Economics Study Guide

The concept of scarcity and the law of increasing opportunity costs, respectively, are represented by

a downward sloping curve, bowed out from the origin.

If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that

more consumer goods can only be produced at the cost of fewer capital goods.

When economists refer to utility, they are referring to

the satisfaction gained from consuming a good.

Which of the following is an example of a macroeconomic question?

What policies would be recommended for stimulating national economic growth?

Reza says that "we should provide a universal basic income to reduce poverty." Iman states that "a universal basic income would increase spending and create inflationary pressure." We can conclude that

Reza's statement is normative, but Iman's is positive.

Assume the price of product Y (the quantity of which is on the vertical axis) is $10 and the price of product X (the quantity of which is on the horizontal axis) is $30. Also assume that income is $90. The absolute value of the slope of the resulting budget line is

3

From an economic perspective, when Hakeem decides to buy more life insurance from State Farm, he has most likely concluded that the

marginal benefit of more insurance coverage is greater than the marginal cost.

Suppose that Hideki's budget for entertainment is $120 per month. His entertainment choices in town include movies that cost $12 each and rounds of golf that cost $20 each. Based on this information, we can conclude that Hideki

can go to 10 movies or play 6 rounds of golf per month.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Which of the following is a normative statement?

The best way to reduce inflation is with a contractionary monetary policy.

A relationship illustrated by an upward-sloping graph means that a(n)

increase in the value of one variable causes the value of the other to increase.

Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 percent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate.

Refer to the information. Which of the following is an accurate verbal statement of the described relationship?

Investment spending by businesses varies inversely with the interest rate.

Naomi should consume more Sephora lip balm when its marginal

benefit exceeds its marginal cost.

(Economics in Action) Which of the following statements is an example of the fallacy of composition?

"If I start my commute earlier in the morning, I'll miss rush hour traffic. Therefore, if everyone starts their commute earlier, they will all miss rush hour."

Economic systems differ from one another based on who owns the factors of production and

how economic activities are coordinated and directed.

Consider the circular flow model; suppose that businesses buy a total of $240 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $140 billion in wages, $28 billion in rent, and $53 billion in interest, how much are households paid for providing entrepreneurial ability?

$19 billion

Which of the following does not foster innovation and technological advance?

fear and avoidance of risk

The emergence of ride-sharing companies like Lyft and Uber, that are replacing much taxi service, is an example of

creative destruction.

In a market system, as one industry expands while another contracts, resources will flow

across industries, driven by the changes in resource prices paid by firms.

Consider the circular flow model, suppose that businesses buy a total of $5,200 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $3,800 billion in wages, $600 billion in interest, and $500 billion in entrepreneurial ability, how much are households paid in rent?

$300 billion

In a market system, more resources will move toward an industry and expand its production if the industry has

TC < TR.

The market system is also known as _________, while the command system is also known as _________.

capitalism; socialism

In a market system, the distribution of goods and services among consumers is largely determined by

the willingness and ability of consumers to pay the prices.

A required element for specialization to lead to an increase in the satisfaction of society's wants is

exchange and trade

Which of the following is a distinguishing feature of laissez-faire capitalism?

minimal government intervention

The money income of households consists of all the following, except

revenues

Jack and Kaylee are the owners of a pet store. They invested $100,000 each and pay an employee named Olivia $28,000 per year. This year's revenues are $300,000, while costs are $240,000. Who will receive the $60,000 in profit?

Jack and Kaylee

Which of the following is not a typical characteristic of a market system?

government ownership of most property resources

The production technique that is most efficient is the one that produces a given amount of output

at the lowest cost

Dylan, an Uber driver, uses the "Maps" app and others like it that are on his smartphone. He and others who no longer buy printed maps at the store have caused the market for printed maps to be demolished. This is an example of

creative destruction

The demand curve shows the relationship between

price and quantity demanded.

An effective price floor will

result in a product surplus.

For most products, purchases tend to fall with decreases in buyers' incomes. Such products are known as

normal goods.

In understanding and analyzing "demand," we focus on how much of a product the buyers are

willing and able to buy.

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

decrease, quantity demanded will increase, and quantity supplied will decrease.

A leftward shift of a product supply curve might be caused by

expectations that the future price will be higher.

(#EconomicsForYou) Which of the following is correct regarding Black Friday?

On that Friday, stores have special sales in the hope of being "in the black" (or profitable) by the end of the year.

A large increase in the supply of Ultra HD TVs occurs simultaneously with a smaller decrease in its demand. As a result, the equilibrium price will

decrease and the equilibrium quantity will increase.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.

increase D, increase P, and increase Q.

An increase in the equilibrium quantity of electric vehicles would be caused by which of the following?

an increase in the demand for electric vehicles

When central planners in a command economy end up having a huge surplus of shoes and widespread shortages of bread in their economy, they have failed to attain

allocative efficiency.

If we say that a price is too high to clear the market, we mean that

quantity supplied exceeds quantity demanded.

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

buyer and the seller.

Which one of the following is incorrect. When buyers possess private information,

the sellers are eager to interact with the buyers.

If there are external benefits associated with a good or service,

the market demand curve will underestimate the true demand curve.

If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?

The benefit surpluses shared between consumers and producers will be maximized.

eBay, Amazon, and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of

adverse selection.

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.

If the government intervenes and corrects the externality in the situation described above, we would expect

production in the paper mills to decrease.

The socially optimal amount of pollution abatement occurs where society's marginal

benefit of abatement equals its marginal cost of abatement.

(Economics in Action) The rapid expansion in commercial space activities have made more possible all of the following except

drilling for oil on Saturn's moon, Titan.

Market failures

result in overproduction or underproduction of a good.

While shopping at the Brooklyn Flea DUMBO, a popular flea market, Isabella finds a piece of costume jewelry that she really likes. She buys the bracelet for $33, but she was willing to pay $42. The minimum acceptable price to the seller, Antonio, was $30. Isabella experiences a

a consumer surplus of $9, and Antonio experiences a producer surplus of $3.

Sellers who possess private information give rise to situations

that may result in market failure.

that can be remedied with the provision of information by both the private sector and government.

that are problematic since the buyer is unable to obtain the information in a low cost way.

Negative externalities lead to

overproduction and overallocation.

Mia buys a bookcase for $299 for which she was willing to pay $340. The minimum acceptable price to the seller, Dominic, was $140. Mia experiences

a consumer surplus of $41, and Dominic experiences a producer surplus of $159.

William is willing to pay $10 for a t-shirt supporting the Kansas City Chiefs, but the NFL shop has it on sale for $9. If William buys the t-shirt, then his consumer surplus is

$1

Supply curves represent