Unit 1 Test Flashcards
1
Q
The dispassionate development and testing of
theories about how the world works, including observation, theory, more observation.
A
Scientific Method
2
Q
Because conducting experiments in economics is often impractical, economists play close attention to the __________ __________ offered by _________.
A
Natural Experiments
History
3
Q
_________ can simplify the complex world and make
it easier to understand.
A
Assumptions
4
Q
_________ __________ are built with assumptions.
A
Economic Models
5
Q
_________ __________ are diagrams and equations that simply reality (omit many details) to improve our understanding of it.
A
Economic Models
6
Q
Name two economic models.
A
Circular-flow Diagram
Production Possibilities Frontier
7
Q
In which economic model is the economy is simplified to include only two types of decision makers?
A
Circular-flow Diagram
8
Q
Name the two decision makers in the circular-flow diagram.
A
Firms
Households
9
Q
Name the two markets in the circular-flow diagram.
A
Goods and Services
Factors of Production (Inputs)
10
Q
What are the three categories of factors of production?
A
Land, labor and capital
11
Q
In the circular-flow diagram, what do firms produce and sell?
A
Goods and Services
12
Q
In the circular-flow diagram, what do firms hire and use?
A
Factors of Production
13
Q
In the circular-flow diagram, what do households own and sell?
A
Factors of Production
14
Q
In the circular-flow diagram, what do households buy and consume?
A
Goods and Services
15
Q
In the circular-flow diagram, who are the sellers and buyers in the market for goods and services?
A
Firms are sellers
Households are buyers
16
Q
In the circular-flow diagram, who are the sellers and buyers in the market for factors for production?
A
Firms are buyers
Households are sellers
17
Q
Which economic model is a graph that shows the combinations of output that the economy
can possibly produce given the available factors of production and production technology?
A
Production Possibilities Frontier
18
Q
Points on the production possibilities frontier represent an _________ level of production.
A
Efficient
19
Q
Points within the production possibilities frontier represent an _________ level of production.
A
Inefficient
20
Q
Points outside the production possibilities frontier represent an _________ level of production.
A
Impossible
21
Q
What does the slope of the production possibilities frontier represent?
A
Opportunity Cost
22
Q
How does a technological advance affect the production possibilities frontier?
A
Outward shift
23
Q
The study of how households and firms
make decisions and how they interact in
markets.
A
Microeconomics
24
Q
The study of economy-wide phenomena,
including inflation, unemployment, and
economic growth
A
Macroeconomics
25
What are the two types of statements made in economics?
Positive
| Normative
26
What type of statement is descriptive?
Positive
27
What type of statement is prescriptive?
Normative
28
What type of statement describes the world as it is and can be confirmed or refuted by examining evidence?
Positive
29
What type of statement attempts to prescribe how the world should be?
Normative
30
The terms _________and _________refer to the behavior of people as they interact with one another in competitive markets.
Supply
| Demand
31
A _________ is a group of buyers and sellers of a
| particular good or service.
Market
32
The _________as a group determine the demand for the product.
Buyers
33
The _________as a group determine the supply for the product.
Sellers
34
In a __________ market, there are so many buyers and so many sellers that each has a negligible impact on the market price.
Competitive
35
In a _________ _________ market, the goods offered for sale are all exactly the same and the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
Perfectly Competitive
36
In a _________ _________ market, at the market price buyers can buy all they want and sellers can sell all they want.
Perfectly Competitive
37
The type of market that has only one seller that sets the price.
Monopoly
38
The amount of a good that buyers are willing
| and able to purchase.
Quantity Demanded
39
Other things equal, when the price of a good rises, the quantity demanded of the good falls. And when the price falls, the quantity demanded rises.
Law of Demand
40
A table that shows the relationship between the price of a good and the quantity demanded.
Demand Schedule
41
A graph of the relationship between the price of a good and the quantity demanded.
Demand Curve
42
Sum of all individual demands for a good
| or service.
Market Demand
43
Sum the individual demand curves
| horizontally.
Market Demand Curve
44
A good for which, other things being equal, an increase in income leads to an increase in demand.
Normal Good
45
A good for which, other things being equal, an increase in income leads to a decrease in demand.
Inferior Good
46
Two goods for which an increase in the price of one leads to an increase in the demand for the other
Substitutes
47
Two goods for which an increase in the price of one leads to an decrease in the demand for the other
Complements
48
Name the five variables that shift the demand curve.
```
Income
Prices of Related Goods
Tastes
Expectations
Number of Buyers
```
49
Any change that increases the quantity demanded at every price.
Increase in Demand
50
Any change that decreases the quantity demanded at every price.
Decrease in Demand
51
What are the two types of goods related to changes in income?
Normal Good
| Inferior Good
52
What are the two types of goods related to changes in prices of related goods?
Substitutes
| Complements
53
The amount of a good that sellers are willing and able to sell.
Quantity Supplied
54
Other things being equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well.
Law of Supply
55
Relationship between the price of a good
| and the quantity supplied.
Supply
56
A table that shows the relationship between the price of a good and the quantity supplied.
Supply Schedule
57
A graph of the relationship between the price of a good and the quantity supplied.
Supply Curve
58
The sum of the supplies of all sellers.
Market Supply
59
Sum of individual supply curves horizontally
Market Supply Curve
60
Name the four variables that shift the supply curve.
Input Prices
Technology
Expectations
Number of Sellers
61
Any change that increases the quantity
| supplied at every price.
Increase in Supply
62
Any change that decreases the quantity
| supplied at every price.
Decrease in Supply
63
Higher input prices will cause a ________ in supply.
Decrease
64
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Equilibrium
65
The price that balances quantity supplied and quantity demanded
Equilibrium Price
66
The quantity supplied and the quantity demanded at the equilibrium price
Equilibrium Quantity
67
The equilibrium price is also called the _________ price.
Market-clearing
68
An the _________ price, buyers have bought all they want to buy, and sellers have sold all they want to sell.
Market-clearing / Equilibrium
69
A situation in which quantity supplied is greater than quantity demanded.
Surplus
70
When there is excess supply, there is a _________ pressure on prices.
Downward
71
A situation in which quantity demanded is greater than quantity supplied
Shortage
72
When there is excess demand, there is a ________ pressure on prices.
Upward
73
Regardless of whether the price starts off too high or too low, the activities of the many buyers and sellers automatically push the market price toward the ___________price.
Equilibrium
74
The price of any good adjusts to bring the quantity supplied and quantity demanded of that good into balance
The Law of Supply and Demand
75
How many steps are there when analyzing changes in equilibrium?
Three
76
What is the first step when analyzing changes in equilibrium?
Decide whether the event shifts the supply or demand curve (or perhaps both).
77
What is the second step when analyzing changes in equilibrium?
Decide in which direction the curve shifts.
78
What is the third step when analyzing changes in equilibrium?
Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.
79
If both the supply curve and demand curve are shifting, either the equilibrium price or the equilibrium quantity will be _________.
Ambiguous
80
If there is an increase in supply and no change in demand, how are the equilibrium price and equilibrium quantity affected?
The equilibrium price will go down and the equilibrium quantity will go up.
81
If there is a decrease in demand and no change in supply, how are the equilibrium price and equilibrium quantity affected?
The equilibrium price will go down and the equilibrium quantity will go down.
82
If there is a decrease in supply and an increase in demand, how are the equilibrium price and equilibrium quantity affected?
The equilibrium price will go up and the equilibrium quantity is ambiguous.
83
Signals that guide the allocation of
| resources.
Prices
84
Mechanism for rationing scarce resources
Prices
85
Determine who produces each good and
| how much is produced
Prices
86
Measures the total income of everyone in
| the economy.
Gross Domestic Product
87
Measures the total expenditure on the
| economy’s output of goods and services.
Gross Domestic Product
88
The market value of all final goods &
services produced within a country
in a given period of time.
Gross Domestic Product
89
Goods intended for the end user.
Final Goods
90
Goods used as components
or ingredients in the production of other
goods.
Intermediate Goods
91
Does GDP include goods produced in the past?
No
92
Y = C + I + G + NX
Equation for GDP
93
What is the equation for GDP?
Y = C + I + G + NX
94
In the GDP equation, what does the Y stand for?
GDP
95
In the GDP equation, what does the C stand for?
Consumption
96
In the GDP equation, what does the I stand for?
Investment
97
In the GDP equation, what does the G stand for?
Government Purchases
98
In the GDP equation, what does the NX stand for?
Net Exports
99
What component of GDP does spending by households on goods and services (except purchases of new housing) represent?
Consumption
100
What component of GDP does spending on goods that will be used in the future to produce more goods represent?
Investment
101
Name three things that are included in the investment component of GDP.
Business Capital
Residential Capital
Inventory Accumulation
102
Business structures, equipment, and intellectual property products belong to what sub-component of GDP?
Business Capital (Investment)
103
Landlords' apartment buildings and homeowners' personal residences belong to what sub-component of GDP?
Residential Capital (Investment)
104
How do you calculate the net exports (NX)?
Exports - Imports
105
Production of goods and services valued at current prices.
Nominal GDP
106
Production of goods and services valued at constant prices.
Real GDP
107
_________GDP reflects both the quantities of goods and services the economy is producing and the prices of those goods and services.
Nominal
108
By holding prices constant at base-year levels, _________GDP reflects only the quantities produced.
Real
109
A GDP statistic which reflects only the prices of goods and services.
GDP Deflator
110
What is the equation for GDP deflator?
( Nominal GDP / Real GDP ) * 100
111
( Nominal GDP / Real GDP ) * 100
Equation for GDP Deflator
112
The _________ _________ measures the current level of prices relative to the level of prices in the base year.
GDP Deflator
113
Calculating the percentage change in the GDP
| deflator from one year to the next gives you the economy's _________ _________ .
Inflation Rate
114
[ ( GDP Deflator for year 2 - GDP Deflator for year 1 ) / GDP Deflator for year 1 ] * 100
Equation for Inflation Rate for Year 2
115
Equation for Inflation Rate for Year 2
[ ( GDP Deflator for year 2 - GDP Deflator for year 1 ) / GDP Deflator for year 1 ] * 100
116
Name four measures of well-being that GDP does not include.
Leisure
Value of activity that takes place outside markets
Quality of the environment
Distribution of income
117
Quantity of goods and services produced from each unit of labor input.
Productivity
118
Growth in __________is the key determinant of growth in _________ __________ .
Productivity
| Living Standards
119
Name the four determinants of productivity.
Physical Capital
Human Capital
Natural Resources
Technological Knowledge
120
Stock of equipment and structures used to produce goods and services.
Physical Capital
121
Knowledge and skills that workers acquire
through education, training, and
experience.
Human Capital
122
Inputs into the production of goods and
services provided by nature, such as land, rivers,
and mineral deposits.
Natural Resources
123
Society’s understanding of the best ways
| to produce goods and services.
Technological Knowledge
124
__________ __________ refers to society’s understanding about how the world works. _________ __________refers to the resources expended transmitting this under-standing to the labor force.
Technological Knowledge
| Human Capital
125
The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases.
Diminishing Returns
126
The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.
Catch-Up Effect
127
When policies are put in place that raise saving and investment, ewer resources are used to make
_________ goods and more resources are used to make _________ goods.
Consumption
| Capital
128
In the long run, a higher savings rate (will / will not) lead to higher growth in productivity and income.
Will Not
129
Capital investment that is owned and
| operated by a foreign entity.
Foreign Direct Investment
130
Investment financed with foreign money but
| operated by domestic residents.
Foreign Portfolio Investment
131
Even though some of the benefits from foreign investment flow back to the foreign owners, name four benefits to the domestic economy.
Increases the economy's stock of capital
Higher productivity
Higher wages
State-of-the-art technologies
132
What is the opportunity cost for investing in human capital via education?
Forgone wages students could have earned as members of the labor force.
133
The emigration of many of the most highly educated workers to rich countries, where these workers can enjoy a higher standard of living.
Brain Drain
134
Name five ways policies can be used to increase a country's productivity and growth.
```
Investing in physical capital
Investing in human capital via education
Investing in human capital via health and nutrition
Protecting property rights
Promoting political stability
```
135
Poor countries are poor because their populations are not healthy. Populations are not healthy because they are poor and cannot afford better healthcare and nutrition.
Vicious Circle
136
Policies that lead to more rapid economic
| growth would naturally improve health outcomes, which in turn would further promote economic growth.
Virtuous Circle
137
An important prerequisite for the price system to work is an economy-wide respect for _________ ________ .
Property Rights
138
Ability of people to exercise authority over the
| resources they own.
Property Rights
