Supply and Demand
What is the point of intersection between the supply and demand curve called?
Market Equilibrium
What is a fiscal policy that would decrease unemployment?
One of: increase government spending, decrease taxes, increase government transfers.
Profit is maximized when...
marginal revenue = marginal cost
What is the triangle shaped region on a monopoly graph called that represents the transactions not occurring due to the high price charged by monopolies?
Deadweight loss.
What is does a negative supply shock cause?
Stagflation
Why is demand downward sloping?
Law of demand. A greater number of consumers will possess a willingness to pay for a good that is higher than the price when the price decreases, leading to a higher quantity of the good being demanded.
What is the rate at which banks lend reserves to each other overnight as well as the target interest rate set by the fed.
federal funds rate
The allocatively efficient quantity is reached when...
price = average total cost
Natural monopoly.
What will be the total effect on real GDP if the government cuts taxes by $1 billion dollars and the marginal propensity to consume is 0.25.
Increase by $3 billion
What happens to the price of shirts when cotton, an input for shirts, becomes more expensive.
Supply for shirts shifts left. Price increases.
What is the effect on the aggregate demand from an open market purchase of government bonds by the central bank?
Increase.
What is the name for a firm who cannot influence the market price?
Price Taker
How much consumer surplus is present for a firm who perfectly price discriminates (charges each customer their willingness to pay).
None.
Will a European tourist touring the United States benefit from a depreciation of the Euro relative to the US Dollar?
No.
A widespread trend has broken out on social media where people attempt to make fancy designs in their coffee. What result will the trend have on the price of energy drinks, a substitute for coffee grounds?
Increase
Demand for coffee grounds increased, price of coffee grounds increases, demand for energy drinks as a substitute increases, price of energy drinks increases.
What will happen to investment spending as a result of an increase in government spending.
Decrease. Government borrows more to finance spending, demand for loanable funds shifts right, real interest rate increases, spending decreases.
What should a firm in a perfectly competitive market do in the short run if the market price falls below the firm's average variable cost.
Shut down.
Why are monopolies bad for the economy and need to be regulated?
They do not produce at the allocatively efficient quantity, charging a price higher than their average total cost and preventing some mutually beneficial transactions from occurring.
What is the fundamental problem that economics addresses?
The fundamental problem of scarcity, where human wants exceed available resources.
Amidst diminishing market share, Converse decides to stop making basketball shoes and focus on casual footwear. Simultaneously, in an attempt to expand the game to the younger generation, the NBA decides to give superstar players bonuses to visit local schools in cities their games are in and teach the kids about basketball. How will the price and quantity in the market for basketball shoes change as a result?
Price increases, quantity is indeterminate.
(Supply decreases while demand increases)
automatic stabilizers.
What are the conditions that must be true for perfect competition to exist. (name 3 of the 4)
1. Many buyers and sellers
2. Free entry and exit
3. Identical products
4. Widespread information availability
Why is marginal revenue steeper and less than demand for a monopoly?
Price Effect. Each time the monopoly wants to sell more of a good, they must lower their price, and eventually the additional money gained from producing an additional good is overshadowed by the money lost from cutting the price of the rest of the goods being sold.
If Joey's mom deposits Joey's $1000 dollars in his piggy bank into a deposit account, what is the total change in the money supply if the required reserve ratio is 10%.
$9000 increase