ECON 111 Principles of Macroeconomics Exam 1 Questions with Answers.

ECON 111: Principles of Macroeconomics Exam 1 Questions with Answers Economics - Correct Answers: the social science dealing with the allocation of scarce resources to meet unlimited wants; science of constrained choice Social Science - Correct Answers: a science dealing with human behavior Allocation - Correct Answers: distribution, assigning 4 - Correct Answers: How many factors of production are there? Factors of Production - Correct Answers: 1.Land 2. Labor 3. Capital 4. Entrepreneurial Ability Land - Correct Answers: all natural resources (air, minerals, etc.) Labor - Correct Answers: all mental and physical human effort; This includes human capital Capital - Correct Answers: tools, equipment, and machinery (includes building) used in production process; NOT money ex: power drill, conveyor belt, etc. Entrepreneurial Ability - Correct Answers: individual or group of individuals that takes the risk and pulls together all of the factors of production Depreciation - Correct Answers: tools, equipment, and machinery falling or breaking apart Factors of Production - Correct Answers: used to produce goods and services The Economic Problem - Correct Answers: Unlimited wants; Human beings have an insatiable desire for goods and services; Scarce resources and unlimited wants (problem) Scarcity - Correct Answers: this requires choice Choice - Correct Answers: When you make this something must be given up Opportunity Cost - Correct Answers: the most important thing you give up when a choice is made; next best alternative; second choice; this concept explains or behavior and decision making Model - Correct Answers: simplification of reality Ceteris Paribus - Correct Answers: other things remaining equal; all other things remaining constant Production Possibilities - Correct Answers: model that shows production possibilities Assumptions for production possibilities - Correct Answers: 1. Two-good economy 2. Resources are efficiently utilized (no idle or unemployed) 3. Technology and resources are fixed Factors of Production - Correct Answers: these are designed as factors of production Opportunity Cost - Correct Answers: will always be stated in the terms of the good you are giving up Law of Increasing Cost - Correct Answers: As production of a good increases, the opportunity cost in terms of the other good given will increase; explains why the PPC is concave to the origin Why is the law of increasing cost correct? - Correct Answers: Resources are specialized and not perfectly adaptable among uses In PPC the best place to operate - Correct Answers: On the curve Three Fundamental Questions (questions all economic systems must answer) - Correct Answers: 1. What? (what goods and services will be produced) 2. How? (how will they produced) -By the businesses that can do so efficiently and make profit 3. Who? (who will get those services) -Those who are willing and able to pay Dollar Votes - Correct Answers: says when you continually buy something, you are casting a vote Consumer Sovereignty - Correct Answers: says the consumer is in charge Growth - Correct Answers: All systems must accommodate change and promote ____ Capitalism or Market Economy - Correct Answers: What kind of Economic System do we have? Market - Correct Answers: any place or mechanism that brings togethers buyers and sellers Market System - Correct Answers: allocates scarce resources through the interaction buyers and sellers Mixed Market System - Correct Answers: A little help from the government; government is responsible for much less than people think Three Economic Systems - Correct Answers: 1. Market System 2. Command or Planned Economy 3. Tradition and Custom Command or Planned Economy - Correct Answers: Main issue with this: how can you make people want to work? Tradition and Custom - Correct Answers: says you allocate resources the way they always have been Capitalist Ideology - Correct Answers: 1. System of free markets and prices 2. Role of private properties and property rights- powerful incentives 3. LIMITED role of government -provide legal and social framework and enforce property rights 4. Role of self interest as a motivating factor 5. Competition- lots of firms producing similar products Laissez Faire - Correct Answers: Let businesses be Wealth of Nations - Correct Answers: By Adam Smith; argued the wealth of nations is to be found in the productivity and output of the factors of production Guiding or invisible hand - Correct Answers: the hand that allocates resources(self-interest) proposed by Adam Smith Self-Interest - Correct Answers: the idea we can count on people doing what is best for them Adam Smith - Correct Answers: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest Benevolence - Correct Answers: generosity Circular Flow Model - Correct Answers: an overview of the macro economy; also called the circular flow of output and income Households and Businesses - Correct Answers: two main participants in the circular flow model Private sector - Correct Answers: made up by the the two participants of the circular flow model (households and businesses) Government - Correct Answers: another name for private sector and is missing from the circular flow model Factor Payments - Correct Answers: Rent, wages, interest, normal profit; used to lure resources from alternative use Factor Payment - Correct Answers: Every factor of production has a Rent - Correct Answers: factor payment for land Wages - Correct Answers: factor payment for labor Interest - Correct Answers: factor payment for capital Normal Profit - Correct Answers: factor payment for entrepreneurial ability Normal Profit - Correct Answers: costs of production; the minimum amount it takes to keep the entrepreneur in business Resources/Factors of Production - Correct Answers: provided by households to businesses Firms - Correct Answers: these receive the costs of factor payments Pure Economic Profit - Correct Answers: TR-TC= Breaking Even - Correct Answers: When TR-TC=0 Total Revenue - Correct Answers: Price x Quantity Total Costs - Correct Answers: All of the costs of production INCLUDING normal profit Private Property - Correct Answers: resources that are privately owned by households Money and Real - Correct Answers: two different flows in the circular flow model Money Flow - Correct Answers: inside flow of the circular flow model; includes factor payments and consumer expenditures Real Flow - Correct Answers: outside flow of the circular flow model; includes factors of production and goods and services Resource and Product - Correct Answers: two different markets illustrated in the circular flow model Resource Market - Correct Answers: top part of the circular flow model Product Market - Correct Answers: bottom part of the circular flow model; households are demanding goods and services and businesses are supplying them Macroeconomics - Correct Answers: study of economics by looking at the entire economy -economic aggregates -big picture -total output- inflation and the price level Microeconomics - Correct Answers: study of economics to look at individual units- one price, firm or industry Market Economy - Correct Answers: economy that makes the decisions about what and how to produce as well as who gets the stuff through interaction of buyers and sellers Incentives in a Market Economy - Correct Answers: earn profit, high wages, and own property Price in a product market - Correct Answers: determined by the interaction of the supply decisions of competing businesses and the demand decisions of competing households Price in a resource market - Correct Answers: determined by the interaction of the supply decisions of competing households and the demand decisions of competing businesses Demand Schedule - Correct Answers: a schedule that shows the quantity of a good consumers are willing and able to purchase at various prices out of a set of all possible prices, over a specified period of time Demand Schedule - Correct Answers: shows the relationship between the price and quantity demanded (they have an inverse relationship) Law of Demand - Correct Answers: states there will ALWAYS be an inverse or negative relationship between quantity demanded and price Change in demand - Correct Answers: a movement along the entire curve, NOT a slide along a given, stable curve Change in quantity demanded - Correct Answers: reflects a move/slide alongside a demand curve as the price changes---ceteris paribus Rightward Shift - Correct Answers: an increase in demand -means more will be demanded at all possible prices Leftward Shift - Correct Answers: a decrease in demand- means less will be demanded at all possible prices