Midterm 1-6 Flashcards
Economics deals primarily with the concept of
Scarcity
In most societies, resources are allocated by
the combined actions of millions of households and firms
Efficiency means that
society is getting the maximum benefits from its scarce resources
For most students, the largest single cost of a college education is
the wages given up to attend school
A marginal change is a
small, incremental adjustment
Trade between countries tends to
increase both competition and specialization
The “invisible hand” refers to
how the decisions of households and firms lead to desirable market outcomes
What is the most important factor that explains differences in living standards among countries?
productivity
Productivity is defined as the
amount of goods and services produced from each unit of labor input
Factors of production are
inputs into the production process
Where can an economy not produce?
outside its production possibilities frontier
Microeconomics is the study of
how individual households and firms make decisions
Macroeconomics is the study of
how the economy as a whole works
When can two countries gain from trading two goods?
Two countries could gain from trading two goods under all of the above conditions
*Quiz Question
The most obvious benefit of specialization and trade is that they allow us to
consume more goods than we otherwise would be able to consume
The opportunity cost of an item is
what you give up to get that item
Absolute advantage is found by comparing different producers’
input requirements per unit of output
Goods produced abroad and sold domestically are called
imports
Tom Brady should probably not mow his own lawn because
his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him
The forces that make market economies work are
supply and demand
In a market economy,
supply and demand determine prices and prices, in turn, allocate the economy’s scarce resources
A group of buyers and sellers of a particular good or service is called a(n)
market
Which of the following changes would not shift the demand curve for a good or service? A change in income, change in the price of a good or service, a change in expectations about the future price of the good or service, or a change in the price of a related good or service?
change in the price of a good or service
*Quiz Question
A decrease in quantity demanded
results in a movement upward and to the left along a demand curve
When we move along a given demand curve,
all nonprice determinants of demand are held constant
If buyers today become more willing and able than before to purchase larger quantities of stand up paddle boards (SUPs) at each price of SUPs, then
the demand curve for SUPs will shift to the right
A decrease in the price of a good will
decrease quantity supplied
When quantity supplied decreases at every possible price, we know that the supply curve has
shifted to the left
The unique point at which the supply and demand curves intersect is called
equilibrium
If the demand for a product decreases, then we would expect equilibrium price
and equilibrium quantity to both decrease
If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?
Both the equilibrium price and quantity would decrease
The signals that guide the allocation of resources in a market economy are
prices
John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both cost $120, so he can only buy one. This illustrates the principle that
people face trade-offs
The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that
equality refers to the uniform distribution and efficiency refers to maximizing benefits from scarce resources
The opportunity cost of going to college is
the value of the best opportunity a student gives up to attend college
One advantage market economies have over centrally-planned economies is that market economies
are more efficient
Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
Households and firms interacting in markets are guided by an “invisible hand” that leads them to desirable market outcomes
Economics is the study of
how a society manages its scarce resources
A supply curve slopes upward because
an increase in price gives producers an incentive to supply a larger quantity
Factors of production are
inputs into the production process
What is the most important factor that explains differences in living standards across countries?
productivity
Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both. In this case, trade could
benefit both Steve and Tom
A production possibilities frontier is:
also the consumption possibilities frontier without trade
When a country has a comparative advantage in producing a certain good,
the country’s opportunity cost of that good is low relative to other countries’ opportunity costs of that same good
