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| Which of the following short-run cost curves is NOT typically U-shaped? |
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Definition
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| Diminishing returns to labor occurs |
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Definition
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| In the long run, fixed costs |
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Definition
| There are no fixed costs in the long run. |
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Term
| Decreasing returns to scale means that as a firm increases production, |
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Definition
| Average Total Costs are increasing |
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| Increasing returns to scale means that as a firm increases production, |
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Definition
| Average Total Costs are decreasing |
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| Suppose that, in the long run, Chuck Norris could produce 75 thousand Total Gyms® per month and incur total economic costs of $90 million per month. If he increases production to 100 thousand Total Gyms® per month, total economic costs increase to $120 million per month. What can we say about Chuck? |
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Definition
| Chuck is experiencing constant returns to scale. |
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| Suppose that, in the long run, Chuck Norris could produce 15 thousand Total Gyms® per month and incur total economic costs of $750,000 per month. If he increases production to 20 thousand Total Gyms® per month, total economic costs increase to $900,000 per month. What can we say about Chuck? |
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Definition
| Chuck is experiencing economies of scale (increasing returns to scale). |
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