Econ 104 - Exam 1 - Dealing with Supply and Demand –
Q’s and A’s
What are the 2 facts that provide the basic foundation for the field of economics? - -1.
Unlimited Wants
2. Limited Economic Resources
-What are the 3 types of economic resources? - -1. Land/Natural Resources
2. Labor/Human Resources
3. Capital
-What is capital? - -- Tools and Machinery
- Buildings
- Transportation
-What is the definition of economics? - -Economics is the study of how to efficiently
allocate our limited resources toward producing goods and services.
-What are the two types of economies? - -1. Planned
2. Market
-What is a Planned Economy? - -An economy with some central dictators/planners to say
what will be produced. (Does not work well).
-What is a Market Economy? - -An economy that is still under dictatorship, but people
make choices as entrepreneurs.
-A Market Economy is also known as... - -a Free Market System
-Which type of economy is more ideal/more effective? - -Market Economy
-Name the 7 main economic problems we encounter in the process of resource allocation. -
-1. Unemployment
2. Inflation
3. Government Budget Deficit
4. Trade Deficit
5. Unfair Income Distribution
6. Monopoly
7. Environmental Pollution
-What constitutes unemployment? - -Must be 16 years old and actively looking for a job
-In inflation, do all prices rise? - -NO; some rise (food and gas) while some decline
(computers, technology)
,-Inflation is taken on... - -average price of buy
EX: a 3 credit course is weighted more in GPA than a 1 credit course
-How does government budget deficit arise? - -The government spends more money than
they take in
-All of the government budget deficits added up makes up the... - -National Debt
-What is trade deficit? - -We import more than we export
-What is the goal in solving unemployment? - -Full Employment
-What is the goal in solving inflation? - -Stable Prices
-What is the goal in solving government budget deficit? - -Balanced Budget
-What is the goal in solving trade deficit? - -Balanced Trade
-What is the goal in solving unfair income distribution? - -Fair Income Distribution
-What is the goal in solving monopolies? - -Many firms (perfect competition)
-What is the goal in solving environmental pollution? - -Less Pollution
-What is microeconomics? - -the study of an individual unit in the economy
-What is macroeconomics? - -the study of the economy as a whole
-What policy tool is put in place to solve unemployment? - -Government spending
-What policy tool is put in place to solve inflation? - -Taxes
-What policy tool is put in place to solve budget deficit? - -Interest Rates
-What policy tool is put in place to solve trade deficit? - -Exchange Rates
-The value of the dollar ________ when everyone is selling/exchanging money. - -DROPS
-What is a variable? - -a piece of information that takes on different values at different
times
-What is a model? - -one or more relationships among variables
-What is a macro theory? - -involves the construction of macro models that explain the
behavior of economic variables
, -What is the goal in establishing variables? - -To establish relationships between the
variables to make models
-What is the goal in establishing models? - -to establish relationship between these models
and synthesize them to create a macro theory
-Lower prices give consumer incentive to ____________. - -buy more.
-The slope of the demand curve is __________. - -negative.
-The slope of the supply curve is ___________. - -positive.
-What is equilibrium? - -Quantity Demanded = Quantity Supplied
-When Quantity Supplied>Quantity Demanded, the price ______ so that producers can
____________. - -drops; get rid of the surplus
-When Quantity Supplied<Quantity Demanded, the prices ______ because producers ________.
- -increases; can create competition in consumers to obtain the product.
-What is a support price program (subsidy program)? - -when the government buys
product from producers at a higher price than equilibrium to keep those producers making
their product
-What shift in the graph occurs in an increase in aggregate demand? - -a rightward shift in
the demand curve along the supply curve
-What causes an increase in aggregate demand? - -more people want more
goods/services; change in income; producers make more product and price rises
-What is inflation? - -a sustained increase in the average price level
-What is growth? - -an increase in total output (from Q1 to Q2)
-What is the growth rate? - -the percent increase in total output
-What causes a decrease in aggregate demand? - -less people want goods/service; change
in income; producers make less product and price drops
-What shift in the graph occurs in a decrease in aggregate demand? - -a leftward shift in
the demand curve along the supply curve
-What is a recession? - -a period of time during which the total output of an economy
declines
-How long should you wait to declare a recession? - -2 quarters
Q’s and A’s
What are the 2 facts that provide the basic foundation for the field of economics? - -1.
Unlimited Wants
2. Limited Economic Resources
-What are the 3 types of economic resources? - -1. Land/Natural Resources
2. Labor/Human Resources
3. Capital
-What is capital? - -- Tools and Machinery
- Buildings
- Transportation
-What is the definition of economics? - -Economics is the study of how to efficiently
allocate our limited resources toward producing goods and services.
-What are the two types of economies? - -1. Planned
2. Market
-What is a Planned Economy? - -An economy with some central dictators/planners to say
what will be produced. (Does not work well).
-What is a Market Economy? - -An economy that is still under dictatorship, but people
make choices as entrepreneurs.
-A Market Economy is also known as... - -a Free Market System
-Which type of economy is more ideal/more effective? - -Market Economy
-Name the 7 main economic problems we encounter in the process of resource allocation. -
-1. Unemployment
2. Inflation
3. Government Budget Deficit
4. Trade Deficit
5. Unfair Income Distribution
6. Monopoly
7. Environmental Pollution
-What constitutes unemployment? - -Must be 16 years old and actively looking for a job
-In inflation, do all prices rise? - -NO; some rise (food and gas) while some decline
(computers, technology)
,-Inflation is taken on... - -average price of buy
EX: a 3 credit course is weighted more in GPA than a 1 credit course
-How does government budget deficit arise? - -The government spends more money than
they take in
-All of the government budget deficits added up makes up the... - -National Debt
-What is trade deficit? - -We import more than we export
-What is the goal in solving unemployment? - -Full Employment
-What is the goal in solving inflation? - -Stable Prices
-What is the goal in solving government budget deficit? - -Balanced Budget
-What is the goal in solving trade deficit? - -Balanced Trade
-What is the goal in solving unfair income distribution? - -Fair Income Distribution
-What is the goal in solving monopolies? - -Many firms (perfect competition)
-What is the goal in solving environmental pollution? - -Less Pollution
-What is microeconomics? - -the study of an individual unit in the economy
-What is macroeconomics? - -the study of the economy as a whole
-What policy tool is put in place to solve unemployment? - -Government spending
-What policy tool is put in place to solve inflation? - -Taxes
-What policy tool is put in place to solve budget deficit? - -Interest Rates
-What policy tool is put in place to solve trade deficit? - -Exchange Rates
-The value of the dollar ________ when everyone is selling/exchanging money. - -DROPS
-What is a variable? - -a piece of information that takes on different values at different
times
-What is a model? - -one or more relationships among variables
-What is a macro theory? - -involves the construction of macro models that explain the
behavior of economic variables
, -What is the goal in establishing variables? - -To establish relationships between the
variables to make models
-What is the goal in establishing models? - -to establish relationship between these models
and synthesize them to create a macro theory
-Lower prices give consumer incentive to ____________. - -buy more.
-The slope of the demand curve is __________. - -negative.
-The slope of the supply curve is ___________. - -positive.
-What is equilibrium? - -Quantity Demanded = Quantity Supplied
-When Quantity Supplied>Quantity Demanded, the price ______ so that producers can
____________. - -drops; get rid of the surplus
-When Quantity Supplied<Quantity Demanded, the prices ______ because producers ________.
- -increases; can create competition in consumers to obtain the product.
-What is a support price program (subsidy program)? - -when the government buys
product from producers at a higher price than equilibrium to keep those producers making
their product
-What shift in the graph occurs in an increase in aggregate demand? - -a rightward shift in
the demand curve along the supply curve
-What causes an increase in aggregate demand? - -more people want more
goods/services; change in income; producers make more product and price rises
-What is inflation? - -a sustained increase in the average price level
-What is growth? - -an increase in total output (from Q1 to Q2)
-What is the growth rate? - -the percent increase in total output
-What causes a decrease in aggregate demand? - -less people want goods/service; change
in income; producers make less product and price drops
-What shift in the graph occurs in a decrease in aggregate demand? - -a leftward shift in
the demand curve along the supply curve
-What is a recession? - -a period of time during which the total output of an economy
declines
-How long should you wait to declare a recession? - -2 quarters
