Macro Economics Exam 1 TSC

Production Possibilities Curve

a graph that shows alternative ways to use an economy's resources - does not show consumer satisfaction. It is a model of a macroeconomy used to analyze the production decisions in the economy and the problem of scarcity

Production Possibilities Frontier

the line on a production possibilities graph that shows the maximum possible output

Efficiency

using resources in such a way as to maximize the production of goods and services

Underutilization

using fewer resources than an economy is capable of using

Cost

to an economist, the alternative that is given up because of a decision - the opportunity cost

Sunk Cost

a cost that cannot be avoided because they have already been incurred

Growth

an economy wants to move the production possibilities curve to the right. It can do so only with growth.

Reasons for Growth

1. Accumulation of capital2. Technological advances3. Increase in population - immigrants, birth rates increase4. Available land or improvements to land

Reasons for Decline

1. Decrease in population -disease, catastrophe, war, birth rates decline2. Loss of land - war or natural disaster3. Decrease in production due to aging population, more uneducated population,less healthy population

Slope of the line:

Opportunity cost is indicated by the negative slope of the production possibilities curve (or frontier). As more of one good is produced, less of the other goods is produced. This production reduction is an opportunity cost.

Curve of the line:

The curve indicates that goods do not change in equal proportions.As the production of one good goes up, the rate of the other decreases by an increasing rate

Capital, as economists use the term, refers to

Final goods that are used to produce other goods and services

Which of the following is the best example of land

The water used to make a soft drink

Given that resources are scarce

Opportunity costs are experienced whenever choices are made.

The essential feature of the market mechanism is

the price signal

opportunity cost is

what is given up in order to get somehting elce

which of the following is true when an economy is producing efficiently

the economy is producing on the production possibilities curve.

If North Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then, as long as nothing else changes, its

production of nonmilitary goods will decrease

A point on a nation's production possibilities curve represents

the full employment of resources to achieve a particular combination of goods and services

If a production of possibilities curve between tanks and trucks has an increasing opportunity cost, producing more tanks

requires us to give up larger and larger amounts of trucks per tank produced

The three economic choices are:

what to produce, how to produce, and for whom to produce

Microeconomics is concerned with issues such as

The demand for bottled water by individuals.

which of the following may be used to correct market failure

laws and regulations

when the invisible hand does not produce optimal outcomes for the economy ,there is evidence of

market failure

The best way to measure the value of final goods and services produced each year in the united states is

GDP of the United States

If output growth exceeds population growth for a country, then:

average living standards will increase

Approximately how much of the world's output does the United States produce

20 percent

Per capita GDP will rise if GDP

Increases more rapidly than the population increases.

Which of the following countries experienced a decline in total output from 2000 to 2018

Libya

Which component(s) of U.S real GDP increased in size relative to total U.S real GDP over the past century

only services

On average, U.S. output has grown by roughly ____ percent per year since 1900.

3

As a countries human capital increases

worker productivity increases

which of the following means productivity must have increased

output remains the same and input usage falls

Regarding increasing productivity, factor mobility is

important in that it helps reallocate resources in a dynamic economy

How does productivity increase?

technology advances, outsourcing and trade increase, nad human capital investments rise

which of the following is an example of negative externality

automobile exhaust fumes

A capital intensive production process is one that

has a high ratio of capital to labor

in a market economy with no government intervention, the how to produce question is based on

production cost alone

In the United States today nearly of the population has attained a college degree

40%

the income distribution of the United States is basically the nation's answer to the

for whom question

The richest 20% of families in the US recive of total income

50

According to the law of demand, during a given period of time , the quantity of a good demanded

Increases as its price falls, ceteras paribus

which determinant of demand changes in the vacation rental market as more individuals become interested in renting Airbnb accommodations

number of buyers

Assume that mustard and hot dogs are complements. In the market for mustard, what do we expect to happen if the price of hot dogs rises?

a decrease in the demand for mustard

Ceteris paribus means

Holding everything constant except for the variables you are interested in examining.

Ceteris paribus, if a student can either earn money by tutoring or by working as a server in a restaurant, then increases to the wages paid for serving will

increase the quantity of hours the student will serve.

Assume that steel is used to produce monkey wrenches. Ceteris paribus, if the price of steel rises, then

the supply curve for monkey wrenches will shift to the left.

Ceteris paribus, which of the following is most likely to shift both the demand curve and the supply curve?

expectations

international participants

participate in both American factor markets and American product markets.

If there is a shortage at a given price, then

that price is less than the equilibrium price.

When economists talk about "optimal outcomes" in the marketplace, they mean that

the allocation of resources by the market is likely to be the best possible, given scarce resources and income constraints.

Which of the following is purchased in a factor market?

the labor of a state university professor

Ceteris paribus, an increase in the supply of gasoline will cause the equilibrium price

to fall and equilibrium quantity to rise.

Which of the following is most likely to occur because of an increase in the price of electricity in California?

Which of the following is most likely to occur because of an increase in the price of electricity in California?

Ceteris paribus, an increase in the number of sellers of running shoes causes the equilibrium price to

decrease and equilibrium quantity to increase.

If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then

the price will increase until it reaches the equilibrium price.

laissez faire

Idea that government should play as small a role as possible in economic affairs.

market mechanism (invisible hand)

The use of market prices and sales to signal desired outputs and resource allocations

factors of production are

land, labor, capital, entrepreneurship

law of increasing opportunity cost

we must give up ever-increasing quantities of other goods and services in order to get more of a particular good

The three core economic questions are:

WHAT to produce.HOW to produce.FOR WHOM to produce.

gross domestic product (GDP)

A measurement of the total goods and services produced within a country.

per capita GDP

GDP divided by the population.

Product market:

Any place where finished goods and services (products)are bought and sold.

Factor market:

Any place where factors of production (e.g., land, labor,capital) are bought and sold.

Supply

the ability and willingness to sell (produce) specific quantities of agood at alternative prices in a given time period, ceteris paribus.

Demand

the ability and willingness to buy specific quantities of a good atalternative prices in a given time period, ceteris paribus

Ceteris paribus

the assumption that nothing else is changing.

Law of demand

the quantity of a good demanded in a given time period increases as its price falls (and vice versa), ceteris paribus

The determinants of marketdemand include:

. Tastes.2. Income.3. Expectations.4. Other goods:• Substitutes.• Complements.5. Number of buyers

Movement along the curve:

buyer's behavior does not change; buyers only react to a price change

Shift of the curve:

buyers' behavior does change in response to a change in one of the determinants. Access the text alternative for slide images.18

Law of supply:

the quantity of a good supplied in a given timeperiod increases as its price increases, ceteris paribus, and viceversa

The determinants of market supply include:

1. Technology.2. Factor costs.3. Taxes and subsidies.4. Expectations.5. Other goods.6. Number of sellers.

price ceiling

A maximum price is the

minimum price

price floor