Economics1

Economics1 Economics Review For Test
  
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The word that comes from the Greek word “one who manages a household”
 
economy
Resources are
 
scarce for households and scarce for economics
1. The principle that “trade can make everyone better off” applies to interactions and trade between:
 
a. Families b. States within the United States c. Nations
Who wrote the Wealth of Nations?
 
Adam Smith
Wealth of Nations and the Declaration of Independence shares the point of view that ___.
 
individuals are best left to their own devices without the government guiding their actions
An example of externality
 
impact of pollution from a factory on the health of people in the vicinity of the factory
In a market economy, who makes the decisions that guide most economic activity?
 
Households and firms
the principle that "people face trade offs" applies to
 
individuals, families, societies
economists study
 
the management of scare resources
Most economists believe that an increase in the quantity of money results is:
 
a. An increase in the demand for goods and services b. Lover unemployment in the short run c. Higher inflation in the long run
The business cycle
 
irregular fluctuations in economic activity
A circular flow diagram is a model that
 
a. Helps to explain how participants in the economy interact with one another b. Helps to explain how the economy is organized
In the circular flow diagram the factors of production
 
labor, land, capital
What arrow represents the flow of goods and services?
 
The inside arrow starting from Markets for goods and Services ending/pointing to households
What arrow represents the flow of spending by households?
 
The outside arrow starting from households and pointing to markets for goods and services
The production possibilities frontier is a graph that shows the various combinations of output that an economy
 
can produce
Production possibilities frontiers says
 
an economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier
A production possibilities frontier shifts outward when
 
the economy experiences economic growth
A demand curve shows the relationship
 
between price and quantity demanded
What you give up to obtain an item is called your
 
opportunity cost
What statement exemplifies a principle of individual decision making? a) Trade can make everyone better off. b) governments can sometimes improve market outcomes. c) the cost of something is what you give up to get it. d) all of the above are correct
 
the cost of something is what you give up to get it; c
Trade between the United States and Indiaa) benefits both the United States and Indiab) is a losing proposition for the United States because India has cheaper laborc) is a losing proposition for India because capital is much more abundant in the U.S. than in Indiad) is a losing proposition for India because U.S. workers are more productive
 
benefits both the United States and India
Trade between countries tend to: a) reduce both competition and specializationb)reduce competition and increase specializationc) increase competition and reduce specialization d) increase both competition and specialization
 
increase both competition and specialization
The economy of the former Soviet Union is best described as a: a) primitive economy b)market economy c)hybrid economy d) centrally-planned economy
 
Centrally-planned economy
One advantage market economies have over centrally-planned economies is that market economies: a) provide an equal distribution of goods and services to households b)establish a significant role for government in the allocation of resources c)solve the problem of scarcity d) are more efficient
 
are more efficient
Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by: a)market economy b)a strong reliance on prices and individuals' self-interests c) a system of large privately-owned firms d)the actions of government central planners
 
the actions of government central planners
The invisible hand works to promote general well-being in the economy primarily through: a) government intervention b)the political process c)people's pursuit of self-interest d) altruism
 
people's pursuit of self-interest
In a market economy, who makes the decisions that guide most economic activity? a. firms b.households only c. firms and households d. government
 
firms and households
One reason we need government, even in a market economy, is that
 
the invisible hand is not perfect
a direct or positive relationship between a country's: a. productivity and its standard of living b. amount of government and spending and its productivity c. total population and its average citizen's incomed. rate of population growth and the extent of its trade with other countries
 
productivity and its standard of living
To raise productivity, policymakers could: a) increase spending on education b) provide tax credits to firms for capital improvements c) fund research and development d) all of the above
 
increase spending on education, provide tax credits to firms for capital improvements, and fund research and development
with respect to how economists, study the economy, what is the best following statement that is most accurate? a) economists study the past, but they do not try to predict the future b)economists use "rules of thumb" to predict the future c)economists devise theories, collect data, and analyze the data to test the theories d)economists use controlled experiments in much the same way that biologists and physicists do
 
economists devise theories, collect data, and analyze the data to test the theories
If this economy devotes one-half of its available resources to the production of baseballs and the other half to the production of bananas, it could produce: a. 150 bananas and 100 baseballs b. 150 bananas and 150 baseballs c)300 bananas and 200 baseballs d)we would have to know the details of this economy's technology in order to determine this
 
150 bananas and 100 baseballs
The field of economists is traditionally divided into two broad subfields, a) national economics and international economics b)consumer economics and producer economics c)private sector economics and public sector economics d) microeconomics and macroeconomics
 
microeconomics and macroeconomics
Normative statements are a) prescriptive, whereas positive statements are descriptive b) descriptive, whereas positive statements are prescriptive c)backward-looking, whereas positive statements are forward-looking d)forward-looking, whereas positive statements are backward-looking
 
prescriptive, whereas positive statements are descriptive
Prices rise when the quantity of money rises rapidly is an example of __.
 
positive economic statement
The council of economic advisers a) was created in 1946 b)advises the president of the United States on economic policy matters c)writes the annual Economic Report of the President d)all of the above
 
was created in 1946, advises the president of the United States on economic policy matters, writes the annual Economic Report of the President
Economists at the Department of the Treasury a)design U.S. currency and coins b)provide congress with annual budget c)enforce the U.S. antitrust laws d)provide advice on tax policy to the President
 
provide advice on tax policy to the President
When two variables have a positive correlation, a)when the x-variable increases, the y-variable decreases b)when the x-variable decreases, the y-variable increases c)when the x-variable increases, the y-variable increases d) more than one of the above is correct
 
when the x-variable increases, the y-variable increases
When two variables have a negative correlation, a)tend to move in opposite directionsb)they tend to move in the same directionc)one variable will move while the other remains constant d)the variables' values are never positive
 
tend to move in opposite directions
When an economists points out that you and millions of other people are interdependent, he or she is referring to the fact that we all a)rely upon the government to provide us with the basic necessities of life b)rely upon one another for the goods and services we consume c)have similar tastes and abilities d)are concerned about one another's well-being
 
rely upon one another for the goods and services we consume
Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if a)Canada requires fewer resources than the U.S. to produce a bushel of wheat b)the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S. c)the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada d)The U.S. has an absolute advantage over Canada in producing computer software
 
the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.
Imports are
 
1. goods produced abroad and sold domestically
Exports are
 
1. goods produced domestically and sold abroad
Trade can make everyone better off because it: a)increases cooperation among nations b) allows people to specialize according to comparative advantage c)requires some workers in an economy to be retrained d)reduces competition among domestic companies
 
allows people to specialize according to comparative advantage
In a market economy, supply and demand determine
 
both the quantity of each good produced and the price at which it is sold
Economists generally support: a)trade restrictions b)government management of trade c)export subsidies d)free international trade
 
free international trade
The gains from trade are: a) evident in economic models, but seldom observed in the real world b)evident in the real world, but impossible to capture in economic models c)a result of more efficient resource allocation than would be observed in the absence of trade d)based on the principle of absolute advantage
 
a result of more efficient resource allocation than would be observed in the absence of trade
In a market economy: a) supply determines demand and demand, in turn, determines prices b)demand determines supply and supply, in turn, determines price c)the allocation of scarce resources determines prices and prices, in turn, determine supply and demand d)supply and demand determine prices and prices, in turn, allocate the economy's scare resources
 
demand determines supply and supply, in turn, determines price
What are the characteristics of a perfectly competitive market?
 
a. Different sellers sell identical products b. There are many sellers c. Sellers must accept the price the market determines
A competitive market is one in which
 
there are so many buyers and so many sellers that each has a negligible impact on the price of the product
A monopoly is a market
 
with one seller, and that seller sets the price
Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises. This relationship between price and quantity demanded: a)applies to most goods in the economy, b)is represented by a downward-sloping demand curve, c) is referred to as the law of demand, d) all of the above
 
applies to most goods in the economy, is represented by a downward-sloping demand curve, is referred to as the law of demand
At the equilibrium price,
 
the quantity of the good that buyers are willing and able to buy exactly equals the quantity that sellers are willing and able to sell
The line that relates the price of a good and the quantity demanded of that good is called the a)demand schedule, and it usually slopes upward b)demand schedule, and it usually slopes downward c)demand curve, and it usually slopes upward d)demand curve,and it usually slopes downward
 
demand curve, and it usually slopes downward
A increase in quantity demand: a)results in a movement downward and to the right along a fixed demand curve b)results in a movement upward and to the left along a fixed demand curve c)shifts the demand curve to the left d)shifts the demand curve to the right
 
results in a movement downward and to the right along a fixed demand curve
If, at the equilibrium price, there is a surplus of a good, then
 
sellers are producing more than buyers wish to buy
An early frost in the vineyards of Napa Valley would cause a)an increase in demand for wine, increasing price b)an increase in the supply of wine, decreasing price c)a decrease in the demand for wine, decreasing price, d)a decrease in the supply of wine, increasing price
 
a decrease in the supply of wine, increasing price
Elasticity is
 
1. a measure of how much buyers and sellers respond to changes in market conditions
How does the concept of elasticity allow us to improve upon our understand of supply and demand? a) Elasticity allows us to analyze supply and demand with greater precision that would be the case in the absence of the elasticity concept b) elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of elasticity concept c)without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage d)without elasticity, it is very difficult to assess the degree of competition within a market
 
Elasticity allows us to analyze supply and demand with greater precision that would be the case in the absence of the elasticity concept
What is the correct statement that describes price elasticity of demand? a) the price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases b) price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes C) other things equal, if good x has close substitutes and good y does not have close substitutes, the the demand for good x will be more elastic than the demand for good y D)all of the above
 
the price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases, price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes, other things equal, if good x has close substitutes and good y does not have close substitutes, the the demand for good x will be more elastic than the demand for good y
Demand is said to be unit elastic
 
if quantity demanded changes by the same percent as the price
If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price result in a
 
4 percent decrease in quantity demanded
An increase in price causes and increase in total revenue when
 
demand is inelastic
The price elasticity of supply measures how much
 
the quantity supplied responds to changes in input prices
if a 25% change in price results in 40% change in quantity supplied, then the price elasticity of supply is
 
1.60 and supply is elastic
If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is:
 
0.63 and supply is inelastic
1. WTO(World Trade Organization)
 
an organization that overseas GATT
1. Quota
 
a limit on imports to protect domestic manufacturers; limits on total imports
1. Tariff
 
Tax on imports
Euro
 
common currency used throughout much of Europe
1. GATT
 
General Agreement on Trade and Tariff which has reduced trade barriers; a worldwide trade agreement that has lowered trade barriers
Real
 
takes inflation into consideration; adjusted for inflation
Nominal
 
stated value, does not take inflation into consideration
1. Adam Smith
 
Wrote The World of Nations
1. GDP
 
measure total output of goods and services in a country in a given time; gross domestic product
1. European Union
 
an organization European Nations that has reduced trade barriers within Europe

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