Micro Econ
Alex has $18 per week in his entertainment budget. He splits his time between going to the movies and renting video games. Each movie costs $6 while each video game rental costs $3. The measured total utility of each of his activities is shown in the table below. What is Alex's utility maximizing point?
1 movie, 4 video game rentals
Kim has $23 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What's Kim's total utility maximizing point? That is, what combination of movies and yoga classes will maximize Kim's total utility?
1 movie, 5 yoga classes
If the government set a price ceiling of $40, there would be:
16 units sold
If you consume pasta every day of the week, its marginal utility is bound to ________ at the end of the week, ceteris paribus, and this demonstrates the law of _____
Decline; Diminishing Marginal Utility
If Pepsi goes on sale, what will happen to the demand for Coca-Cola?
Demand for Coca-Cola will decrease
Which of these statements best fits how a behavioral economist might view a situation?
If you find $100 on the street, you will be more likely to spend if freely than you would be to take $100 out of your bank account
Which of the following statements do economists believe about utility?
It is personal and subjective
How does a price floor set above the equilibrium price affect quantity demanded and quantity supplied?
It results in a greater quantity supplied than the quantity demanded, otherwise known as excess supply
Natural resources, or land, can include the fertility of the land, minerals below it, and what other aspects?
Livestock
Price ceilings attempt to make consumer prices ____
Lower
Economic capital is productive, so it does not include____
Money
Which of the following statements is/are reflecting decision-making on the margin?
One more day in this cottage will be nice, but how much will the cost of the rental rise? If we double the order to a dozen doughnuts, we will pay only twenty percent more
Which of the following events can shift the level of demand (demand is the relationship between price and quantity demanded)?
Population grows in a particular market area
Suppose there is a major technological advance in the production of a good that causes production costs to fall. If demand for the product is relatively inelastic, what will happen in the market?
Price will relatively decrease greater than the increase in quantity
Financial capital, like money, is simply a tool. Once financial capital is converted to economic capital (invested), it produces a resource that is
Productive
The distinguishing feature of economic capital (as opposed to financial capital, like money) is that it is
Productive
Behavioral economics applies insights from which other discipline in order to explain irrational consumer behavior?
Psychology
Price ceilings typically result in _____
Shortages
Identify the macroeconomic issue among the following statements.
The average cost of producing electricity nationally is rising
A restaurant chain sponsors a charity that provides for children with cancer to be treated with their parents present. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?
The money spent is worth the boost it gives to corporate image
Using the midpoints method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units
The price elasticity of demand for good X = 1.57
Identify the microeconomic topic(s) among the following
The price that a farmer asks for her watermelons
Suppose the local government is concerned about the health of local school children, and for that reason imposes a price ceiling of $3 on yogurt. Based on the graph below, which of the following is true?
The quantity demanded will be 5 yogurts. The quantity supplied will be 3 yogurts. There will be a shortage of 2 yogurts.
A rock star intentionally sets her ticket prices below what would be necessary to sell out her shows. How might this be justified by a manager whose goal is to maximize long-term profit?
The revenue sacrificed is worth the boost it gives to her image as lines form for tickets
The local government is concerned about poverty so it institutes a minimum wage of $9 per hour. If the demand and supply for labor are given in the graph above, there will be
a surplus of 6 workers
Supply and demand for bushels of wheat (millions) are shown in the following table. A $9.00 government mandated price floor would result in:
an excess supply of 2 million bushels of wheat
An increase in the quantity supplied can be the result from
an increase in price
According to the law of supply, assuming other factors are held constant
as the price of bread increases, the quantity of bread supplied will increase
Marginal utility can
be positive, negative, or zero
Due to limits on our time, money, and effort, we are best off when we allocate those things...
by constantly assessing the opportunity costs of our choices
Complete the following sentence: If people think that the price of televisions will decrease in the near future, that belief may cause a(n)
decrease in the demand for televisions today
Teenage workers are assumed to have ________ labor supply, therefore a 5% increase in wage would result in ________ percentage change in quantity of labor supplied
elastic, greater
A price ceiling creates ________ when it is set ________ the equilibrium price
excess demand -- below
Decreased competition due to fewer producers in a market will cause
higher prices due to an decrease in the quantity supplied at every price
A price floor attempts to keep prices ___
higher than the equilibrium price
A person who takes life-saving prescription drugs most likely has a(n) ________demand for that drug. Therefore an increase in the price of the drug will result in ________ total revenue for the drug company
inelastic; increased
The theory of rational behavior
is an assumption that economists make to have a useful model for how decisions are made
Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company's product at the current price is 1.4, what would you advise the company to do?
lower the price
Marginal cost is necessary to consider in a rational decision, and should be compared to
marginal benefit
When income increases and the demand for a good increases, the good is considered a
normal good
When certain assumptions are used to create a model of reality, its value can be tested and determined by
predicting outcomes
The downward slope of a demand curve illustrates the pattern that as ________ decreases, ________ increases
price : quantity demanded
The production possibilities model shows an inverse relationship between the amount of one thing that can be produced and the amount of something else because
production of different types will compete for limited resources
A supply curve is a graphical illustration of the relationship between price and
quantity supplied
The advantages that society gains through trade lie in the ability to
refine tasks associated with production
Refer to the figure below. If the government set a price ceiling at $10, there would be a(n):
shortage of 24 units
You are a lawyer representing a client who lost their $1 million home in a house fire. They are suing the home's architect as design flaws were a major cause of the fire. How large would the damages awarded by the court to your client need to be in order for them to be equally happy as they were before the fire?
some amount greater than $1 million
An Uber driver faces costs for driving that include sunk costs like insurance that contribute to the average cost per mile of $.50. Yet when a rider offers to pay less than that for a ride, the driver agrees because
sunk costs like auto insurance (in this case) do not increase as driving increases
If consumers find cola and iced tea good substitutes, then it is likely that
the goods' cross price elasticities are greater than zero
Suppose that there are only two types of output in North Korea: nuclear missiles and consumer goods. All else constant, as the nation produces more missiles
the greater is the opportunity cost of consumer wants satisfied. Every additional missile will reduce consumer goods production by more and more
When a 5% increase in income causes a 3% drop in quantity demanded of a good
the income elasticity is .6 and the good is an inferior good
Receiving less and less enjoyment from a second and then a third serving of ice cream is an example of ________
the law of diminishing returns
Scarcity is imposed on individual households in the form of
the prices of the goods that we may purchase. income (budget) limitations
You are the manager of a restaurant and would like to increase revenue. The host staff suggests that you should increase the price of drinks and food, but the servers suggest decreasing the price of drinks and food. You are unsure if you should increase or decrease price, but you know that
the servers thinks demand for drinks and food is elastic
Scarcity is a condition that is everywhere and always, since it is based upon two assumptions that reflect permanent universal conditions. The assumptions are that
the world has limited productive resources more output satisfies more wants
When quantity demanded decreases in response to a change in price
there is a movement from one point to another along the demand curve
The typical pattern revealed when consumers choose is that as the quantity consumed of some product rises,
total utility rises, but marginal utility falls
The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a
zero monetary cost but a $1000 per month opportunity cost