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ECO 201 Exam 1|409 Questions with Verified Answers
Scarcity - CORRECT ANSWER refers to the inherently limited nature of society's resources, given society's unlimited wants and needs economics - CORRECT ANSWER the study of how individuals and societies allocate their limited resources to satisfy their unlimited wants microeconomics - CORRECT ANSWER the study of the individual units that make up the economy macroeconomics - CORRECT ANSWER the study of the overall aspects and workings of an economy incentives - CORRECT ANSWER factors that motivate a person to act or exert effort opportunity cost - CORRECT ANSWER the highest-valued alternative that must be sacrificed to get something else economic thinking - CORRECT ANSWER a purposeful evaluation of the available opportunities to make the best decision possible marginal thinking - CORRECT ANSWER the evaluation of whether the benefit of one more unit of something is greater than its cost markets - CORRECT ANSWER systems that bring buyers and sellers together to exchange goods and services circular flow diagram - CORRECT ANSWER a diagram that shows how goods, services, and resources flow through the economy trade - CORRECT ANSWER the voluntary exchange of goods and services between two or more parties
comparative advantage - CORRECT ANSWER the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can positive statement - CORRECT ANSWER an assertion that can be tested and validated; it describes "what is" normative statement - CORRECT ANSWER an opinion that cannot be tested or validated; it describes "what ought to be" ceteris peribus - CORRECT ANSWER meaning "other things being equal," the concept under which economists examine a change in one variable while holding everything else constant indigenous factors - CORRECT ANSWER the variables that are inside a model exogenous factors - CORRECT ANSWER the variables that are outside a model production possibilities frontier - CORRECT ANSWER a model that illustrates the combinations of outputs a society can produce if all of its resources are being used efficiently law of increasing opportunity cost - CORRECT ANSWER law stating that the opportunity cost of producing a good rises as a society produces more of it specialization - CORRECT ANSWER the limiting of one's work to a particular area absolute advantage - CORRECT ANSWER one producer's ability to make more than another producer with the same quantity of resources short run - CORRECT ANSWER in microeconomics, the period of time when consumers make decisions that reflect their short-term wants, needs, or limitations and can partially adjust their behavior
invisible hand - CORRECT ANSWER a phrase coined by Adam Smith to refer to the unobservable market forces that guide resources to their highest-valued use competitive market - CORRECT ANSWER a market in which there are so many buyers and sellers that each has only a small (negligible) impact on the market price and output imperfect market - CORRECT ANSWER a market in which either the buyer or the seller can influence the market price market power - CORRECT ANSWER a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both monopoly - CORRECT ANSWER condition existing when a single company supplies the entire market for a particular good or service quantity demanded - CORRECT ANSWER the amount of a good or service that buyers are willing and able to purchase at the current price law of demand - CORRECT ANSWER the law that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls demand schedule - CORRECT ANSWER a table that shows the relationship between the price of a good and the quantity demanded demand curve - CORRECT ANSWER a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices ` market demand - CORRECT ANSWER the sum of all the individual quantities demanded by each buyer in the market at each price purchasing power - CORRECT ANSWER the value of your income expressed in terms of how much you can afford normal good - CORRECT ANSWER a good consumers buy more of as income rises, holding all other factors constant
inferior good - CORRECT ANSWER a good for which demand declines as income rises complements - CORRECT ANSWER two goods that are used together; when the price of a complementary good rises, the quantity demanded of that good falls and the demand for the related good goes down substitutes - CORRECT ANSWER goods that are used in place of each other; when the price of a substitute good rises, the quantity demanded of that good falls and the demand for the related good goes up subsity - CORRECT ANSWER a payment made by the government to encourage the consumption or production of a good or service quantity supplied - CORRECT ANSWER the amount of a good or service producers are willing and able to sell at the current price law of supply - CORRECT ANSWER the law that, all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls supply schedule - CORRECT ANSWER a table that shows the relationship between the price of a good and the quantity supplied supply curve - CORRECT ANSWER a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices market supplied - CORRECT ANSWER the sum of the quantities supplied by each seller in the market at each price inputs - CORRECT ANSWER the resources (labor, land, and capital) used in the production process equilibrium - CORRECT ANSWER condition occurring at the point where the demand curve and the supply curve intersect
CORRECT ANSWER other relevant factors like consumer incomes, population, etc. must be held constant. When economists use the term Ceteris paribus, they are indicating that: - CORRECT ANSWER all other variables except the ones specified for analysis are assumed to remain unchanged. Which of the following represents a positive economics statement? - CORRECT ANSWER a very higher income tax rate will reduce the amount of time that people spend working. It will also lead to a higher level of underground economy. The statement, "Violent crime (statistics show) has decreased in the last five years," is: - CORRECT ANSWER positive because it is testable Statistics show that an increase in the federal minimum wage causes an increase in unemployment among teenagers: - CORRECT ANSWER is a positive economics statement According to the law of demand, the quantity of a good demanded in a given time period: - CORRECT ANSWER Increases as its price falls, ceteris paribus. Ceteris paribus, if the price of a digital camera rises, then we can expect: HINT: a change (rise or fall) in the current price of "X" is the only variable that, when changes, will not shift the demand curve or supply curve. The demand curve or the supply curve will remain the same. Any variable, other than the current price of "X" will shift the demand curve or supply cure, either to the right (increase) or left (decrease). - CORRECT ANSWER A decrease in the quantity demanded of digital cameras (movement along the same curve). Ceteris paribus, if the price of Swiss cheese falls, then we will see: - CORRECT ANSWER An increase in the quantity demanded of Swiss cheese (downward movement along the same demand curve). Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of candles? - CORRECT ANSWER A decrease in the price of candles.
Ceteris paribus, if the price of basketballs rises, then we will see: - CORRECT ANSWER A movement to the left along the same demand curve for basketballs. Which of the following would generally cause an increase in the demand for automobiles (outward shift in the demand curve or a shift to the right in the demand curve)? HINT, once again!! for the remaining questions: any variable other than the current price of "X" will shift the demand curve AND the supply curve either to the right (increase) OR to the left (decrease). The demand curve or the supply curve will not remain the same!! - CORRECT ANSWER An increase in consumers' income. If buyers expect the price of baseballs to fall in the future, then right now (currently) there should be: - CORRECT ANSWER A decrease in the demand for baseballs. Assume Pepsi and Coke are substitutes. An increase in the price of one will result in: - CORRECT ANSWER An increase in the demand for the other (the demand curve shifts to the right). If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business? - CORRECT ANSWER The demand curve will shift to the right (an increase in demand) Peanut butter & jelly are complements. A decrease in the price of one will result in: - CORRECT ANSWER An increase in the demand for the other. Given a downward-sloping market demand curve for web design services, if the price of web design services is decreased from $12 per hour to $9 per hour, then:
- CORRECT ANSWER The quantity demanded of web design services will increase. An increase in the price of a good causes a: - CORRECT ANSWER Movement up along the same supply curve.
Imposing a tax on an industry by the government would result in: - CORRECT ANSWER A leftward shift of the supply curve. The equilibrium price and quantity in the above diagram for a good/service, under perfect competition, occur at a price of: - CORRECT ANSWER $150 and a quantity of 300 units. If a price ceiling of $100 was in effect in the above figure (chapter 4!): - CORRECT ANSWER A shortage of 200 units would occur. In the above graph for a commodity, say, corn, under a perfectly competitive market structure, at a price of $250: - CORRECT ANSWER The quantity supplied is greater than the quantity demanded. Using the above diagram, at a price of $50: - CORRECT ANSWER The quantity supplied is 100 units. Assuming Coca-Cola & Pepsi-Cola are substitute goods, the effect of an increase in the price of Coca-Cola would cause which of the following: - CORRECT ANSWER A rightward shift in the demand curve for Pepsi-Cola. Decreasing the level of a subsidy (a supply curve shifter!) to an industry by the government would result in: - CORRECT ANSWER A leftward shift of the supply curve. The law of supply states that when the price of a commodity rises, the quantity supplied of that commodity rises too and vice versa, ceteris paribus, which means that: - CORRECT ANSWER Two variables are changing and everything else is being held constant. Decreasing a tax on an industry by the government would result in: - CORRECT ANSWER A rightward shift of the supply curve. T/F When the number of buyers in a market changes, the market-demand curve for goods and services shifts. - CORRECT ANSWER T
T/F
A decrease in the price of personal computers would shift the demand curve for personal computers to the right (increase in demand). - CORRECT ANSWER F T/F There are never shortages or surpluses when the price in a market is equal to the equilibrium price for the market. - CORRECT ANSWER T T/F As one moves down the demand curve for carrots, the quantity demanded for carrots increases and the price of carrots decreases. - CORRECT ANSWER T Assuming the demand curve for orange juice in the U.S. remains the same (doesn't shift) and the supply curve shifts to the right (an outward shift or an increase in supply) due to the use of advanced technology (which is one of the supply curve shifters, right!!) by the orange growers in Florida & California. Which of the following would be the correct outcome? - CORRECT ANSWER Lower equilibrium price and higher equilibrium quantity. Assuming the demand curve for new automobiles in the U.S. shifts outward (because of a change in one of the demand curve shifters, say, an increase in consumers' income). And the supply curve remains the same (doesn't shift). Which of the following would be the correct outcome? - CORRECT ANSWER Higher equilibrium price and higher equilibrium quantity. Assuming the global demand curve for air travel shifts to the right because of one of the demand curve shifters, say, an increase in consumers' income in the less developed countries. And the supply curve shifts outward too (because of a change in one of the supply curve shifters, for instance, the commercial aircraft industry has become more efficient). Assume further that the shift in the demand curve is wider than the shift in the supply curve (or the shift in the supply curve is narrower than the shift in the demand curve). Which of the following would be the correct outcome? - CORRECT ANSWER Higher equilibrium price and higher equilibrium quantity.
outcome in the housing market? See answer on the following page!! - CORRECT ANSWER Higher equilibrium price. Suppose both the demand and supply of crude oil, in the world oil market/industry increase (although not necessarily by the same amount...a three- diagram scenario!!). What can we conclude about changes in the price and quantity of this commodity? - CORRECT ANSWER The quantity increases but the change in the price cannot be determined. Suppose both the demand and supply of peaches in a local/national/global market decrease (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of peaches? - CORRECT ANSWER The quantity decreases but the change in the price cannot be determined. After a major snowstorm last winter, some college students earned extra money by clearing driveways of snow for $25. Town officials determined that $25 was too high and set a "price ceiling" of $15 for this service. Which of the following was the most likely result? - CORRECT ANSWER Fewer driveways were cleared (a shortage of the service because of a price ceiling policy). Assuming the demand curve for orange juice shifts to the right (increase in demand), also, assuming the supply curve for orange juice shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for orange juice? - CORRECT ANSWER Higher equilibrium quantity. Many student government candidates at colleges and universities propose "rent controls" on local rental housing as a way to help students afford rental housing. Economic theory suggests that this policy would harm students as a whole despite the fact that some students who are able to find housing at the reduced price would benefit. Which of the following are some of the offsetting secondary effects of the rent controls that would work to the disadvantage of students? - CORRECT ANSWER All of these would be secondary effects of the rent controls.
A legally mandated minimum wage is an example of: - CORRECT ANSWER A price floor. Suppose a hurricane hits Florida causing widespread damage to houses and businesses. The governor of Florida places a price ceiling on all building materials to keep the prices reasonable. Which of the following is the most likely result? - CORRECT ANSWER All of the above would probably result.. shortage of building materials, a slower recovery from the storm, and long lines at lumber stores. The market will overproduce goods that have external costs (negative externality) because: - CORRECT ANSWER The producers experience lower costs of production. If the economy relies entirely on the market mechanism, then, it tends to: - CORRECT ANSWER Underproduce goods that yield external benefits and overproduce those that generate external costs. If Good X is a public good, then: - CORRECT ANSWER If it is consumed by one person, it can also be consumed by another person. Externalities: - CORRECT ANSWER Are the external costs and/or external benefits of market activities that "spill over" onto third parties. If Good X has a social supply curve that is less than the market supply curve, then Good X must be a: - CORRECT ANSWER good with an external cost The U.S. gross domestic product (GDP), during a specified period of time, is equal to the market value of all final goods and services: - CORRECT ANSWER produced within America by the resources owned by Americans as well as foreigners. Gross domestic product (GDP) of a country, say, Mexico, includes: - CORRECT ANSWER only final goods and services.
Retained earnings of a company/corporation, for example, Sony Electronics, are the: - CORRECT ANSWER profits of the company reinvested (invested back) in the company. Disposable personal income: - CORRECT ANSWER excludes personal income taxes. In an economy, for example, Argentina, with persistent high-inflation over a longer period of time, - CORRECT ANSWER nominal GDP will grow faster than real GDP. Disposable personal income equals: - CORRECT ANSWER Personal income minus personal income/property taxes. GDP excludes: - CORRECT ANSWER government transfer payments/public transfer payments such as unemployment compensation checks (cash payments) and food stamps (in-kind payments). private transfer payments such as buying/selling bonds/stocks. underground economy All final goods and services that make up the GDP of a country, for example, India, can be expressed in the form: - CORRECT ANSWER GDP = C + I + G + (X - M) GDP does count: - CORRECT ANSWER State and local government spending. Spending for new homes. Net exports (X-M) of a country, say, Germany: - CORRECT ANSWER Is equal to total exports minus total imports. If the real GDP of a country, for example, Malaysia, has increased from $ Billion last year to $105 Billion this year, then this country's economic growth is: - CORRECT ANSWER 5 percent. When an individual makes repairs to her own home (ignore the purchase of construction materials!) instead of hiring a company to make the repairs, the activity is: - CORRECT ANSWER Excluded from GDP because it is a nonmarket activity.
Leather sold to a furniture manufacturer is excluded from the calculation of GDP because: - CORRECT ANSWER It is an intermediate good. It is an input in the production of the final product. Its value will be included in the price of the final good (the furniture). The period of declining growth in the real GDP of a country between the peak of a business cycle and the trough is called a(n): - CORRECT ANSWER recessionary phase. The period of growth in real GDP between the trough of the business cycle and the next peak is called the: - CORRECT ANSWER recovery or expansionary phase. Economic growth of a country, say, China, is measured by the annual percentage increase in a nation's level of: - CORRECT ANSWER real GDP. Which one of the following persons in the U.S. would be considered frictionally unemployed? - CORRECT ANSWER a person who has left one job & is expected to be reemployed within the next two/three weeks. Which of the following groups of people in the U.S. are members of the labor force? - CORRECT ANSWER people over 16 years of age who are employed or seeking employment. The unemployment rate in a country, say, South Africa, equals the number of persons: - CORRECT ANSWER unemployed divided by the number in the labor force. In a dynamic economy, such as the U.S. economy, under ideal conditions: - CORRECT ANSWER some unemployment would be present due to workers temporarily being out of work, for example, while changing jobs. person who has given up searching for work is called: - CORRECT ANSWER a discouraged worker. Unemployment that is of a short duration to allow time to find a new job is: - CORRECT ANSWER frictional unemployment.
A general mismatch between the skills of unemployed workers and the skills needed by employers with job openings results in: - CORRECT ANSWER Structural unemployment. The point at which real output (GDP) of an economy reaches a maximum during a business cycle is called the: - CORRECT ANSWER peak Economists use the phrase "business cycle" when referring to fluctuations in: - CORRECT ANSWER real GDP. Which of the following generally occurs during the recessionary phase of a business cycle? - CORRECT ANSWER The sales of most businesses decline, and the unemployment rate rises. Economists usually use the term "recession" to refer to: - CORRECT ANSWER two or more consecutive quarters of declining real GDP. If you look for a job for eighteen months after graduation, but fail to generate an offer, even after lowering your expectations, the economy is probably in the business cycle phase called a: - CORRECT ANSWER recession Which one of the following persons would be considered unemployed? - CORRECT ANSWER A construction worker who was laid off due to bad weather conditions. Which one of the following people would not be considered a part of the labor force? - CORRECT ANSWER A steel worker who was laid off last year and is no longer seeking work. Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are actively looking for work, 15 of whom are retired, and 15 of whom are house makers. The number of people in the labor force is: - CORRECT ANSWER 70. The problem(s) with the statistics of the unemployment rate is/are that: - CORRECT ANSWER -discouraged workers are not included in the calculation. -the data includes part-time workers as fully employed. -underemployment is measured in the calculation.
Which of the following is true of inflation in a country? - CORRECT ANSWER it is a continuous and general increase in the prices of goods and services. Deflation means a continuous and general decrease in: - CORRECT ANSWER the general price level (of goods/services) in the economy Which one of the following groups in a country, say, Argentina, benefits from unexpected/unanticipated inflation? - CORRECT ANSWER Borrowers. The base year in the consumer price index (CPI) in the U.S. is: - CORRECT ANSWER a year chosen as a reference for calculating inflation. If the nominal interest rate in a country is 5 percent and there is no (zero) inflation, then the real interest rate: - CORRECT ANSWER is 5 percent. The real interest rate in a country can be expressed as the: - CORRECT ANSWER nominal interest rate minus the inflation rate. If the rate of inflation (in Egypt) in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be: - CORRECT ANSWER a redistribution of wealth form lenders to borrowers. In the presence of unexpected/unanticipated inflation: - CORRECT ANSWER lenders lose. borrowers gain. employees lose. Employers gain. If next year's rate of inflation in Japan turns out to be lower than the lenders and borrowers in Japan anticipate, then the effect will be: - CORRECT ANSWER a redistribution of wealth from borrowers to lenders in Japan. Stagflation or stagnation means that: - CORRECT ANSWER when both inflation & unemployment increase.
