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93 Cards in this Set

  • Front
  • Back
Scarcity is a problem because
human wants are unlimited while productive resources are limited
Scarcity can be eliminated if
the problem of scarcity cannot be eliminated
Economists believe that scarcity forces every economic society to
make choices about what to produce, how to produce, and for whom to produce
A river is an example of
Land (a natural resource)
A computer program designed to run a robotic assembly line is an example of
capital
A chain saw is an example of
Capital
Money is not an
economic resource
100 shares of stock in General Motors
would not be classified (in economics) as a capital resource
The person who assumes the risks and uncertainties of starting a new business in exchange for opportunity to earn profits is classified as
an entrepreneur
The central question in economics is how to
deal with the problem of scarcity
Microeconomics approaches the study of economics from the viewpoint of
individual economic units, such as consumers, firms, and units of government
A study of the performance of the overall economy during the Bush administration (2001-2008) is the concern of
macroeconomics
To be useful, an economic model must
be able to predict and explain economic events occurring in the real world
In developing a prediction from economic theory (or model), the phrase “ceteris paribus” means
holding everything else constant (or “all other things equal”)
Which of the following is a statement of positive economics?
If taxes are reduced, the model predicts that unemployment will decline
Normative economics:
Focuses on how the economy ought to perform
A direct (or positive) relationship exists between two variables when
As one variable increases and the other variable increases
name a variable that is most likely to exhibit a direct relationship
Cholesterol levels and the likelihood of developing heart disease
An inverse (or negative) relationship between two variables exists when
As one variable increases and the other variable decreases
name a variable that is most likely to exhibit an inverse relationship
The price of a concert ticket and the number of tickets people purchase
When an inverse (or negative) relationship between two variables is graphed, the resulting line or curve is
downward-sloping
Carly decides to work five hours the night before her economics exam. She earns an extra $75,
but her exam score is 10 points lower than it would have been had she stayed home and studied.
Her opportunity cost of working the five hours is the
10 points she lost on her exam
this is the most likely to cause the production possibilities drawn between the production of shirts and corn to shift outward
A change in technology
The law of increasing opportunity costs causes the production possibilities curve to
have a bowed-out shape (concave to the origin of the graph)
One of the assumptions underlying the construction of a production possibilities curve for any economy is that
there is full employment of all resources
All points on the production possibilities curve are
attainable, but not necessarily equally desirable to households
Suppose the production possibilities schedule is “bowed out” (i.e., concave when viewed from the origin of the graph). As production of one good increases along the production possibilities
schedule, opportunity costs tend to
rise because resources are not equally suited to the production of a given product
opportunity cost to a city of using local tax revenues to construct a new city park is the
best alternative use of the tax dollars that is foregone by building the park
The law of increasing costs indicates that the opportunity cost of producing a good
increases as more of the good is produced
According to marginal analysis, you should spend more time studying economics if the extra
benefit from an additional hour of study is
greater than the opportunity cost of the time devoted to studying
The production possibilities curve shows that
some of one good must be given up to get more of another good in an economy that is operating efficiently and at full employment
Any point on the production possibilities curve illustrates
maximum production combinations of two goods
The “law” of demand refers to the
Negative relationship between the price of a good and the quantity of the good demanded (all other things equal)
A market demand curve
is the horizontal sum of the demand curves of all the individuals in a particular market
Which of the following can bring about a “change in the quantity demanded” for any particular product? (Hint: this is not the same as a “change in demand.”)
Change in the price of the product (all other things equal)
Which of the following would cause a “change in supply?” (Hint: this is not the same as a change in the quantity supplied.”)
A change in technology
An “increase in supply” of a product implies that
producers will now produce a higher quantity at each possible price (illustrated by a rightward shift of the supply schedule)
Assume that there is a technological change in the production of watches. This will cause
A rightward shift of the supply schedule for watches
When the current (or actual) price of a good in a market is above the equilibrium price
the quantity supplied exceeds the quantity demanded
Based on the circular flow model, goods and services flow from
businesses to households in the upper loop of the circular flow
The lower loop of the circular flow model contains resource markets in which households provide
the services of land, labor, capital and entrepreneurship which they own
A firm’s supply schedule slopes upward and to the right because
marginal costs of production are rising
Suppose bus travel is an inferior good. In this case, a rise in household incomes will
Shift the demand for bus travel to the left
The "other things being equal" clause in the law of demand allows which of the following factors to change
The price of the product itself
The horizontal summation (adding up) of individual demand curves provides
a market demand curve
All other things being equal, the effect of an increase in the price of coffee would cause a (an)
rightward shift in the demand curve for tea
An “increase in the demand” for a product means that
consumers are willing to purchase more of the good at each possible price
If the demand for a good increases (that is, if the demand schedule shifts to the right) when the price of another good increases, then these goods are
Substitutes in consumption
Assuming that professional and college football are substitutes, an increase in the ticket price for professional football, other things being equal, will
increase the demand for college football tickets
The most likely reason why changes in the price of cotton can cause shifts in the supply curve for tobacco is
firms can switch very easily from growing tobacco to cotton and vice versa
If you were a government official who wanted to raise the equilibrium price of milk, which
of the following actions would you take
Encourage farmers to produce less milk
Suppose prices for new homes have risen at the same time that sales of new homes have been rising. On the basis of this information, it seems reasonable to conclude that
The demand for new homes has risen
If market supply increases and, simultaneously, market demand decreases, which of the following will occur?
Equilibrium market price will decrease, and equilibrium market quantity exchanged could increase, decrease, or remain unchanged
Suppose fishermen organize a union and, as a result, receive a large increase in their wages. This increase in the wages paid to fishermen will have what effect on the equilibrium market price
and equilibrium market quantity in the fish market (all other things equal)
Price will increase, and quantity will decrease
If consumer tastes change in favor of eating more broccoli and less cabbage, what will happen to the market equilibrium for cabbage, a substitute good for broccoli (all
other things equal)
Price will decrease, and quantity will decrease
If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be
a shortage of natural gas
A price floor (minimum price) set above the equilibrium price is
1. will cause producers to offer more for sale than they would at the equilibrium price
2. causes the quantity supplied to exceed the quantity demanded
3. creates a surplus
A vaccination shot that prevents other people from contracting a particular disease provides a (an)
positive externality
Assume that the production of a good imposes external costs upon third parties. If the price
and quantity of this good are set solely by the forces of demand and supply in a private market (with no government intervention in the market), then the equilibrium price will be too
low and equilibrium market quantity too high for efficient resource allocation
A “free rider” is a person who
receives benefits from someone else's action but does not pay for them
what would be an external cost associated with smoking?
Increased risk of cancer to the nonsmoking passengers in the smoker's carpool
A technological breakthrough lowers the cost of manufacturing cell phones. As a result, the market changes to a new equilibrium because of a (an):
rightward shift in the supply curve for cell phones
If market supply decreases and, simultaneously, market demand increases, the new market equilibrium will show
market price will increase, and market quantity could increase, decrease, or remain the same
If the government imposes a price ceiling below the market equilibrium price, what will result?
The quantity demanded will exceed the quantity supplied at the governmentally established price
Rent controls that set maximum prices below the equilibrium price create distortions in the housing market by
discouraging new housing construction
externality
A cost or benefit of a good sold in a market that is imposed on people other than the consumers or producers of a good
If produced and sold in a highly competitive market (with no government intervention in the
market), a product that provides external benefits to society has
too few resources devoted to its production
If all public goods were to be provided by private markets with no involvement by government what will result?
there will be fewer goods provided than is optimal from society’s point of view
Gross domestic product (GDP) includes
only final goods and services produced within the United States by domestically located resources
According to national income accounting rules, which sector of the economy can purchase both final and intermediate goods?
businesses
GDP includes
the activities of government to reduce air and water pollution
If the value of net exports is negative then
imports are greater than exports
Depreciation measures
the value of the existing capital stock used up (worn out) in the production process
The largest component of in the “upper loop” approach to measuring GDP is
personal consumption expenditures
The circular flow model assumes
households own the economy’s resources
In the circular flow model
money flows from the households to the firms through the product market
All final goods and services that make up GDP can be correctly expressed through what equation?
GDP = C + I + G + (X - M)
About 2/3 of GDP is purchased by
households
In recent years, people have benefited from greater amounts of leisure time. This trend has caused GDP to
leisure time is not accounted in GDP
Real GDP for a given year is calculated as the amount of final product produced during
that year valued at
Base year prices
A phase on the business cycle in which the decline in the economy's real GDP persists for at least one-half year (two calendar quarters) is known as
a recession
Economic indicators, like unemployment claims and the average workweek, which change before real GDP changes, are called
leading indicators
The actual (or current) civilian labor force consists of
the employed in civilian jobs plus the unemployed
The civilian unemployment rate measures the percentage of:
people in the current (or actual) civilian labor force who are without jobs and actively seeking jobs
Unemployment that is caused by a mismatch between the skills required for available jobs and the skills possessed by currently unemployed workers is classified as
structural unemployment
Eric lost his job because a recession caused his employer's sales to fall. This is an example of
cyclical unemployment
“Full employment” is the situation in which the economy operates at the level of production at which all unemployment is due to: (Hint: ignore seasonal unemployment.)
structural and frictional unemployment
The potential civilian labor force consists of
The non-institutional population aged 16 years or more not employed in the armed forces
A long and deep recession in the business cycle lasting several years is referred to as
a depression
If currently unemployed workers have the skills and abilities to meet the skill requirements of available jobs, but are unaware of that these jobs are available to them, then the resulting unemployment is classified as
Frictional unemployment
The government's chief forecasting gauge for business cycles is the
index of leading indicators
Economic indicators, like the unemployment rate, which change after changes in real GDP occur are classified as
Lagging economic indicators
Members of the potential civilian labor force who are not currently employed will be classified as unemployed if
They are actively seeking work