Micro Exam Chapters 1 & 3
Terms in this set (42)
In a market system scarce goods are allocated through the operation of:
what must be sacrificed in using a resource for its next best use
Suppose a city block was going to be used for a parking lot. The opportunity cost would be:
greater in New York City because the alternative uses of the block are more valuable
A student will decide to attend class when:
the marginal benefit of attending exceeds the marginal cost of attending
What describes the concept of utility and economic behavior?
Satisfaction from consuming goods or services
Which of the following is not a key element of the scientific method?
1. Testing explanations
2. Determining the validity of explanations
3. Formulating explanations
4. Designing data
The scientific method is the technique used by economists to determine:
Which of the following represents a positive economic statement?
1. Taxes should not be increased since that will lower spending
2. The unemployment rate is too high
3. The unemployment rate is 4.8 percent
4. The government should extend unemployment benefits
Economic resources are the:
natural, human, and manufactured inputs used to produce goods and services
Economists classify resources as:
labor, land, real capital, and entrepreneurs
Why is money not considered to be a capital resource in economics?
Money is not considered a capital resource because money is not productive.
Why is entrepreneurial ability distinct from labor even though both are considered as a category of economic resource?
Because entreprenuerial ability is not directly engaged in production
What are the major functions of the entrepreneur?
Innovate, Take risks, and Make decisions
Specify the typical shapes of marginal-benefit and marginal-cost curves:
a) The marginal benefit curve is
b) The marginal cost curve is
c) With these curves, the optimal allocation of resources to a particular product will occur when
d) If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?
a) downward sloping
b) upward sloping
Studies indicate that married men on average earn more income than unmarried men of the same age and education level. From this statement, we can conclude that
there is a correlation, but marriage is not necessarily the cause of higher income for married men
a. The next-best thing that must be forgone in order to produce one more unit of a given product:
b. The pleasure, happiness, or satisfaction obtained from consuming a good or service:
c. The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity:
d. Making choices based on comparing marginal benefits with marginal costs:
a) Opportunity cost
d) Marignal analysis
a. The unemployment rate in the United States was 8.1 percent in August 2012:
c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise:
f. The consumer price index rose by 3.8 percent from August 2011 to August 2012:
How (if at all) do each of the following events affect the location of a country's production possibilities curve?
a. The quality of education increases
b. The number of unemployed workers increases:
c. A new technique improves the efficiency of extracting copper from ore:
d. A devastating earthquake destroys numerous production facilities
a). Curve shifts outward
b) No change
c) Curve shifts outward
d) Curve shifts inward
What are the two major ways in which an economy can grow and push out its production possibilities curve?
Increases in resource supplies and advances in technology
Potatoes cost Janice $1.00 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30.
a. How many pounds of potatoes will she purchase?
b. What if she only had $2.00 to spend?
a) 3 lbs.
b) 2 lbs.
Which statement is consistent with the law of demand?
1. A reduction in market price will lead to an increase in quantity demanded
2. An increase in market price will lead to an increase in quantity demanded.
3. A reduction in market price will lead to a decrease in quantity demanded.
4. At a zero price quantity demanded will be equal to zero
What characteristics lead to a downward-sloping demand curve?
An increase in purchasing power as market price decreases & Diminishing marginal utility
How is a market demand curve derived from individual demand curves?
Add up quantities demanded by all individual consumers for each price
What are the determinants of demand?
Income, Price of related goods, Tastes and preferences, & Number of consumers
Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve.
a. Change in market price:
b. Change in income:
c. Change in consumer expectations:
d. Change in the price of a related good:
e. Change in the price of an unrelated good:
f. Change in preferences for this good:
a) movement along the demand curve
b) shift in demand curve
c) shift in demand curve
d) shift in demand curve
e) no change
f) shift in demand curve
Which of the following characteristics leads to a upward-sloping supply curve?
Increasing opportunity costs & Increasing marginal costs
Which statement is consistent with the law of supply?
How do you derive a market supply curve from individual supply curves?
What are the determinants of supply?
Price of other goods, Technology, Resource prices, & Number of producers
Indicate whether a change in the value of each of the following determinants of supply leads to a movement along the supply curve or a shift in the supply curve.
a. Change in market price:
b. Change in factor productivity:
c. Change in producer expectations:
d. Change in the price of other goods:
e. Change in technology:
f. Change in resource prices:
g. Change in taxes:
a) Move along the supply curve
b) A shift in the supply curve
c) A shift in the supply curve
d) A shift in the supply curve
e) A shift in the supply curve
f) A shift in the supply curve
g) A shift in the supply curve
In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the following?
a. The supply of cattle hides
b. Hide prices
c. The supply of leather goods
d. The price of leather goods
For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm's shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock shares ever change?
Prices change in reaction to a mismatch between Qd and Qs
What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500?
a.Small automobiles become more fashionable
b. The price of large automobiles rises (with the price of small autos remaining the same)
c. Income declines and small autos are an inferior good
d. Consumers anticipate that the price of small autos will greatly come down in the near future
e. The price of gasoline substantially drops
True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.
What effect will each of the following have on the supply of auto tires?
a. A technological advance in the methods of producing tires
b. A decline in the number of firms in the tire industry
c. An increase in the prices of rubber used in the production of tires
d. The expectation that the equilibrium price of auto tires will be lower in the future than currently
e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires)
f. The levying of a per-unit tax on each auto tire sold
g. The granting of a 50-cent-per-unit subsidy for each auto tire produced
In which of these two statements are the terms "supply" and "demand" used correctly?
A. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand."
B. "The price of corn rises and falls in response to changes in supply and demand."
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be _________ of memory chips.
a. On a hot day, both the demand for lemonade and the supply of lemonade increase.
b. On a cold day, both the demand for ice cream and the supply of ice cream decrease.
c. When Hawaii's Mt. Kilauea erupts violently, the demand on the part of tourists for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases.
d. In a hot area of Arizona where they generate a lot of their electricity with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster.
A price ceiling will result in a shortage only if the ceiling price is ______ the equilibrium price.
a. Supply decreases and demand is constant.
b. Demand decreases and supply is constant.
c. Supply increases and demand is constant.
d. Demand increases and supply increases.
e. Demand increases and supply is constant.
f. Supply increases and demand decreases.
g. Demand increases and supply decreases.
h. Demand decreases and supply decreases.
a) Price: increases
b) Price: decreases
d) Price: indeterminate
e) Price: increases
f) Price: decreases
g) Price: increases
h) Price: indeterminate
Assume that demand for a commodity is represented by the equation:
P = 18 - 2Qd
Supply is represented by the equation
P = -2 + 2Qs
where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price.
a. Using the equilibrium condition Qs = Qd, determine equilibrium price
b. Now determine equilibrium quantity.
If the local government can enforce a rent-control law that sets the maximum monthly rent at $1,500, will there be a surplus or a shortage?
Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2,500 per month. If the government can enforce that price floor, will there be a surplus or a shortage?