Test bank for Principles of
Macroeconomics Revised Rationales
A+guarantee.
The concept of scarcity is derived from the fact that - ANSWERS available resources
are limited.
Which of the following trade-offs does the production possibilities frontier illustrate? -
ANSWERS A. If an economy wants to increase equality, then it must sacrifice efficiency
in production.
B. Once an economy has reached the efficient points on its production possibilities
frontier, the only way of getting more of one good is to get less of the other.
C. For Economy A to consume more of one good, it must completely give up consuming
the other good.
D. For Economy A to produce and consume goods, it must sacrifice equal distribution of
income.
When can two countries gain from trading two goods? - ANSWERS When one country
can produce a product at a lower opportunity cost than the other country, while the other
country can produce a different good at a lower opportunity cost than the first country.
Economics is the study of: - ANSWERS how society manages its scarce resources.
Budget Constraints - ANSWERS limits to the amount of money that is available to
spend.
A budget constraint can be written as a - ANSWERS line: Budget = (Good1$ x
QuantityOfGood1) + (Good2$ x QuantityOfGood2)
Production Possibilities Frontier (PPF) - ANSWERS A curve showing the maximum
attainable combinations of two products that may be produced with available resources
and current technology.
The law of diminishing returns - ANSWERS as additional increments of resources are
added to a certain purpose, the marginal benefit from those additional increments will
decline.
Productive Efficiency - ANSWERS means that there can by no more goods made
using the available resources and tools. This can be shown on any point on the PPF
curve.
, What are the 3 shifters of the PPC? - ANSWERS 1. change in resource quantity or
quality
2. change in technology
3. change in trade
Product market - ANSWERS anywhere were goods and services are sold
resource market - ANSWERS a market in which resources of production are sold from
households to businesses.
Transfer payments - ANSWERS government payments to businesses or households
designed to meet a specific objective
What are the 4 resources sold in the resource market? - ANSWERS land, labor,
capital, and entrepreneurship
What are the 4 kinds of income that households get from the resource market? -
ANSWERS Rent, Wages, Interest, and profit
Factor payments - ANSWERS the income people receive in return for supplying
factors of production
Physical capital - ANSWERS the human-made objects used to create other goods and
services
Human capital - ANSWERS the knowledge and skills a worker gains through
education and experience
Comparative advantage - ANSWERS when one country can produce more of a good
for less than another country.
When does a country gain from trade? - ANSWERS When they can get a resource for
a lower opportunity cost than if they made it.
Demand - ANSWERS The need or want for a buyer to have a good and having the
ability to pay for it.
Quantity demanded - ANSWERS the amount of a good that buyers are willing and
able to purchase
The law of demand - ANSWERS consumers buy more of a good when its price
decreases and less when its price increases.
Demand Schedule - ANSWERS a table that shows the quantity demanded at each
price of a good.
, Demand Curve - ANSWERS a graph that draws out the demand schedule for a good.
Supply - ANSWERS The amount of goods a seller is willing and able to sell and the
price they are willing to sell it at.
Supply Schedule - ANSWERS a table that shows the relationship between the price of
a good and the quantity supplied
Supply curve - ANSWERS A graph of the supply schedule for a good.
What are the different factors that can affect the demand curve? - ANSWERS Change
in income, change in the population that would buy, change in price of related items,
change in preference, or future expectations of the price of a product.
What are the different factors that can affect the supply curve? - ANSWERS Change in
price of inputs, change in production technology, change in number of sellers, future
expectations for that product, taxes and regulations, and natural conditions
Market equilibrium - ANSWERS where the supply and demand curves meet
What happens when Demand increases and supply decreases? - ANSWERS the
Price rises, but the quantity is ambiguous.
What happens when Supply increases and Demand decreases? - ANSWERS The
Price decreases, but the quantity is ambiguous.
What happens when both Supply and Demand increase? - ANSWERS The quantity
rises but the price is ambiguous.
What happens when both Supply and Demand decrease? - ANSWERS the quantity
falls, but the price is ambiguous.
Surplus - ANSWERS When the quantity supplied is more than quantity demanded
shortage - ANSWERS when quantity demanded is greater than quantity supplied.
ceteris paribus - ANSWERS other things being equal
consumer surplus - ANSWERS the extra benefit consumers receive from buying a
good or service, measured by what the individuals would have been willing to pay minus
the amount that they actually paid
deadweight loss - ANSWERS the loss in social surplus that occurs when a market
produces an inefficient quantity
Macroeconomics Revised Rationales
A+guarantee.
The concept of scarcity is derived from the fact that - ANSWERS available resources
are limited.
Which of the following trade-offs does the production possibilities frontier illustrate? -
ANSWERS A. If an economy wants to increase equality, then it must sacrifice efficiency
in production.
B. Once an economy has reached the efficient points on its production possibilities
frontier, the only way of getting more of one good is to get less of the other.
C. For Economy A to consume more of one good, it must completely give up consuming
the other good.
D. For Economy A to produce and consume goods, it must sacrifice equal distribution of
income.
When can two countries gain from trading two goods? - ANSWERS When one country
can produce a product at a lower opportunity cost than the other country, while the other
country can produce a different good at a lower opportunity cost than the first country.
Economics is the study of: - ANSWERS how society manages its scarce resources.
Budget Constraints - ANSWERS limits to the amount of money that is available to
spend.
A budget constraint can be written as a - ANSWERS line: Budget = (Good1$ x
QuantityOfGood1) + (Good2$ x QuantityOfGood2)
Production Possibilities Frontier (PPF) - ANSWERS A curve showing the maximum
attainable combinations of two products that may be produced with available resources
and current technology.
The law of diminishing returns - ANSWERS as additional increments of resources are
added to a certain purpose, the marginal benefit from those additional increments will
decline.
Productive Efficiency - ANSWERS means that there can by no more goods made
using the available resources and tools. This can be shown on any point on the PPF
curve.
, What are the 3 shifters of the PPC? - ANSWERS 1. change in resource quantity or
quality
2. change in technology
3. change in trade
Product market - ANSWERS anywhere were goods and services are sold
resource market - ANSWERS a market in which resources of production are sold from
households to businesses.
Transfer payments - ANSWERS government payments to businesses or households
designed to meet a specific objective
What are the 4 resources sold in the resource market? - ANSWERS land, labor,
capital, and entrepreneurship
What are the 4 kinds of income that households get from the resource market? -
ANSWERS Rent, Wages, Interest, and profit
Factor payments - ANSWERS the income people receive in return for supplying
factors of production
Physical capital - ANSWERS the human-made objects used to create other goods and
services
Human capital - ANSWERS the knowledge and skills a worker gains through
education and experience
Comparative advantage - ANSWERS when one country can produce more of a good
for less than another country.
When does a country gain from trade? - ANSWERS When they can get a resource for
a lower opportunity cost than if they made it.
Demand - ANSWERS The need or want for a buyer to have a good and having the
ability to pay for it.
Quantity demanded - ANSWERS the amount of a good that buyers are willing and
able to purchase
The law of demand - ANSWERS consumers buy more of a good when its price
decreases and less when its price increases.
Demand Schedule - ANSWERS a table that shows the quantity demanded at each
price of a good.
, Demand Curve - ANSWERS a graph that draws out the demand schedule for a good.
Supply - ANSWERS The amount of goods a seller is willing and able to sell and the
price they are willing to sell it at.
Supply Schedule - ANSWERS a table that shows the relationship between the price of
a good and the quantity supplied
Supply curve - ANSWERS A graph of the supply schedule for a good.
What are the different factors that can affect the demand curve? - ANSWERS Change
in income, change in the population that would buy, change in price of related items,
change in preference, or future expectations of the price of a product.
What are the different factors that can affect the supply curve? - ANSWERS Change in
price of inputs, change in production technology, change in number of sellers, future
expectations for that product, taxes and regulations, and natural conditions
Market equilibrium - ANSWERS where the supply and demand curves meet
What happens when Demand increases and supply decreases? - ANSWERS the
Price rises, but the quantity is ambiguous.
What happens when Supply increases and Demand decreases? - ANSWERS The
Price decreases, but the quantity is ambiguous.
What happens when both Supply and Demand increase? - ANSWERS The quantity
rises but the price is ambiguous.
What happens when both Supply and Demand decrease? - ANSWERS the quantity
falls, but the price is ambiguous.
Surplus - ANSWERS When the quantity supplied is more than quantity demanded
shortage - ANSWERS when quantity demanded is greater than quantity supplied.
ceteris paribus - ANSWERS other things being equal
consumer surplus - ANSWERS the extra benefit consumers receive from buying a
good or service, measured by what the individuals would have been willing to pay minus
the amount that they actually paid
deadweight loss - ANSWERS the loss in social surplus that occurs when a market
produces an inefficient quantity
