Chapter 1 Intro Into Microeconomics

Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?

$200

In 2010, Smileytown consumed 50,000 tubes of toothpaste. In 2011, toothpaste consumption rose to 62,000 tubes. Calculate the percentage change in toothpaste consumption.

24%

________ occurs when economic benefits are distributed fairly

Equity

Which of the following is a normative economic statement?

Fashion designers should be allowed to copyright designs to promote innovation

Which of the following is motivated by an efficiency concern?

Following a six-month drought, a city banned homeowners from watering their lawns in an effort to conserve water

Which of the following is a microeconomics question?

How will Apple decide on a selling price for the iPad?

Which of the following statements is true?

The slope of the tangent at E is positive and the slope of the tangent at F is negative

Which of the following is a macroeconomics question?

What determines the unemployment rate?

The term "market" in economics refers to

a group of buyers and sellers of a product and the arrangement by which they come together to trade.

What does the term "marginal" mean in economics?

an additional or extra

Voluntary exchange increases economic efficiency

because neither the buyer nor the seller would agree to a trade unless they both benefit.

Economics is the study of the ________ people make to attain their goals, given their ________ resources.

choices; scarce

In a market economy, who decides what goods and services will be produced?

consumers and producers

There is often a trade-off between

economic efficiency and economic equity.

Allocative efficiency is achieved when

firms produce the goods and services that consumers value most.

What is an economic model?

it is a simplified version of some aspect of economic life used to analyze an economic issue

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called

macroeconomics.

Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production.

marginal benefit; marginal cost

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts." Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts?

marginal cost

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts."

marginal revenue

The branch of economics which studies how households and firms make choices, interact in markets and how the government attempts to influence their choices is called

microeconomics

If a straight line passes through the point x = 12 and y = 4 and also through the point x = 4 and y = 8, the slope of this line is

negative one half

Economists assume that

optimal decisions are made at the margin.

Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is her marginal benefit if she sells the quilt "as is" now?

$900

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Your roommate, Serafina, a psychology major, said, "The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone's human, and we all make mistakes." Do you agree with her comment?

I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits.

Which of the following is a positive economic statement?

If the price of gasoline rises, a smaller quantity of it will be bought.

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts." Had the firm not produced and sold the last 400 t-shirts, would its profit be higher or lower, and if so by how much?

Its profit will be $800 higher.

Which of the following contributes to the efficiency of markets?

Markets promote competition and voluntary exchange.

Which of the following statements is true about revenue?

Revenue is the total amount received for selling a good or service

Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What should she do?

She should purchase the period fabric, complete the task and then sell the quilt.

Which of the following is motivated by an equity concern?

Some U.S. colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need.

How are the fundamental economic decisions determined in Cuba?

The government decides because Cuba is a centrally planned economy

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.

allocative efficiency

Which of the following is part of an economic model?

assumptions

Competition among sellers generates

productive efficiency

When goods and services are produced at the lowest possible cost, ________ occurs.

productive efficiency

Economists assume that rational people

respond to economic incentives

Which of the following is an example of an activity undertaken by an entrepreneur?

starting your own snow cone business

The processes used to produce goods and services describes

technology

Human capital refers to

the accumulated skills and training workers have

Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?

the government, consumers and producers

Which of the following is counted as "capital" in economics?

the machines workers have to work with

Scarcity refers to the situation in which

unlimited wants exceed limited resources