HPU Principles of MacroEconomics (ECO-2030-09) Chapter 1-3 Exam Flashcards

Link to Resource Page: https://plain-goal-2c0.notion.site/Principles-of-MacroEconomics-Chapter-1-3-Resource-Page-26e13590a1f280b3b3feed7092270fef?source=copy_link |Key: AR - Active Recall | PQ: Practice Questions | /S: Term simplified for better understanding

AR: What is the decision rule in marginal analysis?

Consumers will continue consuming a good or service as long as they decide that the marginal benefit is greater than or equal to the marginal cost.

(Consumers stop when marginal benefit < marginal cost.)

AR: How does a consumer decide the quantity of a good to purchase when given a budget constraint?

They purchase units until either the marginal benefit falls below the price (marginal cost) or their budget is fully spent.

/S: They keep buying items until either the next item isn’t worth the price or they run out of money

PQ: Why does consumption stop when marginal benefit is less than marginal cost?

Because at that point, the additional satisfaction gained from the good is less than the money spent, meaning it’s no longer worth buying.

PQ: How does a decrease in a consumer’s budget affect the quantity purchased?

They will likely stop purchasing earlier because they wont have enough money to continue purchasing

AR: What role does diminishing marginal utility play in marginal analysis?

Each additional unit of a good provides less added satisfaction (marginal benefit), so eventually the benefit drops below the cost, limiting consumption.

AR: What happens if the marginal benefit of a unit is exactly equal to the marginal cost?

The consumer is indifferent; it’s rational to either purchase or stop purchasing at that point

/S: The consumer is indifferent

AR: Define economics (Memorize this)

Economics is a social science concerned with

making optimal choices under conditions of

scarcity.

PQ: Indicate whether each of the following statements applies to microeconomics or macroeconomics:

a. The unemployment rate in the United States was 5.2 percent in August 2021.

b. A U.S. software firm laid off 15 workers last month and transferred the work to India.

c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise.

d. U.S. output, adjusted for inflation, decreased by 3.5 percent in 2020.

e. Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point.

f. The consumer price index rose by 0.3 percent from July 2021 to August 2021.

a. Macroeconomics: Concerns whole economy (employment)

b. Microeconomics: Concerns individual units (one firm)

c. Microeconomics: Concerns individual units. (Price of a specific product)

d. Macroeconomics: Concerns whole economy (Inflation)

e. Microeconomics: Concerns individual units (Spending by a single firm)

f. Macroeconomics: Concerns whole economy

AR: What does every point on a budget line represent?

All combinations of goods that can be purchased with a given income

PQ: Consumers must forgo certain goods and services based on a limited budget because ______.

a. a consumer’s limited budget is constrained by the demand for goods or services

b. a consumer’s limited budget is constrained by the resources used to produce goods or services

c. a consumer’s limited budget is constrained by the availability of goods or services

d. a consumer spends his or her limited budget purchasing a combination of goods and services that maximize his or her satisfaction

d.

PQ: Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease?

a. Your budget increases from $100 to $150 while the prices stay the same.

b. Your budget remains $100, and the price of books remains $25, but the price of movie tickets rises to $20.

c. Your budget remains $100, and the price of movie tickets remains $10, but the price of a book falls to $15.

a. Increase

b. Decrease

c. Increase

PQ: For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units.

a. 3,000 units at which MC = $10 and MB = $13.

b. 11 units at which MC = $4 and MB = $3.

c. 43,277 units at which MC = $99 and MB = $99.

d. 82 units at which MC < MB.

e. 5 units at which MB < MC.

a. More

b. Fewer

c. Current

d. More

e. Fewer

PQ: True or False: The Production Possbility Curve represents full employment

True

PQ: What are the two major ways in which an economy can grow and push out its production possibilities curve?

a. Better weather and nicer cars

b. Higher taxes and lower spending

c. Increases in resource supplies and advances in technology

d. Decreases in scarcity and advances in auditing

c.

AR: What is the Production Possibilities Model?

An economic model that shows different combinations of two goods that an economy can produce

AR: What are the assumptions in the Production Possible Model?

• Full employment (The economy is employing all resources)

• Fixed resources (Quantity/Quality of resources are fixed)

• Fixed technology (Technology development is fixed)

• The economy only produces Two goods.

• Consumer goods

• Capital goods

AR: What is the Law of increasing opportunity costs?

As more of a particular good is produced, its

marginal opportunity costs increase.

/S: More Production = More Opportunity Cost

AR: How is optimal output on a PPC determined?

By comparing marginal benefits and marginal costs

What direction does a production possibilities curve shift when production increases? (Inward or Outward)

Outward

What direction does a production possibilities curve shift when production decreases? (Inward or Outward)

Inward

AR: What is a Command Economy?

Products are decided by the market

AR: What is a Free-Market

Products are made based in peoples choices

AR: What do firms seek in means of utility?

Profit

AR: What do individuals seek in means of utility?

Pleasure/Enjoyment

AR: (Memorize this) What is the role of economic theory in economics?

Economic theory provides simplified tools (laws, models, assumptions) to explain and predict how people and institutions behave in the economy.

AR: What is International specialization and trade

Where each nation produces goods at its lowest opportunity cost and trades with others doing the same.

Example: Brazil specializes in producing coffee because it has the right climate and soil (low opportunity cost)

PQ: A rightward shift of the production possibilities curve of an economy represents which of the following? (Theres 2)

1. An increase in the overall demand for goods and services in the economy

2. Economic growth

3. An increase in the average price level in the economy

4. An increase in the quantity of resources

2. Economic Growth and 4. Increase in Quanitity of Resources

PQ: True or False?

Resources and production are not perfectly flexible and interchangeable.

True

AR: What do combinations of output that fall inside the production possibilities curve represent?

Goods that are attainable

AR: What do combinations of output that fall outside the production possibilities curve represent?

Goods that are unattainable

PQ: Specializing and participating in international trade allows an economy to do which of the following? (Theres 2)

1. Get more of a desired good by sacrificing greater amounts of some other good

2. Circumvent the output limits imposed by its own production possibilities curve

3. Increase the quantities of capital and consumer goods available to society

4. Divert high-skilled resources toward low-valued services

2. and 3.

PQ: Hypothesis evolves into?

1. Facts

2. Theorys

3. Laws

Theory’s

PQ: Economists do not include money as an economic resource because ______

Money produces nothing

PQ: Why are aggregates used in macroeconomics?

1. To account for utility

2. To gain insight into the behavior of individual consumers

3. To fulfill the other-things-equal assumption

4. To obtain an overview of the economy

4.

AR: What are Positive economics?

Economic statements that are factual.

It focuses on facts and cause-and-effect relationships.

It tries to establish scientific statements about economic behavior.

It avoids value judgments.

What are Normative Economics?

Economic statements that involve value judgments. (Opinions)

It focuses on value judgments.

It deals with what the economy should be like. (Woulda Coulda Shouda)

AR: (Memorize this) What is the Individual’s Economizing Problem?

Economic wants exceed economic means (Scarcity)

Individuals have limited income (means) but unlimited wants (wants)

AR: What are the economy’s scarce resources/Factors of production

1. Land

2. Labor

3. Capital

4. Entrepreneurial Ability

What is capital?

Human-produced physical objects and ideas.

Example:

• Physical objects: A factory machine, a delivery truck, or a computer used for business.

• Ideas (intangible): Software code, a patented invention, or a business process design.

AR: (Memorize this) What is The Economic Perspective?

The idea that firms/individuals behave out of self interest

AR: What are the two main types of economic systems?

1. Market Systems

2. Command Systems

What is a Market Systems

An economic system where decisions are made through a mix of government and individuals. (supply, demand, and prices)

What is a Command System

An economic system where decisions are made by the government

What is Laissez-Faire Capitalism

Capitalism where the government does not interfere

What are the main characteristics of the market system? (There’s fucking 9 good luck)

1. Private property

2. Freedom of enterprise and choice

3. Self-interest

4. Competition

5. Markets and prices

6. Technology and capital goods

7. Specialization

8. Use of money

9. Active, but limited, government

What is money (the answer is not currency) and why is it used?

Money is a medium of exchange. It is used to make trade easier

AR: What is specialization?

Focusing the resources of a person, business, region, or nation on producing a limited set of goods or services instead of trying to produce everything.

Example: Silicon Valley (region): Specializes in producing technology and software instead of farming or car manufacturing.

AR: What is the division of labor?

Human Specialization

What are the Five Fundamental Questions?

1. What goods and services will be produced?

2. How will the goods and services be produced?

3. Who will get the goods and services?

4. How will the system accommodate change?

5. How will the system promote technological progress?

AR: What will be produced in a market system?

Goods and services that create a profit

(The Dollar votes)

How Will the Goods Be Produced?

Using combinations and techniques of resources that minimize cost

For example: Technology

Who will get the output in a market system?

The consumers

How Will the System Accommodate Change?

By adjusting to:

Changes in consumer tastes

Changes in technology

Changes in resource prices or availability

How Will the System Progress?

Having technological advance (competition) and creative destruction (video killed the radio star)