Macroeconomics Test 1

Front 1

Law of Demand

Back 1

Assuming all things are equal, as price increases for a given product, quantity demanded decreases for said product and vice-versa. Inverse Relationship.

Front 2

What changes the demand curve?

Back 2

A change in own-price.

Front 3

5 Determinants of Demand? (Causes a Shift, With Arrows)

Back 3

Change in consumer income.
Change in consumer preference
Change in Price of related goods
Change in expected price
Change in population (# of consumers)

Front 4

What do consumers want to do?

Back 4

Maximize their utility

Front 5

Define Demand.

Back 5

Demand is a schedule or curve that shows the amount of a product that consumers are willing and able to purchase at various prices over a specific time.

Front 6

What to producers want to do?

Back 6

Maximize their profit.

Front 7

Define Supply.

Back 7

Supply is a schedule or curve that shows various amounts of a product that producers are willing and able to make available for sale at different prices during a given time period.

Front 8

What causes a movement in the supply curve?

Back 8

A change in own-price.

Front 9

Six Determinates of Supply

Back 9

Change in price of resources
Change in taxes and subsidies
Change in technology
Change in price of related goods
Change in population (# of sellers)
Change in producer expectations

Front 10

Law of Supply

Back 10

The Law of Supply states assuming all things are equal, as price increases for a particular product or service the quantity supplied will also increase. Direct relationship.

Front 11

What is the price consumers are willing to pay for a product?

Back 11

Equilibrium. Where Quantity Supplied (Qs) = Quantity Demanded (Qd)

Front 12

Price Ceiling

Back 12

Maximum legal price that a producer can charge for a good or service. Causes a shortage.

Front 13

Price Floor

Back 13

Minimum legal price that the gov't will allow a producer to charge for a good or service. Creates a surplus.

Front 14

Be Sure to Label All Curves.

Back 14

S, D, etc. Put the points and the light lines.

Front 15

Four categories of resources:
(Factors of Production)

Back 15

1. Land
2. Labor
3. Capital
4. Entrepreneurial Ability

(Scarce Resources)

Front 16

What is the Assumption of the Production Possibilities Curve?

Back 16

1. Full Employment
2. Fixed Resources
3. Fixed Technology
4. Two Goods

Front 17

What is a Production Possibilities Table?

Back 17

Lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment.
(Pizza and Robots)
It declines to create more and more.
Robots: 10, 9, 7, 4, 0
Pizza: 0, 1, 2, 3, 4

Front 18

What does perfect competition include?

Back 18

Perfect Information; Complete Transparency.

Front 19

Economic System

Back 19

Particular set of institutional arrangements and coordinating mechanism. To respond to the econ. problem.

Front 20

What does the economic system have to determine?

Back 20

WHAT goods are produced, HOW they are produced, WHO gets them, and how to accommodate change technological progress.

Front 21

Freedom of Enterprise

Back 21

Ensure the entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services; and to sell them.
(One of the 2 components of a Market System)

Front 22

Freedom of Choice

Back 22

Enable owners to employ or dispose of their property and money as they see fit.
(One of the 2 components of a Market System)

Front 23

Self-Interest

Back 23

The motivating force of various economic units as they express their free choice.

Front 24

What does the Market System depend on?

Back 24

Competition. (Freedom of choice expressed in pursuit of monetary return.)

Front 25

What does competition require?

Back 25

: Two or more buyers and two or more sellers acting independently in a particular product or resource market.

: Freedom of sellers and buyers to enter or leave markets on the basis of their economic self-interest.

Front 26

Specialization

Back 26

The use of resources of an individual, firm, region or nation to produce one or a few goods and services rather than the entire range of goods and services.

Front 27

Five Fundamental Questions all Market Systems must answer

Back 27

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 accomodate change.
5. How will the system promote progress.

Front 28

Household Income (3 Sections)

Back 28

Personal Taxes.
2. Personal Saving.
3. Personal consumption expenditures.

Front 29

Consumption consists of two types of goods:

Back 29

Durable goods - Last 3 or more years;

Nondurable Goods - Last less than 3 years.

Front 30

Business are divided into 3 categories:

Back 30

Plants;
Firms;
Industry

Front 31

Plants

Back 31

Production, Redistribution of goods and services.

(Factory, Farm, Mine, Store, Warehouse)

Front 32

Firms

Back 32

(For Profit, operates one or more plants) Uses resources to produce goods and services.

Front 33

Industry

Back 33

(Group of firms) Produce the same or similar products.

Front 34

Business owned and operated by one person.

Back 34

Sole Proprietorship.

Front 35

Redistribution of Income consists of: (3)

Back 35

Transfer Payments - Welfare & Food Stamps

Market Intervention - Price support, price ceiling, price floor.

Taxation - Personal Income Tax

Front 36

Principle Agent Problem

Back 36

The principals are the stockholders who own the corporation
and who hire executives as their agents to run the business on their behalf. But the interests of these managers
(the agents) and the wishes of the owners (the principals)
do not always coincide. The owners typically want
maximum company profit and stock price. However, the
agent may want the power, prestige, and pay that often
accompany control over a large enterprise, independent of
its profitability and stock price.
So a conflict of interest may develop. Agents may spend excessively, and the executives will fail to maximize
profit and the stock price for the owners.

Front 37

Human specialization—called
the division of labor—contributes to a society’s output in
several ways:

Back 37

1. Makes use of differences in ability.
2. Fosters learning by doing.
3. Specialization saves Time

Front 38

Corporation

Back 38

A legal creation that can acquire
resources, own assets, produce and sell products, incur
debts, extend credit, sue and be sued, and perform the
functions of any other type of enterprise

Front 39

Externalities

Back 39

Positive and negative.
An externality occurs when some of the costs or the
benefits of a good are passed on to or “spill over to” someone
other than the immediate
buyer or seller.

Front 40

Negative Externalities

Back 40

Production or consumption
costs inflicted on a third party without compensation are
called negative externalities.

Environmental pollution is an example. Oil spilled into a lake: fishermen, swimmers are impacted and not compensated.

Front 41

Positive Externalities

Back 41

Uncompensated
spillovers accruing to third parties or the
community at large.
Education benefits individual consumers: Better-educated
people generally achieve higher incomes than less-welleducated
people. But education also provides benefits to
society, in the form of a more versatile and more productive
labor force, on the one hand, and smaller outlays for
crime prevention, law enforcement, and welfare programs,
on the other.

Front 42

How to correct positive externalities:

Back 42

How might
government deal with the underrallocation of resources
resulting from positive externalities? The answer is either
to subsidize consumers (to increase demand), to subsidize
producers (to increase supply), or, in the extreme, to have
government produce the product:

Front 43

How to correct negative externalities:

Back 43

LEGISLATION against polluting, for example.

SPECIFIC TAXES: Government might levy a s pecific
tax—that is, a tax confined to a particular product—
on each unit of the polluting firm’s output.

Front 44

When dealing with determinants in the question, what label should you change?

Back 44

Use QUANTITY; not quantity demanded when dealing with any of the determinants.

Front 45

What are the four scarce resources?

Back 45

Land, Labor, Capital, Entrepreneurial Ability.