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MS 2220 Exam 1

Study Guide for Exam 1

QuestionAnswer
The rate of economic growth is a topic of microeconomics False
the aggregate price level is a topic of macroeconomics True
Resources are unlimited in a wealthy society False, resources are ALWAYS limited
The value of the best alternative forgone is the opportunity cost True
Normative economics looks at outcomes of economic behavior and evaluates them as good or bad True
Positive economics looks at outcomes of economics behavior and evaluates them as good or bad. False
An efficient economy is one that produces what consumers demand and does so at the least possible cost. True
Ceteris partibus literally translated means, "buyer beware". False; all else equal
Positive economics seeks to understand behavior, but not make judgements True
Stability implies a steady rate of economic growth and low inflation True
The collection and use of data to test economic theories is called empirical economics True
In economics, the term capital only refers to some form of money False (outputs/what is used in production)
Among the resources used in production are labor and capital True
Things that have already been produced that are in turn used to produce other goods and services over time are called "capital" True
When two people trade, one must loose False
Economic growth shifts a society's production possibilities frontier away from the origin True (up and away)
A society's production possibility frontier is bowed in from the origin due to specialized resources True
The "economic problem" is that given scarce resources, how to large societies go about answering the basic economic questions of what will be produced, how will it be produced, and who will get it? True
Comparative advantage refers to the ability to produce at a lower opportunity cost than a competitor True
Comparative advantage refers to the ability to produce a better quality goods than a competitor False
the government produces only what the market will pay for False?
A laissez-faire economy is one in which people and firms pursue their own self-interest without any central regulation or direction True
A command economy is one in which a central government sets output targets, incomes, and prices True
A command economy eliminates markets True
Price is the coordinating mechanism in a planned economy True
the notion that buyers determine what will be produced by choosing what they purchase is called consumer soverignty True
Opportunity costs arise due to scarce resources True
Marginal cost refers to the incremental cost arising from a decision True
A market is considered efficient if profit opportunities remain continually available. False; instantaneously eliminated
Normative economics looks at outcomes of economic behavior and evaluates them as good or bad True
Economists would classify the Boston Symphony Orchestra as a firm. True
Households are the consuming units of the economy True
Entrepreneurs are unnecessary in a market economy, and their profit is unearned. False; they create new firms
Wealth is a flow measure False
A change in the price of a good or service leads to a change in quantity demanded of the good. True
Quantity demanded of a product is determined only by how much of that product consumers desire. False
What affects quantity demanded of a product? (6) Price of the product; income available; accumulated wealth; price of other products available; tastes and preferences; expectations of future income
Inferior goods are always substandard False
If iPods and iTunes are compliments, then a decrease in the price of iPods will result in a decrease in the demand for iTunes False (it would increase the demand for iTunes)
Positive economics looks at outcomes of economic behavior and evaluates them as good or bad False
An efficient economy is one that produces what consumers demand and does so at the least possible cost True
Ceteris paribus literally translated means, "buyer beware." False; all else equal
Positive economics seeks to understand behavior, but not make judgments True
Stability implies a steady rate of economic growth and low inflation. True
The collection and use of data to test economic theories is called empirical economics True
An increase in the wage rate of steel workers will reduce the supply of steel False
Quantity supplied is determined by how much producers are willing and able to produce. True
A decrease in demand for a product will cause the price of the product to fall and supply of the product to decrease True
A simultaneous decrease in both the supply of and the demand for silk boxer shorts would cause a decrease in the equilibrium quantity of silk boxer shorts. True
If price is above the equilibrium, then quantity supplied will be greater than quantity demanded, putting downward pressure on price. False; no tendency for price to change exists
A U.S. import fee on oil would reduce imports and raise the price of U.S. oil products. True
A U.S. import fee on oil would reduce the domestic quantity demanded of oil. True
A U.S. import fee on oil would reduce the domestic quantity of oil supplied. False
Consumer surplus is the difference between the most a person is willing to pay and market price. True
Consumer surplus describes a situation in which there is excess quantity supplied. False
If someone is willing to pay $500 to go to the Super Bowl but can buy a ticket for $300, they will get $200 in consumer surplus. True
A firm that sells a car for $30,000 gets producer surplus of $30,000. False
The total of consumer plus producer surplus is largest at the market equilibrium. True
The total of producer and consumer surplus is maximized when there is underproduction. False
Goods are allocated in a market system by price rationing. True
Nonprice rationing will happen whenever there is excess supply in a market. False; demand>supply
When supply is fixed, price is supply determined. False
With price rationing, those who are both able and willing to pay for a product get it. True
Queuing, or waiting in line, is an alternative rationing mechanism to price rationing True; nonprice rationing
A shortage is when there is an excess supply in a market False; that is surplus
In a "black market," goods are traded at market determined prices True
Favored customers receive special treatment from dealers during periods of excess demand. True; nonprice rationing
Ration coupons are tickets or coupons that give someone a right to purchase a certain amount of a product each time period such as a month. True; nonprice rationing
Created by: savelae
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