Microeconomics Mid-term 1 - Assignment Essays %

question

What is the circular-flow diagram and what does it illustrate?

answer

The circular-flow diagram shows how households and firms are linked through product and factor markets.

question

Economists assume that people are rational in the sense that

answer

they use all available information as they take actions intended to achieve their goals.

question

Which of the following best describes scarcity?

answer

Unlimited wants exceed the limited resources available.

question

Scarcity is central to the study of economics because it implies that

answer

every choice involves an opportunity cost.

question

What do economists mean by the word "marginal"?

answer

extra or additional

question

Economists believe that an activity should be continued up to the point where

answer

the marginal benefit from the activity is equal to the marginal cost.

question

Scarcity implies that every society and every individual face trade-offs because scarcity means that

answer

human wants are greater than what available resources can produce.

question

The three economic questions that every society must answer are

answer

What goods will be produced, how will they be produced, and who will receive the goods?

question

Centrally planned economies allocate resources based on decisions by

answer

governments

question

Market economies answer these questions through decisions made by

answer

households and firms

question

Productive efficiency means that

answer

a good or service is produced at the lowest possible cost.

question

Allocative efficiency means that

answer

every good or service is produced up to the point where marginal benefit is equal to marginal cost.

question

Efficiency means that goods are distributed in a way that

answer

maximizes benefits to society

question

Equity means that goods are distributed in a way that

answer

is fair

question

A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to _______ while the latter ensures it of _______

answer

minimize production costs

ample revenues

question

If a firm is productively and allocatively efficient, it earns ______ ; if it is not, it
_______

answer

a profit

suffers a loss

question

In a market system, how does society decide what goods and services will be produced?

answer

Consumers, firms, and the government determine what goods and services will be produced by the choices they make.

question

In a market system, how does society decide who will receive the goods and services produced?

answer

Who receives the goods and services produced depends largely on how income is distributed.

question

In a mixed economy, most economic decisions

answer

are made in markets but the government plays a significant role in the allocation of resources.

question

When does productive efficiency occur?

answer

Productive efficiency occurs when a good or service is produced at the lowest possible cost.

question

When does allocative efficiency occur?

answer

Allocative efficiency occurs when production is in accordance with consumer preferences.

question

Economists use models

answer

to answer questions and analyze issues.

question

Economic data is used

answer

to test models.

question

What type of economic analysis is concerned with the way things ought to be?

answer

Normative Analysis

question

Positive analysis

answer

Analysis concerned with what is.

question

Why are models based on assumptions?

answer

Because models have to be simplified to be useful.

question

An economic variable is

answer

something measurable that can have different values.

question

A primary difference between macroeconomics and microeconomics is

answer

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

question

Macroeconomics is the study of

answer

the economy as a whole, including topics such as inflation, unemployment, and economic growth.

question

Microeconomics is the study of

answer

how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

question

What do economists mean by scarcity?

answer

Economists mean that unlimited wants exceed limited resources.

question

A production possibilities frontier:

answer

shows the maximum attainable combinations of two goods that may be produced with available resources.

question

We can show economic efficiency:

answer

with points on the production possibilities frontier.

question

We can show economic inefficiency:

answer

with points inside the production possibilities frontier.

question

The production possibilities frontier will shift outward

answer

if technological advances occur.

question

What does increasing marginal opportunity costs mean?

answer

Increasing the production of a good requires larger and larger decreases in the production of another good.

question

What shape will the production possibilities frontier look like if the marginal opportunity cost increases?

answer

The production possibilities frontier will be bowed outward.

question

Production possibilities frontier

answer

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

question

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.

answer

smaller

question

Which of the following events would create economic growth, that is, shift the production possibilities frontier outward?

answer

An increase in the available labor.
An increase in the available natural resources.
An increase in technology that affects the production of both goods.

question

What is absolute advantage?

answer

The ability to produce more of a good or service than competitors using the same amount of resources.

question

What is comparative advantage?

answer

The ability to produce a good or service at a lower opportunity cost than other producers.

question

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good

answer

will have a comparative advantage if it has a lower opportunity cost of producing that good.

question

What is the basis for trade?

answer

Comparative advantage.

question

How can a country gain from specialization and trade?

answer

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

question

Whether carried out by an individual or a country, production beyond the production possibilities frontier

answer

is not physically possible.

question

How can individuals and countries consume beyond their production possibilities frontiers?

answer

Through trade

question

Absolute advantage is the ability of an individual, a firm, or a country to

answer

produce more of a good or service than competitors using the same amount of resources.

question

If a country has a comparative advantage in the production of a good, then that country

answer

has a lower opportunity cost in the production of that good.

question

The basis for trade is comparative advantage, not absolute advantage.

answer

True

question

What is the circular-flow diagram and what does it illustrate?

answer

The circular-flow diagram shows how households and firms are linked through product and factor markets.

question

What are the two main categories of participants in markets?

answer

Firms and households.

question

Which participants are of greatest importance in determining what goods and services are produced?

answer

Households.

question

What is a free market?

answer

A free market is one where the government does not control the production of goods and services.

question

In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,

answer

centrally planned economies have extensive government controls.

question

What is an entrepreneur?

answer

Entrepreneurs operate businesses that produce goods and services.

question

Why do entrepreneurs play a key role in a market system?

answer

They bring together factors of production.

question

Factor markets

answer

Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

question

Product markets

answer

Markets for goods -- such as computers -- and services -- such as medical treatment.

question

Demand schedule

answer

A table showing the relationship between the price of a product and the quantity of the product demanded.

question

Demand curve

answer

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

question

What do economists mean when they use the Latin expression ceteris paribus?

answer

All else equal.

question

The law of demand is the assertion that

answer

the quantity demanded of a product is inversely related to its price.

question

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,

answer

the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers' purchasing power.

question

What will cause the demand curve to shift?

answer

Consumer income

question

Inferior good

answer

A good for which the demand increases as income falls, and decreases as income rises.

question

Substitute goods

answer

Goods and services that can be used for the same purpose.

question

Complementary goods

answer

Goods that are used together

question

The law of demand is the

answer

rule that, holding everything else constant, when the price of a good falls, the quantity demanded will increase, and when the price of a good rises, the quantity demanded will decrease.

question

The income effect

answer

is used to describe how changes in price affect a consumer's purchasing power

question

The substitution effect

answer

is used to describe how a change in price affects the quantity demanded of a good by making it more or less expensive than substitute goods

question

Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the

answer

ceteris paribus condition.

question

A good for which demand increases as income rises is ________

answer

a normal good

question

A good for which demand increases as income falls is ________.

answer

an inferior good

question

Goods and services that can be used for the same purpose are ________

answer

substitutes

question

Goods and services that are used together are ________.

answer

complements

question

What would not shift the demand curve for a good or service?

answer

a change in the price of the good or service

question

The difference between a change in supply and a change in the quantity supplied is that the latter is

answer

produced by a change in the products own price while the former is caused by a variety of variables other than the products price.

question

What variable will cause the supply curve to shift?

answer

The cost of raw materials

question

Supply schedule

answer

a table that shows the relationship between the price of a product and the quantity of the product supplied

question

Supply curve

answer

a curve that shows the relationship between the price of a product and the quantity of the product supplied

question

Law of supply

answer

An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.

question

What event would shift the supply of smartphones to the right?

answer

a decrease in the price of inputs used to produce smartphones

question

What do economists mean by market equilibrium?

answer

A market outcome where quantity supplied is equal to quantity demanded.

question

What can cause a surplus?

answer

Firms that have unsold goods piling up, the quantity supplied exceeds quantity demanded, and the market price is above the equilibrium price.

question

Shortage

answer

A situation in which the quantity demanded is greater than the quantity supplied.

question

When there is a shortage of a good

answer

consumers compete against one another by bidding the price upward. The process continues until the market is finally in equilibrium.

question

Market equilibrium

answer

A situation in which quantity demanded equals quantity supplied.

question

If a surplus exists in a market, we know that the actual price is

answer

above the equilibrium price, and the quantity supplied is greater than the quantity demanded.

question

If a shortage exists in a market, we know that the actual price is

answer

below the equilibrium price, and the quantity demanded is greater than the quantity supplied.

question

In a competitive market, firms can dictate what the equilibrium price of a good or a service will be.

answer

False

question

Marginal benefit is

answer

the additional benefit from consuming one more unit.

question

Why is the demand curve referred to as a marginal benefit curve?

answer

It shows the willingness of consumers to purchase a product at different prices.

question

Marginal cost is

answer

the additional cost of producing one more unit.

question

Why is the supply curve referred to as a marginal cost curve?

answer

It shows the willingness of firms to supply a product at different prices.

question

Consumer surplus is

answer

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

question

How does consumer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, consumer surplus

answer

decreases

question

How does consumer surplus change as the equilibrium price of a good rises or falls?
As the price of a good falls, consumer surplus

answer

increases

question

Producer surplus is

answer

the difference between the lowest price a firm would be willing to accept and the price it actually receives.

question

How does producer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, producer surplus

answer

increases

question

How does producer surplus change as the equilibrium price of a good rises or falls?
As the price of a good falls, producer surplus

answer

decreases

question

What is a trade-off?

answer

The idea that, because of scarcity, producing more of one good or service

1 of 102

question

What is the circular-flow diagram and what does it illustrate?

answer

The circular-flow diagram shows how households and firms are linked through product and factor markets.

question

Economists assume that people are rational in the sense that

answer

they use all available information as they take actions intended to achieve their goals.

question

Which of the following best describes scarcity?

answer

Unlimited wants exceed the limited resources available.

question

Scarcity is central to the study of economics because it implies that

answer

every choice involves an opportunity cost.

question

What do economists mean by the word "marginal"?

answer

extra or additional

question

Economists believe that an activity should be continued up to the point where

answer

the marginal benefit from the activity is equal to the marginal cost.

question

Scarcity implies that every society and every individual face trade-offs because scarcity means that

answer

human wants are greater than what available resources can produce.

question

The three economic questions that every society must answer are

answer

What goods will be produced, how will they be produced, and who will receive the goods?

question

Centrally planned economies allocate resources based on decisions by

answer

governments

question

Market economies answer these questions through decisions made by

answer

households and firms

question

Productive efficiency means that

answer

a good or service is produced at the lowest possible cost.

question

Allocative efficiency means that

answer

every good or service is produced up to the point where marginal benefit is equal to marginal cost.

question

Efficiency means that goods are distributed in a way that

answer

maximizes benefits to society

question

Equity means that goods are distributed in a way that

answer

is fair

question

A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to _______ while the latter ensures it of _______

answer

minimize production costs

ample revenues

question

If a firm is productively and allocatively efficient, it earns ______ ; if it is not, it
_______

answer

a profit

suffers a loss

question

In a market system, how does society decide what goods and services will be produced?

answer

Consumers, firms, and the government determine what goods and services will be produced by the choices they make.

question

In a market system, how does society decide who will receive the goods and services produced?

answer

Who receives the goods and services produced depends largely on how income is distributed.

question

In a mixed economy, most economic decisions

answer

are made in markets but the government plays a significant role in the allocation of resources.

question

When does productive efficiency occur?

answer

Productive efficiency occurs when a good or service is produced at the lowest possible cost.

question

When does allocative efficiency occur?

answer

Allocative efficiency occurs when production is in accordance with consumer preferences.

question

Economists use models

answer

to answer questions and analyze issues.

question

Economic data is used

answer

to test models.

question

What type of economic analysis is concerned with the way things ought to be?

answer

Normative Analysis

question

Positive analysis

answer

Analysis concerned with what is.

question

Why are models based on assumptions?

answer

Because models have to be simplified to be useful.

question

An economic variable is

answer

something measurable that can have different values.

question

A primary difference between macroeconomics and microeconomics is

answer

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

question

Macroeconomics is the study of

answer

the economy as a whole, including topics such as inflation, unemployment, and economic growth.

question

Microeconomics is the study of

answer

how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

question

What do economists mean by scarcity?

answer

Economists mean that unlimited wants exceed limited resources.

question

A production possibilities frontier:

answer

shows the maximum attainable combinations of two goods that may be produced with available resources.

question

We can show economic efficiency:

answer

with points on the production possibilities frontier.

question

We can show economic inefficiency:

answer

with points inside the production possibilities frontier.

question

The production possibilities frontier will shift outward

answer

if technological advances occur.

question

What does increasing marginal opportunity costs mean?

answer

Increasing the production of a good requires larger and larger decreases in the production of another good.

question

What shape will the production possibilities frontier look like if the marginal opportunity cost increases?

answer

The production possibilities frontier will be bowed outward.

question

Production possibilities frontier

answer

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

question

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.

answer

smaller

question

Which of the following events would create economic growth, that is, shift the production possibilities frontier outward?

answer

An increase in the available labor.
An increase in the available natural resources.
An increase in technology that affects the production of both goods.

question

What is absolute advantage?

answer

The ability to produce more of a good or service than competitors using the same amount of resources.

question

What is comparative advantage?

answer

The ability to produce a good or service at a lower opportunity cost than other producers.

question

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good

answer

will have a comparative advantage if it has a lower opportunity cost of producing that good.

question

What is the basis for trade?

answer

Comparative advantage.

question

How can a country gain from specialization and trade?

answer

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

question

Whether carried out by an individual or a country, production beyond the production possibilities frontier

answer

is not physically possible.

question

How can individuals and countries consume beyond their production possibilities frontiers?

answer

Through trade

question

Absolute advantage is the ability of an individual, a firm, or a country to

answer

produce more of a good or service than competitors using the same amount of resources.

question

If a country has a comparative advantage in the production of a good, then that country

answer

has a lower opportunity cost in the production of that good.

question

The basis for trade is comparative advantage, not absolute advantage.

answer

True

question

What is the circular-flow diagram and what does it illustrate?

answer

The circular-flow diagram shows how households and firms are linked through product and factor markets.

question

What are the two main categories of participants in markets?

answer

Firms and households.

question

Which participants are of greatest importance in determining what goods and services are produced?

answer

Households.

question

What is a free market?

answer

A free market is one where the government does not control the production of goods and services.

question

In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,

answer

centrally planned economies have extensive government controls.

question

What is an entrepreneur?

answer

Entrepreneurs operate businesses that produce goods and services.

question

Why do entrepreneurs play a key role in a market system?

answer

They bring together factors of production.

question

Factor markets

answer

Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

question

Product markets

answer

Markets for goods -- such as computers -- and services -- such as medical treatment.

question

Demand schedule

answer

A table showing the relationship between the price of a product and the quantity of the product demanded.

question

Demand curve

answer

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

question

What do economists mean when they use the Latin expression ceteris paribus?

answer

All else equal.

question

The law of demand is the assertion that

answer

the quantity demanded of a product is inversely related to its price.

question

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,

answer

question

What will cause the demand curve to shift?

answer

Consumer income

question

Inferior good

answer

A good for which the demand increases as income falls, and decreases as income rises.

question

Substitute goods

answer

Goods and services that can be used for the same purpose.

question

Complementary goods

answer

Goods that are used together

question

The law of demand is the

answer

rule that, holding everything else constant, when the price of a good falls, the quantity demanded will increase, and when the price of a good rises, the quantity demanded will decrease.

question

The income effect

answer

is used to describe how changes in price affect a consumer's purchasing power

question

The substitution effect

answer

is used to describe how a change in price affects the quantity demanded of a good by making it more or less expensive than substitute goods

question

Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the

answer

ceteris paribus condition.

question

A good for which demand increases as income rises is ________

answer

a normal good

question

A good for which demand increases as income falls is ________.

answer

an inferior good

question

Goods and services that can be used for the same purpose are ________

answer

substitutes

question

Goods and services that are used together are ________.

answer

complements

question

What would not shift the demand curve for a good or service?

answer

a change in the price of the good or service

question

The difference between a change in supply and a change in the quantity supplied is that the latter is

answer

produced by a change in the products own price while the former is caused by a variety of variables other than the products price.

question

What variable will cause the supply curve to shift?

answer

The cost of raw materials

question

Supply schedule

answer

a table that shows the relationship between the price of a product and the quantity of the product supplied

question

Supply curve

answer

a curve that shows the relationship between the price of a product and the quantity of the product supplied

question

Law of supply

answer

An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.

question

What event would shift the supply of smartphones to the right?

answer

a decrease in the price of inputs used to produce smartphones

question

What do economists mean by market equilibrium?

answer

A market outcome where quantity supplied is equal to quantity demanded.

question

What can cause a surplus?

answer

Firms that have unsold goods piling up, the quantity supplied exceeds quantity demanded, and the market price is above the equilibrium price.

question

Shortage

answer

A situation in which the quantity demanded is greater than the quantity supplied.

question

When there is a shortage of a good

answer

consumers compete against one another by bidding the price upward. The process continues until the market is finally in equilibrium.

question

Market equilibrium

answer

A situation in which quantity demanded equals quantity supplied.

question

If a surplus exists in a market, we know that the actual price is

answer

above the equilibrium price, and the quantity supplied is greater than the quantity demanded.

question

If a shortage exists in a market, we know that the actual price is

answer

below the equilibrium price, and the quantity demanded is greater than the quantity supplied.

question

In a competitive market, firms can dictate what the equilibrium price of a good or a service will be.

answer

False

question

Marginal benefit is

answer

the additional benefit from consuming one more unit.

question

Why is the demand curve referred to as a marginal benefit curve?

answer

It shows the willingness of consumers to purchase a product at different prices.

question

Marginal cost is

answer

the additional cost of producing one more unit.

question

Why is the supply curve referred to as a marginal cost curve?

answer

It shows the willingness of firms to supply a product at different prices.

question

Consumer surplus is

answer

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

question

How does consumer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, consumer surplus

answer

decreases

question

How does consumer surplus change as the equilibrium price of a good rises or falls?
As the price of a good falls, consumer surplus

answer

increases

question

Producer surplus is

answer

the difference between the lowest price a firm would be willing to accept and the price it actually receives.

question

How does producer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, producer surplus

answer

increases

question

How does producer surplus change as the equilibrium price of a good rises or falls?
As the price of a good falls, producer surplus

answer

decreases

question

What is a trade-off?

answer

The idea that, because of scarcity, producing more of one good or service

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