Econ

Question 1

Economics is the study of ______ .

Answer 1

how society manages its scarce resources.

Question 2

2. Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

Answer 2

To lower inflation, the government may choose to reduce the money supply in the economy. When the money supply is reduced, prices don’t adjust immediately. Lower spending, combined with prices that are too high, reduces sales and causes workers to be laid off. Hence, the lower price level is associated with higher unemployment.

Question 3

3. How does the study of economics depend upon the phenomenon of scarcity?

Answer 3

Because economics is the study of how society allocates its scarce resources, if there were no scarcity, there would be no need for economics. Everyone could have all the goods and services they wanted. No one would have to make decisions based on tradeoffs, because there would be no opportunity cost associated with the decision. (It is difficult to conceive of a situation where time is not scarce, however).

Question 4

Give an example of government intervention that is intended to improve equality.

Answer 4

The income tax; the welfare system

Question 5

5. Explain how trade with other countries is beneficial.

Answer 5

Trade allows countries to specialize in what they do best, which increases total output.

Question 6

_________
________ __________
_________

Answer 6

Markets for Goods and Services
Firms Households
Markets for Factors of Production

Question 7

15. Studies show that lower cigarette prices are associated with greater use of marijuana; therefore, tobacco and marijuana are

Answer 7

Complements

Question 7

10. The institution that sets the nation’s monetary policy is called the

Answer 7

Federal Reserve

Question 8

16. Suppose goods A and B are substitutes. If the price of good A increases, will the demand for good B increase or decrease?

Answer 8

The demand for good B will increase

Question 9

17. Suppose goods A and B are complements. If the price of good A increases, will the demand for good B increase or decrease?

Answer 9

The demand for good B will decrease

Question 10

What is the difference between a “change in demand” and a “change in quantity demanded?”

Answer 10

A change in demand refers to a shift of the demand curve. A change in quantity demanded refers to a movement along a fixed demand curve.

A change in price causes a change in quantity demanded. All of the other changes listed shift the demand curve.

Question 11

What is the difference between a “change in supply” and a “change in quantity supplied?” Graph your answer.

Answer 11

A change in supply refers to a shift of the supply curve. A change in quantity supplied refers to a movement along a fixed supply curve.

A change in price causes a change in quantity supplied. All of the other changes listed shift the supply curve.

Question 12

Shortage or Surplus
_______________________
Supply - Demand