Econ 302 - Exam 1 Review Questions With Verified Answers

What does the study of macroeconomics entail? - Answer The study of economy at the large scale level, examining total output, the price level, and other aggregate measures in the economy. (Think macro as the forest and micro as the trees) What is the capital? What are some examples of capital? - Answer 1 out of 4 resources. The tools, machinery, infrastructure, and knowledge used to produce goods and services. Resources are: A) Relatively plentiful in all countries. B) Relatively evenly distributed in all countries. C) Relatively scare in all countries. D) Identical in all countries. - Answer C) Relatively scare in all countries. Attainable and unattainable in the PPC - Answer Attainable and efficient in the PPC is anything that falls on the PPC. Anything below the PPC is possible but inefficient and means the economy is working below capacity or under using resources. Anything unattainable or impossible in the PPC is outside of the PPC Opportunity Costs - Answer Equals what you give up to pursue something else. Law of Increasing Opportunity Cost - Answer Most productive resources are used first Increasing Marginal Cost means what? - Answer The more of a good or service produced the higher the marginal cost. As quantity goes up, each additional unit is more costly to create. And with more production you have to use less productive resources to create your good or service. MB_>_MC - Answer Do it! MB<MC - Answer Don't do it! Michelle wants to purchase a new phone. Michelle will purchase the phone if? - Answer The marginal benefit of the phone is greater than its marginal cost. The main significance of the equilibrium between marginable benefit and marginal cost it? - Answer A rational decision has been made A production possibilities frontier (PPF) illustrates what concept? - Answer Opportunity Cost Inferior Goods as they relate to changes in income: - Answer As income increases demand will fall and as income decreases, demand for inferior goods will rise. Examples of inferior goods would be rice, used clothing, canned food, top ramen. Changes in quanitity demanded vs changes in demand *** - Answer Increases in demand come from non price changes that increase the quanitity demanded at every price. Increases in quanitity demanded come from a lowering of the price. Decreases in demand come from nonprice changes that decrease the quantity demanded at every price. Decreases in quantity demanded come from a raising of the price. Non-price determinates of demand - Answer 1) Consumer Preferences/Tastes. [Seasonal Change-i.e.Fashion-Food Industry] 2) Price of Related Goods. [Substitutes/Compliments] 3) Real Income Changes/Purchasing Power. [Normal/Inferior Goods] 4) Expectations. [Making Decisions Based on Future Prices] 5) Population/# of Buyers. [Less Buyers=Decrease Demand. More buyers=Increase Demand]