Intro. to Microeconomics Exam One

you are considering whether to knit a sweater for your mom's birthday. you estimate that the cost of the yarn and other materials will be $20. in addition, you estimate that it will take you about 30 hours to knit the sweater. given that you value your time at $5 per hour, what is the opportunity cost to you of knitting the sweater?

$170

suppose you are considering whether to spend an additional hour studying for your economics midterm tomorrow. if you do not study you can either surf the web, which you value at $5, or you can talk to your roommates, which you value at $4. your opportunity cost of studying for an additional hour is what?

$5

what factors will lead to an increase in demand for a good?

- a decrease in the price of a complement - an expectation of higher prices in the future

what factors will lead to a decrease in demand?

- a decrease in the price of a substitute - a decrease in the population of potential buyers

prozac and wellbutrin are both prescription medications to treat depression. if the price of prozac increase, then this should lead to...

- an increase in the price of wellbutrin - an increase in the number of people who use wellbutrin

the price elasticity of supply will tend to be higher when __________

- it's easy to find or produce inputs - the time horizon is longer

the introduction of rent controls could lead to what?

- lower rent for those who live in rent-controlled apartments - a decrease in the quantity of apartments available for rent

what will a seller's reservation price generally be equal to?

- the marginal cost of producing another unit of the good - the smallest dollar amount for which a seller would be willing to sell an additional unit

failure to achieve economic efficiency means that

- total economic surplus is not maximized - everyone in the economy could be made better off

suppose you need to buy a new cell phone charger. you can buy one at a nearby store for $10, or you can buy one online for $8.50, but it'll take 2 days to arrive. if the cost to you of waiting two days to get the charger is $1, then your economic surplus from buying the charger online instead of at the store is what?

50 cents

in what situations is the market equilibrium likely to be economically inefficient?

a market in which the production and consumption of the good entails a significant cost to others

a change in quantity demanded is represented by

a movement along the demand curve

a change in the quantity supplied is represented by

a movement along the supply curve

if your cousin gets a big raise at work, and as a result, goes out to eat more often, then this suggests that for your cousin, restaurant meals are __________

a normal good

a change in supply is represented by

a shift in the entire supply curve

increasing opportunity cost explains why production possibilities curves have __________

a slope that becomes steeper as production of the good on the x-axis increases

if it takes a person less time to perform a task than anyone else, then that person has a(n) __________ advantage in performing that task

absolute

economic efficiency occurs when

all goods and services are produced and consumed at their socially optimal levels

what's one factor that will lead to a decrease in supply?

an expectation of higher prices in the future

Two goods are complements if

an increase in the price of one good, leads to a decrease (leftward shift) in the demand for the other

the population of Latvia has declined by over 20% since the country's split from the Soviet Union. all else equal, a decline in population will lead to what?

an inward shift of the production possibilities curve - as population falls, a country's total output will fall

economists view scarcity as what?

an unavoidable fact of life

any combination of goods that can be produced using currently available resources is known as an __________ __________

attainable point

opportunity cost includes

both explicit and implicit costs

learning more about economic models does what?

can help us make better decisions even if most people don't consciously use economic models to make decisions

Amber takes 15 minutes to make a pot of coffee and 30 minutes to make a loaf of banana bread. Buzz takes 10 minutes to make a pot of coffee and 40 minutes to make a loaf of banana bread. So, Buzz has an absolute advantage over Amber in making what?

coffee

one person has a __________ advantage over another if his or her opportunity cost of performing a task is lower than the other person's opportunity cost

comparative

the __________-__________ principle states that an individual (or firm or a society) should only take action if, and only if, the extra benefits from taking the action are at least as great as the extra costs

cost-benefit

a schedule of graph showing the quantity of a good that buyers wish to buy at each price is known as a

demand curve

specialization tends to be greater when it's __________ for individuals to interact with one another in market settings

easy

the benefit of taking an action minus its cost is known as

economic surplus

__________ is the study of how people make choices under conditions of scarcity and the results of those choices for society as a whole

economics

any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of another good is known as an __________ point

efficient

the percentage change in quantity supplied that results from a 1% change in price is the what?

elasticity of supply

the scarcity principle applies to

everyone

all else equal, as population density increases, you would expect specialization to __________

increase

along a supply curve, if the price of butter increases, the quantity of butter supplied __________

increase - as price increases, quantity supplied increases

if undertaking an activity includes both explicit and implicit costs, then, according to the textbook, the opportunity cost of that activity:

is the sum of its explicit and implicit costs

the value of what must be foregone in order to undertake an activity is the __________ cost of that activity

opportunity

economic growth is represented by an __________ shift in a country's production possibilities curve (PPC)

outward

a new government policy that encourages investment in new factories and equipment is likely to cause an __________ shift in an economy's production possibilities curve

outward - an increase in an economy's productive resources will lead to an outward shift

if the price elasticity of demand is infinite, then demand is what?

perfectly elastic

a maximum allowable price specified by law is a __________

price ceiling

a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good is a

production possibilities curve (PPC)

in economics, a __________ individual is someone with well-defined goals who tries to fulfill those goals as best he or she can

rational

the __________ principle states that although we have boundless needs and wants, the resources available to use are limited, so having more of one good thing usually means having less of another

scarcity

a change in demand in represented by a

shift in the entire demand curve

if an increase in the price of one good causes an increase (rightward shift) in the demand for another good, then the two good are...

substitutes

if the demand for apartments decrease when house price falls, then this suggests that apartments and houses are __________

substitutes

suppose that as the price of movie tickets increases, people go to the movies less often and instead rent movies at home. the resulting reduction in the quantity of movies demanded is known as the __________ of a price change

substitution effect

a schedule of graph showing the quantity of a good that sellers wish to sell at each price is known as a

supply curve

economic __________ is the benefit of taking an action minus its cost

surplus

buyer's surplus

the difference between the buyer's reservation price and the price the buyer actually pays

what is the price elasticity of demand?

the percentage change in the quantity demanded of a good or service that results from a 1 % change in its price

the cross-price elasticity of demand is what?

the percentage change in the quantity demanded of one good in response to a 1% change in the price of another good

the socially optimal quantity is

the quantity of a good that maximizes the total economic surplus that results from producing and consuming the good

if demand is perfectly inelastic with respect to price, then the price elasticity of demand is __________

zero