Macroeconomics System Quiz Questions

Economists assume that people behave rationally because it is believed that individuals make decisions based on their own self-interests and try to maximize their utility. This assumption is based on the idea that individuals weigh the costs and benefits of different choices and make rational decisions to achieve their goals. It is also believed that individuals have access to all relevant information and possess the cognitive ability to process and analyze this information to make rational choices. This assumption of rational behavior forms the basis for many economic theories and models.

A mixed economic system is a combination of both market and command economies, where the government and private individuals both play a role in determining economic decisions. In the United States, there is a mix of government intervention and free market principles. The government regulates certain industries and provides public goods and services, while private individuals and businesses have the freedom to engage in economic activities and make profit-driven decisions. This system allows for both competition and some level of government control, making it an accurate description of the United States' economic system.

Ceteris paribus is a Latin phrase that means "all other things being equal." In the context of this question, it refers to the assumption that all other factors, such as income and prices of other goods, remain constant when studying the effect of changing prices on consumer decisions. This assumption allows researchers to isolate and analyze the specific impact of price changes on consumer behavior without the interference of other variables.

An economic system attempts to solve the fundamental questions of for whom to produce, what to produce, and how to produce. These questions address the allocation of resources, the determination of goods and services to be produced, and the methods and techniques to be used in production. Therefore, the correct answer is "all of the above" as all three questions are essential in determining the functioning of an economic system.

A change in price leads to a movement along the demand curve because the demand curve represents the relationship between price and quantity demanded. When the price changes, consumers will adjust their quantity demanded accordingly, resulting in a movement along the curve. This is because the law of demand states that as price increases, quantity demanded decreases, and vice versa. Therefore, a change in price will cause a movement along the demand curve rather than a shift in the curve itself.

Adam Smith is the correct answer because he is widely recognized as the author of the book "The Wealth of Nations." Published in 1776, this influential book laid the foundation for modern economics and advocated for free markets, division of labor, and the invisible hand theory. Smith's ideas have had a significant impact on economic theory and policy, making him one of the most important figures in the field of economics.

Positive economics is a branch of economics that focuses on objective analysis and the study of economic facts and phenomena. It aims to understand and explain economic behavior without making value judgments or recommendations. Unlike normative economics, which deals with subjective opinions and policy prescriptions, positive economics is concerned with describing and predicting economic phenomena based on empirical evidence and data. Therefore, the statement "is objective" is an accurate description of positive economics.

A per-unit government subsidy to producers of a good tends to increase the supply of the good. This is because the subsidy acts as an incentive for producers to increase their production, as they will receive additional funds for each unit produced. As a result, the supply curve shifts to the right, indicating an increase in the quantity of the good supplied at each price level.

When the price of cement goes up, it becomes more expensive for builders to produce new homes. This leads to a decrease in the supply of new homes, as builders are less willing and able to supply homes at the higher cost. As a result, the supply curve shifts upward and to the left.

If the price of gasoline rises sharply, it becomes more expensive to fuel a sports utility vehicle (SUV). As a result, the demand for SUVs falls because consumers are less willing to pay the higher cost of fueling them. This indicates that the price of gasoline and the demand for SUVs are inversely related, meaning they are complements. When the price of one good (gasoline) increases, the demand for the other good (SUVs) decreases, showing that they are complements rather than substitutes, normal goods, or inferior goods.

An increase in the expected future price of the good will cause a rightward shift of the demand curve. This is because consumers anticipate that the price of the good will be higher in the future, so they will demand more of it in the present to take advantage of the lower price. As a result, the demand curve will shift to the right, indicating a higher quantity demanded at each price level.

An increase in the number of consumers in a market would cause an increase in demand. This is because more consumers would be interested in purchasing the product or service, leading to a higher demand for it. As a result, businesses would need to produce and supply more of the product or service to meet the increased demand.

An increase in demand for good X will lead to an increase in the market clearing price of the good. On the other hand, a decrease in the supply of good X will also lead to an increase in the market clearing price. However, the impact on the equilibrium quantity of good X cannot be determined with certainty. It could either increase or decrease depending on the magnitude of the changes in demand and supply.