exam 1
Economics 201 with Baker at University of Tennessee - Knoxville
About this deck
By: kevin khoo
Created: 2010-02-15
Size: 189 flashcards
Views: 1519
Created: 2010-02-15
Size: 189 flashcards
Views: 1519
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Sign up (free) to study this.
market
group of buyers and sellers of a particular good or service
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
quantity demanded
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
demand curve
a graph of the relationship between the price of a good and the quantity demanded
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
inferior good
a good for which an increase in income leads to a decrease in demand
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
complements
two goods in which an increase in the price of one leads to a decrease in the demand for the other
quantity supplied
the amount of a good that sellers are willing and able to sell
law of supply
the claim that the quantity supplied of a good rises when the price of a good rises
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply curve
a graph of the relationship betwen the price of a good and the quantity supplied
equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
equilibrum price
the price that balances quantity supplied and quantity demanded
equilibrum quantity
the quantity supplied and the quantity demanded at the equilibrium price
surplus
quantity supplied exceeds quantity demanded
shortage
quantity demanded exceeds quantity supplied
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
circular flow diagram
a visual model of the economy that shows how dollars flow thorugh markets amoung households and firms
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of productoin and the available production technology
microeconomics
the study of how households and firms make decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
positive statement
claims that attempt to describe the world as it is
normative statement
claims that attempt to prescribe how the world SHOULD BE
What is the scientific method?
observation, theory, and more observation
Are experiments difficult in economics?
yes
In order to find a substitute for lab experiments, what do economists do?
they pay close attention to the natural experiments offered by history
Why do make economists make assumptions?
they simplify the complex world
In the markets for goods and services, households are _______ and firms are ________.
buyers, firms are sellers
In the markets for factors of production, households are _______ and firms are _______.
households are sellers, firms are buyers
The inner loop of the circular-flow diagram represents what?
the flow of inputs and outputs
The factors of production flow from households to ______, and goods and services flow from _________ to __________.
firms, and firms to households
The outer loop of the circular flow diagram represents what?
the corresponding flow of dollars
Spending on goods and services flows from _________ to firms, and income in the form of wages, rent, and profit flows from _________ to _________.
households; firms to households
What is scarcity?
the limited nature of society's resources
What is economics?
the study of how society manages its scarce resources
What are the 10 principles of economics?
1. people face trade-offs
2. the cost of something is what you give up to get it
3. rational people think at the margin
4. people respond to incentives
5. trade can make everyone better off
6. markets are usually a good way to organize economic activity
7. government can sometimes improve market outcomes
8. A country's standard of living depends on its ability to produce goods & services
9. prices rise when the government prints too much money
10. society faces a short-run trade off between inflation & unemployment
2. the cost of something is what you give up to get it
3. rational people think at the margin
4. people respond to incentives
5. trade can make everyone better off
6. markets are usually a good way to organize economic activity
7. government can sometimes improve market outcomes
8. A country's standard of living depends on its ability to produce goods & services
9. prices rise when the government prints too much money
10. society faces a short-run trade off between inflation & unemployment
When do prices rise?
when the government prints too much money
What does a country's standard of living depend on?
the ability to produce goods & services
Society faces a ________ trade-off between inflation & _______.
short run; unemployment
What is the difference between efficiency and equity?
Efficiency = maxium benefit
Equity = whether benefits are distributed fairly among the people
Equity = whether benefits are distributed fairly among the people
"The cost of something is what you give up to get it" is known as the _______
opportunity cost
People respond to ________
incentives
True/False
Trade only benefits one party.
Trade only benefits one party.
FALSE; it can make everyone better off
What does trade allow?
specialization
What is a good way to organize economic activity?
markets
Who said firms & households interact as if guided by an invisible hand?
Adam Smith
_________ are the instrument in which the invisible hand directs economic activity
prices
True/False
The invisible hand only works when the government enforces rules & maintains the institutions key to a market economy
The invisible hand only works when the government enforces rules & maintains the institutions key to a market economy
TRUE
Markets only work when ________ are enforced.
property rights
There are 2 important functions of the government. What are they?
promote efficiency & equity
What term refers to the increase in the overall level of prices in the economy?
inflation
True/False
More hiring means lower unemployment.
More hiring means lower unemployment.
TRUE
- What four characteristics aply to perfect competition
- Perfect information
- many sellers and many buyers
- firms sell identical goods/services
- no barriers to entry
What 3 characteristics apply to monopoly?
- Perfect information
- one seller and many buyers
- barriers to entry
Which of the characteristics apply to oligopoly?
Perfect information, few sellers and many buyers, firms sell identical goods, and barriers to entry
What is marginal revenue?
addition revenue generated from selling one more unit of a good
What is the golden rule for maximizing level of output
marginal revenue always has to equal marginal cost
When a perfectly competive frim is producing at a level of output where MC>MR then the firm should?
Decrease output to increase profits
Why should a firm make the short run decision to shut down?
- It cant cover its variable cost
- market price is below the average variable cost
- firms total revunues are less than its variable cost
Firm should close down in the long run because?
Price is less than average cost
At what price will a firm exit in a long run?
When the profit is below the ATC
When does a monopoly exist?
One firm produces a good with no close subsititutes
When comparing monopoly versus perfect competition we normally assume that
barriers to entry exist under monopoly but not under perfect competition
The DeBeers Group owns a mojority of the worlds diamond mines. This barrier to entry is known as
control of a resource
When a monopolist increases output what happens to total revenue
Unable to determine with out more information
In general when marginal revenue is negative what is happenign to total revenue?
total revenue is falling
Golden rule
MC=MR
In general when marginal revenue is positive what is happening to total revenue?
total revenue is rising but by less and less
Unlike perfectly competive firms, a monopoly can earn positive economic profits in the long run becuase
of barriers to entry
Total revenue is
area under the curve
In which market structures do we normally assume positve long run profits
monopoly and oligopoly
In which market structures do we normally assume that firms posses market power
monopoly and oligopoly
What agency is in charge of calculation the US GDP?
Bureau of Economic Analysis
How many measures of GDP are there?
2- Nominal and Real
What is the difference between the two types of GDP
Nominal GDP is affected by price and Real GDP is not
A nations standard of living is usually measured by
Real GDP per person
Economics
the study of how society manages its scarce resources
Efficiency
the property of society getting the most it can from its scarce resources
equity
the property of distributing economic prosperity fairly among the members of society
opportunity cost
whatever must be given up to obtain some item
rational people
people who systematically and purposefully do the best they can to achieve their objectives
marginal changes
small incremental adjustments to a plan of action
incentive
something that induces a person to act
market economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
property rights
the ability of an individual to won and exercise control over scarce resources
market failure
a situation in which a market left on its own fails to allocate resources efficiently
externality
the impact of one person's actions on the well being of a bystander
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
productivity
the quantity of goods and services produced from each hour of a workers time
inflation
an increase in the overall level of prices in the economy
business cycle
fluctuations in economic activity, such as employment and production
If the equilibrium is above the price ceiling, what is this termed?
binding constraint
Price ceilings most often create _________ .
shortages
What happens when there's a shortage?
sellers must ration the goods
In the short run, demand tends to be inelastic or elastic?
inelastic
In the long run, demand tends to be inelastic or elastic?
elastic
In the case study regarding rent control, is the shortage experienced by having a price ceiling larger in the short or long run?
long run
What happens to tenants when there's a price ceiling?
They get lower rents but lower quality housing.
Why do tenants get lower quality housing when there's a price ceiling?
because the owners of the house aren't even getting the market price for their home so they wont value it as much and wont take care of it; since there are shortages, there will already be a waiting list of people to get in, so why put effort into maintaining a clean and orderly house?
If the price floor is above equilibrium, what is this termed?
binding constraint
Price floors very often create what?
surpluses
In the case study of minimum wage, what do price floors cause?
unemployment, there's a surplus of workers
Where is the greatest impact in the minimum wage market?
teenagers
Why is there a decrease in teenage employment when there's a price floor?
because of the surplus, the job market will only take the most experienced people and teenagers are highly unskilled
________ are a good way to organize economic activity.
markets
Price controls are often aimed at doing what?
helping the poor
What is the definition of tax incidence?
It's the distributino of a tax burden.
How do taxes on buyers affect market outcomes?
demand decreases, so it shifts left the size of the tax
this causes equilibrium price & quantity to go down
this causes equilibrium price & quantity to go down
Do taxes encourage or discourage market activity?
they discourage
True/False
Most of the time, sellers will have the burden of the tax.
Most of the time, sellers will have the burden of the tax.
FALSE. Buyers and sellers always SHARE the burden of the taxes.
How do taxes on sellers affect market outcomes?
Supply curve shifts left, the size of the tax.
In the tax example, what's so peculiar regarding the tax amount?
taxes on buyers & sellers are equivalent
Payroll tax causes workers wages to _______ and the wage paid by firms ________ .
wages to fall; wage paid by firms rises
True/False
The tax burden is shared by buyers and sellers equally.
The tax burden is shared by buyers and sellers equally.
FALSE, not equally
With an elastic supply and inelastic demand, when there is a tax the $ received by sellers doesn't fall much and the $ paid by the buyers ________ substantially.
rises
Who pays the luxury tax? Aka, where does most of the burden fall?
mostly on the middle class instead of the rich
Do luxuries have an inelastic or elastic demand?
very elastic
True/False
The burden of tax on luxuries falls on suppliers, which means they get a lower $ for their product.
The burden of tax on luxuries falls on suppliers, which means they get a lower $ for their product.
TRUE
Goods with close substitutes have a more ______ demand
a) inelastic
b) elastic
a) inelastic
b) elastic
elastic
Are luxuries elastic or inelastic?
elastic
Are necessities inelastic or elastic?
inelastic
How do you calculate the price elasticity of demand?
by dividing % change in QD and % change in price (former over latter)
What's the midpoint method?
(Q2-Q1)/[(Q2+Q1)/2]
-------------------------
(P2-P1)/[(P2+P1)/2]
-------------------------
(P2-P1)/[(P2+P1)/2]
What does the elasticity of demand measure?
Whether quantity depends on change in price...
The flatter the demand curve at any given point, the _______ the elasticity
higher
What's the formula for Total Revenue?
PxQ
If something is inelastic, increase in price will cause an ______ in total revenue
increase
If something is elastic, price and total revenue move in
a) opposite directions
b) the same directions
a) opposite directions
b) the same directions
opposite directions
True/False
Slope determines elasticity
Slope determines elasticity
False
Low price, high Quantity =
a) inelastic
b) elastic
a) inelastic
b) elastic
Inelastic
Normal goods have ________ income elasticities
positive
What does the income elasticity of demand measure?
how the QD changes as consumer income changes
What does the cross price elasticity of demand measure?
How the QD of a good changes as the price of another good changes
Do complements have a negative or positive value?
NEGATIVE
Do substitues have a negative or positive value?
POSITIVE
What is the key determinant of elasticity?
time period
Long run = inelastic or elastic?
Elastic
Zero elasticity = perfectly inelastic =
a) horizontal
b) vertical
a) horizontal
b) vertical
vertical
Can good news for farming be bad news for farmers?
Yes
What was the OPEC scandal?
they supplied less oil to increase individual incomes since price for the oil would be a ot higher
True/False
Experiments are often very easy in economics.
Experiments are often very easy in economics.
FALSE
True/False
Assumptions are important
Assumptions are important
TRUE
What do assumptions do?
they simplify the complex world
What is an important diagram in economics?
the circular-flow diagram
What are 3 factors of production?
1. Labor
2. Land
3. Capital
2. Land
3. Capital
Definition of Microeconomics
study of how households & firms make decisions & how they interact in specific markets
Definition of Macroeconomics
the study of economy-wide phenomena
Positive analysis
making a claim that can be checked against evidence
Normative analysis
opinion; prescriptive, not descriptive
Economists often appear to give conflicting advice to policymakers because: (2)
1. disagree about positive theories
2. different values & different normative views
2. different values & different normative views
True/False
Almost all economists believe rent control is bad
Almost all economists believe rent control is bad
TRUE
In the U.S. government, economists exist in what offices?
1. Department of Treasury
2. Labor & Justice
3. Department of Commerce
4. Bureau of Labor Statistics
5. Congressional Budget Office
6 Federal Reserve Board
2. Labor & Justice
3. Department of Commerce
4. Bureau of Labor Statistics
5. Congressional Budget Office
6 Federal Reserve Board
What graph/curve shows the various combinations of output that can be produced with the available factors of production & technology?
production possibilities
True/False
Almost all economists oppose barriers to free trade
Almost all economists oppose barriers to free trade
TRUE
Why do policies like rent control and trade barriers persist if the experts are united in their opposition?
Economists have not yet convinced the general public that these policies are undesirable
If the fed buys gov't bonds it...
increases the money supply!
if the Fed Lowers the rr...
the money supply increases!
if the Fed lowers the discount rate...
it increases the money supply
if the Fed sells bonds...
it decreases the money supply
if the fed raises rr...
money supply decreases
if the fed raises the discount rate...
it decreases the money supply
you shoud weigh the _______ and ______ to properly make any decision
cost and benefit
one more or the next one or one additional
margin
if marginal benifit is greater than the marginal costs then...
do it
point on the PPF are
maximum benefits
points inside the PPF are
not the best of use
points outside the PFF
is not possible
demand and supply make up two sides of a
market
who is included and who is excluded from a particular market
market definition
an increase in demand is a shift to the
right
where do the price of the good service shifts?
no where
the amount of a good or service that sellers are willing and able to supply at vvarious prices, ceteris paribus
quantity supplied
all other factors that affect the quantities of goods sellers are prepared to supply are
shift factors
higher produciton, _____ workers
higher
as you produce more per period time, each unit becomes progressively more
epensive or inex
expesnive
true/false
some inputs are variable
false ALL
the relationship between the quantitiy of inputs and the quantity of out put it produces
production function
the amount of time such that at least one input is held fixed
short run
marginal product oof labor
short run relationship between output and labor, holding all other inputs fixed
costs that require an actual outlay of money
explicit costs
costs that do not require an actual money outlay
implicit costs
true/false
econmic costs will always be greater than accounting costs
true
economies of scale portion of the LRAC that is falling
IRS
About this deck
By: kevin khoo
Created: 2010-02-15
Size: 189 flashcards
Views: 1519
Created: 2010-02-15
Size: 189 flashcards
Views: 1519
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have used this website for three exams, and I see a huge difference in my test results.”
Naj
Naj