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1.1 What economics is and why it's important Read Online
1.2 Microeconomics and macroeconomics Read Online
1.3 How economists use theories and models to understand economic issues Read Online
1.4 How economies can be organized: an overview of economic systems Read Online
To post or not to post? Every day we are faced with a myriad of decisions, from what to have for breakfast, to which route to take to class, to the more complex—“Should I double major and add possibly another semester of study to my education?” Our response to these choices depends on the information we have available at any given moment; information economists call “imperfect” because we rarely have all the data we need to make perfect decisions. Despite the lack of perfect information, we still make hundreds of decisions a day.
And now, we have another avenue in which to gather information—social media. Outlets like Facebook and Twitter are altering the process by which we make choices, how we spend our time, which movies we see, which products we buy, and more. How many of you chose a university without checking out its Facebook page or Twitter stream first for information and feedback?
As you will see in this course, what happens in economics is affected by how well and how fast information is disseminated through a society, such as how quickly information travels through Facebook. “Economists love nothing better than when deep and liquid markets operate under conditions of perfect information,” says Jessica Irvine, National Economics Editor for News Corp Australia.
This leads us to the topic of this chapter, an introduction to the world of making decisions, processing information, and understanding behavior in markets —the world of economics. Each chapter in this book will start with a discussion about current (or sometimes past) events and revisit it at chapter’s end—to “bring home” the concepts in play.
In this chapter, you will learn about:
What is economics and why should you spend your time learning it? After all, there are other disciplines you could be studying, and other ways you could be spending your time. As the Bring it Home feature just mentioned, making choices is at the heart of what economists study, and your decision to take this course is as much as economic decision as anything else.
Economics is probably not what you think. It is not primarily about money or finance. It is not primarily about business. It is not mathematics. What is it then? It is both a subject area and a way of viewing the world.
4.1 Demand and Supply at Work in Labor Markets
4.2 Demand and Supply in Financial Markets
4.3 The Market System as an Efficient Mechanism for Information
Download MCQ Flashcards PDF eBook
Question: Select the correct answer. A price floor will usually shift: Illustrate your answer with a diagram.
Choices:
demand
supply
both
neither
Question: In the financial market, what causes a movement along the demand curve? What causes a shift in the demand curve?
Choices:
Changes in the interest rate (i.e., the price of financial capital) cause a movement along the demand curve. A change in anything else (non-price variable) that affects demand for financial capital (e.g., changes in confidence about the future, changes in needs for borrowing) would shift the demand curve.
Question: Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?
Choices:
Since a living wage is a suggested minimum wage, it acts like a price floor (assuming, of course, that it is followed). If the living wage is binding, it will cause an excess supply of labor at that wage rate.
Question: Which of the following changes in the financial market will lead to a decline in interest rates:
Choices:
a rise in demand
a fall in demand
a rise in supply
a fall in supply
Question: In the labor market, what causes a movement along the demand curve? What causes a shift in the demand curve?
Choices:
Changes in the wage rate (the price of labor) cause a movement along the demand curve. A change in anything else that affects demand for labor (e.g., changes in output, changes in the production process that use more or less labor, government regulation) causes a shift in the demand curve.
Question: A price ceiling will have the largest effect:
Choices:
substantially below the equilibrium price
slightly below the equilibrium price
substantially above the equilibrium price
slightly above the equilibrium price
Question: If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?
Choices:
If market interest rates stay in their normal range, an interest rate limit of 35% would not be binding. If the equilibrium interest rate rose above 35%, the interest rate would be capped at that rate, and the quantity of loans would be lower than the equilibrium quantity, causing a shortage of loans.
Question: Identify the most accurate statement. A price floor will have the largest effect if it is set:
Choices:
substantially above the equilibrium price
slightly above the equilibrium price
slightly below the equilibrium price
substantially below the equilibrium price
Question: In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve?
Choices:
Changes in the interest rate (i.e., the price of financial capital) cause a movement along the supply curve. A change in anything else that affects the supply of financial capital (a non-price variable) such as income or future needs would shift the supply curve.
Question: Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received:
Choices:
a rise in demand
a fall in demand
a rise in supply
a fall in supply
Question: In the labor market, what causes a movement along the supply curve? What causes a shift in the supply curve?
Choices:
Changes in the wage rate (the price of labor) cause a movement along the supply curve. A change in anything else that affects supply of labor (e.g., changes in how desirable the job is perceived to be, government policy to promote training in the field) causes a shift in the supply curve.
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