Economics: Key Concepts from Scarcity to Market Equilibrium

A consequence of the economic problem of scarcity is that

choices must be made about how resources are used.

A point on a nation's production possibilities curve represents

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

A production possibilities curve indicates the

maximum combinations of goods and services an economy can produce given its available resources and technology.

Adam Smith's invisible hand is now called

the market mechanism.

Economics can be defined as the study of

how scarce resources are allocated.

Factors of production are

scarce in every society.

If an economy is producing inside the production possibilities curve; then

it can produce more of one good without giving up some of another good.

If the United States decides to convert automobile factories to tank production; as it did during World War II; but finds that some auto manufacturing facilities are not well suited to tank production; then

the production possibilities curve between tanks and automobiles will shift outward.

Macroeconomics focuses on the behavior of

the overall economy

Opportunity cost is

what is given up in order to get something else.

The "guns versus butter" dilemma that all nations confront is that

an increase in national defense implies more sacrifices of civilian goods and services.

The fundamental problem of economics is

the scarcity of resources relative to human wants.

The Latin phrase ceteris paribus means

other things remaining equal.

A capital-intensive production process is one that

has a high ratio of capital to labor.

A labor-intensive production process is one that

has a low ratio of capital to labor.

According to economists; which of the following is not a factor of production?

money

According to the World Bank; a person who earns less than _________ day is defined as living in "severe poverty."

$3.65

An example of a positive externality is

increased factory use of private-sector robotics that came from government research.

An example of human capital is

carpentry skills.

As a country's human capital increases

worker productivity increases.

As the U.S. economy relies more and more heavily on the production of services rather than goods

nearly all future job growth will be in service-producing industries.

Average GDP per person is also known as

per capita GDP.

Average living standards are best measured using

per capita GDP.

During the past 100 years

the United States has transformed into primarily, a service economy.

Externalities measure:

either costs or benefits of a market activity borne by a third party.

Factor mobility refers to

the ease of reallocating resources.

Government intervention to reduce the level of pollution is prompted by the existence of

negative externalities.

Human capital is defined as the

knowledge and skills that workers possess.

If output growth exceeds population growth for a country

average living standards will increase.

In providing a legal framework; the government

protects the ownership of private property to encourage the private sector.

Income inequalities are greatest in

poor countries.

One characteristic that has allowed the U.S. economy to change the mix of output in response to consumer demand is

factor mobility.

Outsourcing leads to

increases in productivity and increases in total output.

A ballet performance had many empty seats. This implies that the

price of the tickets must have been above the equilibrium price.

A buyer has a demand for a good only when

the buyer is both willing and able to purchase the good.

A change in the price of a good

results in a change in quantity supplied.

A market is in equilibrium when

The quantity demanded equals the quantity supplied.

A market shortage is

the amount by which the quantity demanded exceeds the quantity supplied at a given price.

According to the law of demand; a demand curve

has a negative slope.

An increase in the equilibrium price of electricity can be caused by

an increase in the demand for electricity.

As a result of a shortage

producers increase output and raise price.

Assume a series of forest fires reduces the supply of lumber; which is an input in the production of wooden bats. Baseballs and wooden bats are complements. If the price of wooden bats increases; we expect the

demand for baseballs to decrease.

Assume peanut butter and jelly are complements. Ceteris paribus; an increase in the price of peanut butter will cause the equilibrium price of jelly to

decrease and the equilibrium quantity of jelly to decrease.

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.

At the equilibrium price; there are

no shortages or surpluses.

Business firms supply goods and services to _________ and purchase factors of production in _________.

product markets; factor markets

Ceteris paribus means

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

Ceteris paribus; a consumer who purchases a sports car must consider the price of gasoline because these goods are

complements.

Ceteris paribus; if buyers expect the price of airline tickets to fall in the future

then right now there should be, a decrease in the demand for airline tickets.

If a price ceiling is to be effective; it should be set

below the equilibrium price and it will create a market shortage.

If a price is below equilibrium

a shortage will cause the price to rise and the quantity supplied to increase

If the government places a price ceiling on cancer-treating drugs; then

fewer cancer-treating drugs will be available.

If the market wage for fast-food restaurants is $11 and the government enforces a minimum wage of $7; the unemployment rate will

not be affected by the minimum wage.

Tickets to a sporting event go on sale and sell out almost instantly. This suggests that

the price for the tickets is below the equilibrium price.

When a surplus exists for a product

producers reduce the level of output and reduce price.

Which of the following events will cause a rightward shift in the market supply curve for automobiles?

a technological improvement that reduces the cost of production

Which of the following is a determinant of supply?

the prices of the factors of production

Which of the following is not held constant along a given demand curve for a good?

price of the good itself

Which of the following is not held constant along a given supply curve for a good?

price

Which of the following is purchased in a factor market?

the labor of a state university professor

Which of the following is purchased in a product market?

cell phone service

Which of the following statements about markets is not true?

Markets must have a physical location.

Who participates in markets?

business firms, consumers, and government agencies

In 2022 a company sold 35000 drones at $150 each. In 2023 the same company sold 40000 drones at $170 each. This information suggests that

the demand for drones increased from 2022 to 2023.

In a market economy; the people who receive the goods and services produced are those who

are willing and able to pay the market price.

In a market economy; which of the following determines the answer to the what to produce question?

the market mechanism

In a market economy; which of the following is an incentive for producers to produce efficiently?

profits

In a simple model of factor markets and product markets; which of the following examples is accurate?

business firms purchase rented space in factor markets

In the market for coal; what do we expect to happen to equilibrium price and quantity if the minimum wage of labor used in coal production rises?

Equilibrium price will rise and equilibrium quantity will fall.

In the market for digital cameras; what do we expect to happen if the price of digital cameras rises?

a decrease in the quantity demanded of digital cameras

In the market for running shoes; what will happen to equilibrium price and quantity if the number of sellers increases?

Equilibrium price will fall and equilibrium quantity will rise.

Jessie's demand schedule for candy bars indicates

her opportunity cost of buying candy bars.

A "free-rider" is an individual who reaps

direct benefits from someone else's purchase of a public good.

A government project should not be undertaken if

society is giving up too many private-sector goods in exchange for the government project.

A merit good is

a good or service that society believes everyone is entitled to some minimum quantity of.

A monopoly occurs when

there is only one producer of a particular good or service.

A natural monopoly is

an industry in which one firm can achieve economies of scale over the entire range of market supply.

A private good

is consumed by one person and excludes consumption by others.

A tax that is imposed on the sale of a specific good is called a(n)

excise tax.

Air pollution best illustrates

an external cost.

Antitrust activity addresses

market power.

COVID-19 vaccines were a source of

positive externalities, because they protected not only those who received the vaccine but also others.

Excise taxes are charged on all of the following except

income.

Firms in Colorado dump waste into the Colorado River and as a result people in California and Mexico cannot use the water. What type of market failure is most likely involved?

externalities

From an economic standpoint; government intervention may be justified

if the market mechanism fails to achieve the optimal mix of output.

Government intervention tries to stabilize the macroeconomy by

reducing inflation and encouraging economic growth.

Government waste implies that

government agencies or departments are using public resources inefficiently or unncessarily.

In an infamous example from Tennessee; a town's firefighters watched a man's home burn to the ground because the man hadn't paid his annual $75 fee for fire protection provided by the town. This example indicates that which one of the following statements is true?

When fire protection is subscription-based and each individual must choose to purchase access; fire insurance is a private good.

In economics a public good

cannot be denied to consumers who have not paid.

Local governments provide law enforcement; which benefits society; but if the costs of law enforcement exceed the benefits; the result is

government failure.

Local governments spend the most money on

education.

Secondhand smoke from people smoking cigars or cigarettes in public is an example of

a negative externality.