Principles of Econ Exam 1 Flashcards
What is the definition of circular flow diagram?
a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market
What is the definition of command economy?
an economy where economic decisions are passed down from government authority and where the government owns the resources
What is the definition of division of labor?
the way in which different workers divide required tasks to produce a good or service economics the study of how humans make choices under conditions of scarcity
economies of scale
when the average cost of producing each individual unit declines as total output increases
What’s the definition of globalization
the trend in which buying and selling in markets have increasingly crossed national borders
What’s the definition of goods and services
a market in which firms are sellers of what they produce and households are buyers
What’s the definition of GDP
measure of the size of total production in an economy; or the total value ($) of all final goods and services produced within a country in a given year
What’s the definition of macroeconomics?
the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance
What’s the definition of a market?
interaction between potential buyers and sellers; a combination of demand and supply
What’s the definition of a market economy?
an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand (aka free market)
What’s the definition of microeconomics
the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
What’s the definition of monetary policy?
policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing
private enterprise
system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)
Scarcity
when human wants for goods and services exceed the available supply; limits
specialization
when workers or firms focus on particular tasks for which they are well-suited within the overall production process
theory
a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation
traditional economy
typically an agricultural economy where things are done the same as they have always been done
underground economy
a market where the buyers and sellers make transactions in violation of one or more government regulations
What are the factors of production (inputs needed for creating goods and services
Land
Labor
Capital
Entrepreneurship
Economics
the social science that seeks to understand how humans make decisions in the face of scarcity
Economics is
The social science that seeks to understand the choices people make in using scarce resources to meet their unlimited wants
What is the process in which workers select specialized tasks to make a product?
Division of labor
According to the Figure, which section of the graph is the depicting “economies of scale”?
From quantity 0 to 30
The study of economics is primarily concerned with:
Understanding how people, businesses, governments, & societies use scarce resources
Microeconomics is concerned with:
The individual units that make up the whole of the economy
Who conducts fiscal policy?
Congress, the executive branch, the nation’s legislative body
Who conducts monetary policy?
The country’s central bank
In the circular flow model, households:
Buy products and sell labor
When economists refer to underground economies, they are talking about:
Employees being paid under the table, black markets, illegal trade
Gross domestic product is
The total dollar amount of all final goods and services produce within a country’s borders in one year
Match the type of Economy to the correct definition; Traditional economy
Typically an agricultural economy where things are done the same as they have always been done
Match the type of Economy to the correct definition; Command Economy
An economic design where economic decisions are passed down (through hierarchy) from government planners where factors of production are owed by the government
Match the type of Economy to the correct definition; Market Economy
An economy where economic decisions are conducted through spontaneous order, factors of production are owned by individuals and businesses supply goods and services based on demand
The role of an assumption in an economic theory is to simplify the theory
True
A product that is produced in the US and sold abroad is US…
Export
An American consumer who buys a Ferrari that was produced in Italy is an examply of a US…
Import
A_ shows the maximum quantity of two products that a person can purchase based on the price of the products and the person’s budget.
budget constraint
Opportunity cost is
The next best alternative, all around us and is part of daily decision making, a true cost that economists incoporate into cost models, what was forgone b/c you pursued something else that was desired
What is the term that economists use to describe the satisfaction or happiness gained from consuming a product?
Utility
Economists use the term Marginal to describe
Incremental changes, a little more or a little less of something, an increase or decrease in one unit
Marginal analysis is used to
Examine the decisions of incremental change
The law of diminishing marginal utility
Shows the general pattern of higher leveles of happiness for the first few units consumed compared to the last few units consumed
The Production Possibility Frontier shows
The maximum combinations of two goods (or services) that can bo produced given the economy’s available knowledge and factors of production–The efficient use of resources, points beyond the PPF are unattainable and points inside the PPF are inefficient–A trade-off between two goods (or services) that could be produced
In a closed economy (no international trade), how does a society choose where on the PPF to produce?
Society will choose the combination of the two goods that maximize society’s utility
What concept are economists referring to if one input in the production of a good increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output?
The law of diminishing returns
How can society increase productivity?
More or better “Land”
More or better “Capital”
Productive Innovation
More or better “Labor”
Quiz 2: Question 11
-One additional Art Kit can be purchased at the costs of four bottles
-Each point on the budget constraint represents possible combinations of fingernail polish and Art kits that can be purchased given Carol’s budget
-Good A is fingernail polish & Good B is Art Kits
Quiz 2 Q 12
The curve would become flatter and the quantity of “Good A” would intersect the vertical axis at 10 units.
The invisible hand
Shows how producers and consumers interact in the spontaneous market to create the immense and dynamix economy that we see today
“The unemployment rate in April 2014 was 6.3%” is an example of
Positive economics
“The unemployment rate in April 2014 was 6.3% which was better than the unemployment rate was in March, but it still should have been lower”; this entire statment is an example of:
Normative economics
Economists assume that choosing to donating money to stanger is a “rational & self-interested” decision.
True (The person donating the money still receives satisfaction from donating and helping others - so yes, donating money to someone else is still self-interested. If the person did not receive satisfaction, they would not donate.)
There is a(n)___ relationship between the amount of time that you study and how well you you perform on the exam.
Direct
The demand curve shows that as the price of a good increases,
The quantity demanded of the good descreases
If hot dogs and hamburgers are substitutes and the price of hot dogs increases, what do we expect?
The demand curve for hamburgers to shift to the right
A change in Quantity Demanded is
Shown by a movement from point to point along one demand curve, and occurs because the price of the product itself has changed
A change in Demand is
Shown by shifting the demand curve (out and to the right or back and to the left), and occurs because something in the world other than price has changed
To be considered as part of the demand curve for a product, you must
Be willing and able to purchase that item
Quiz 3 Q.7
Movement from point “B” to point “A”
Quiz 3 Q 8
a) an increase in Demand (An increase in popularity will cause an increase in demand.)
Quiz 3 Q 9
c) a decrease in Demand
When the Invisible hand is correcting the market because it has surplus,
Quantity demanded will increase and quantity, Built up inventories will decrease, The equilibrium price will fall
The relationship between price and quantity demanded is
Inverse
Quiz 3 Q 12
Movement from point “A” to point “B”
Quiz 3 Q 13
d) a decrease in Supply
Quiz 3 Q 14
b) an increase in Supply
Quiz 3 Q 15
d) a decrease in Supply
Which is not a factor of Production?
Money
If there is an increase in Demand, what will happen to equilibrium Quantity?
Equilibrium Price will increase & equilibrium Quantity will increase
If there is a decrease in Supply, what will happen to equilibrium Price and equilibrium Quantity? Quiz 3 Q 18
Equilibrium Price will increase & equilibrium Quantity will decrease
If the price of Nike running shoes increases; what happens in the market for Adidas running shoes? (Hint: first think about if you want more or less Nike running shoes). Quiz 3 Q 19
Equilibrium Price will increase & equilibrium Quantity will increase
What are the benefits called when suppliers are willing and able to accept a price lower tha equilibrium price, but actually recieve equilibrium price?
Producer Surplus
According to Figure, consumer surplus is shown by area: Quiz 3 Q 22
A
According to the figure, producer surplus is shown by area: review photo
B
