MICRO-ECON EXAM 1

when an economy produces more houses and fewer typewrites, it is answering the _____ part of one of the two big economic questions.

"what"

elasticity of supply equals _____ if the supply curve is vertical.

0

suppose the quantity of gasoline is measured in gallons and the price of gasoline is measured in dollars. The price elasticity of demand is 0.67. if the price of gasoline was now measured in cents rather than dollars, the price elasticity of demand would now be

0.67.

if a 5 percent increase in the price results in a 9 percent increase in quantity supplied, the elasticity of supply is

1.80

along a straight line, when x equals 90, then y equals 30. when x equals 120, then y equal 40. the slope of the straight line is

1/3

Jed had an exam score of 50 percentage points. There is an extra credit assignment that Jed can complete that will raise his exam score by 20 percentage points. Jed has determined that the extra credit assignment will take 10 hours of his time. Jed will complete the assignment if he values the

20 percentage points more than the 10 hours of his time

For Product X, the income elasticity of demand is -2.26. Which of the following is therefore definitely TRUE?

Product X is an inferior good.

When income increases, the demand curve for X shifts rightward and the demand curve for Y shifts leftward. These shifts mean that

X is a normal good and Y is an inferior good

If demand is price elastic,

a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1 percent.

The demand for movies is unit elastic if

a 5 percent increase in the price leads to a 5 percent decrease in the quantity demanded.

the price of cereal rises. As a result, people have cereal for breakfast on fewer days and eat eggs instead. This behavior is an example of

a decrease in the quantity demanded of cereal because of the substitution effect.

blank DVDs and prerecorded DVDs are substitutes in production. An increase in the price of a bank DVD will lead to

a decrease in the supply of prerecorded DVDs

false

a good with a straight line, downward sloping demand curve has a demand whose elasticity is constant

which of the following results in a movement along the supply curve of spinach but does not shift the supply curve of spinach?

a rise in the price of spinach

Which of the following questions is a macroeconomic issue? a. What is the future growth prospect for an economy? b. How many more pounds of cookies will a consumer purchase if the price of cookies decreases?c. What effect would a cure for Mad Cow Disease have on the market for beef? d. How many workers should the owner of a business hire?

a. what is the future growth prospect for an economy?

A positive statement is

about what is

because we face scarcity, every choice involves

an opportunity cost

marginal benefit is the

benefit that a person receives from consuming one more unit or a good service

which of the following is NOT true concerning a society's production possibilities frontier (PPF)? a) it reveals the maximum amount of any two goods that can be produced from a given quality of resources b) production efficiency occurs when production is on the frontier itself c) consumers will receive equal benefits from the two goods illustrated in the PPF d) tradeoffs occur when moving along a PPF

c) consumers will receive equal benefits from to goods illustrated in the PPF

You have the choice of going on vacation to Florida for one week, staying at work for the week, or spending the week doing fix-up projects around your house. If you decide to go to Florida, the opportunity cost of the trip is a. working, because you would be giving up income. b. working and doing fix-up projects c. working or doing fix-up projects, depending on which you would have done otherwise d. nothing because you will enjoy the trip to Florida.

c. working or doing fix-up projects, depending on which you would have done otherwise.

the slope of a line equals the

change in the variable measure along the y-axis divided by the change in the variable measured along the x-axis.

markets

coordinate price information between buyers and sellers; facilitate trade; allow traders to enjoy gains from trade

marginal cost is the

cost of an increase in an activity

Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is ________.

cross; negative

which of the following is an example of a microeconomic decision a. an individual deciding how to allocate the time he or she has for work and leisure b. a multinational company deciding where to relocate its world headquarter c. a small shoe factory deciding how much leather to purchase for the next quarter's production need d. All of the above answers are correct.

d. all of the above

Which of the following is an example of a positive statement? a. Business firms ought to contribute more to charities. b. The foreign sector should be more tightly controlled. c. Government should not redistribute income. d. Households are the primary source of saving.

d. households are the primary source of saving

Which of the following is NOT a factor of production? a. the effort of farmers raising cattle. b. the water used to cool a nuclear power plant. c. the management skill of a small business owner. d. the wages paid to workers.

d. the wages paid to workers

when moving along the production possibilities frontier, opportunity cost is measured as the

decrease in the quantity produced of one good divided by the increase in the quantity produced of another good.

Demands differ from wants because

demands reflect a decision about which wants to satisfy and a plan to buy the good, while wants are unlimited and involve no specific plan to acquire the good

the production possibilities frontier

depicts the boundary between those combinations of goods and services that can be produced and those that cannot given resources and the current state of technology.

if a large change in the variable measured on the x-axis is associated with a small change of the variable measured on the y-axis, the line is _______ and the slope is _______.

either a downward or upward-sloping; small

Dan sells newspapers. Dan says that a 4 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 8 percent. According to Dan, the demand for newspapers is ________.

elastic

the price of a DVD rental is $1.50 and the price of a downloaded movie is $1.00. If the price of a DVD rental increases by $0.50, the relative price of a downloaded movie

falls

When the demand for a good decreases, its equilibrium price ________ and equilibrium quantity ________.

falls; decreases

in good markets _______ and in factor markets ________.

firms sell to households; households sell to firms.

When Sam's annual income was only $15,000, he purchased 50 pounds of bananas a year. When his income rose to $18,000, he purchased 55 pounds a year. Therefore,

for Sam, bananas are a normal good

marginal benefit is the benefit ________ one more unit of the good and _______ of the good increases.

from consuming; decreases as consumption

Because of increasing marginal cost, most supply curves

have a positive slope

NOT one of the factors that influences the supply of a product

income

as residents of developing countries increase their chocolate consumption, the increased production of cocoa results in

increased opportunity cost of cocoa production

a normal good is a good for which demand

increases when income increases

suppose company A's profits increase by $10 million and nobody is made worse off. The CEO of Company A keeps all $10 million for herself. This situation

is definitely efficient

A good with a vertical demand curve has a demand with

is equal to 0.

a marginal cost curve

is upward sloping; shows that as more of a good is produced, opportunity costs of producing another unit increase.

scarcity requires that people must

make choices

as a person consumes more of a good, the

marginal benefit decreases

studying the effects choices have on the individual markets within the economy is part of

microeconomics

the analysis of the behavior of individual decision-making units is the definition of

microeconomics

in broad terms, the differences between microeconomics and macroeconomics is that

microeconomics studies decisions of individual people and firms and macroeconomics studies the entire national economy

the "law of supply" states that, other things remaining the same, firms produce

more of a good the higher its price

the "law of demand" is illustrated by a

movement along the demand curve

If the price of a CD is equal to the equilibrium price, there will be ________ of CDs and the price will ________.

neither a hostage nor surplus; not change

statements about what ought to be are called

normative statements

marginal cost is the ______ one more unit of a good and _____ of the good increases

opportunity cost of producing; increases as production

scarcity is

our inability to satisfy all our wants

Most students attending college pay tuition and are unable to hold a full-time job. For these students, tuition is

part of the opportunity cost of going to college. so are their forgone earnings from not holding a full-time job

the price elasticity of demand is defined as the magnitude of the

percentage change in the quantity demanded divided by the percentage change in price

the price elasticity of demand is equal to the ____ in the ____divided by the_____in the______.

percentage change; quantity demanded; percentage change; price

Marvin loves chocolate truffles. As the price of a chocolate truffle increases from $1 to $2 to $3, Marvin continues to buy a dozen chocolate truffles every week. Marvin's demand for chocolate truffles is ________.

perfectly inelastic

blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is

positive

the income elasticity of demand is

positive for a normal good and negative for an inferior good

suppose the price of hamburgers increases from $2 to $3 each. The degree to which quantity demanded responds to this price increase depends on the

price elasticity of demand

Producers' total revenue will decrease if

price rises and demand is elastic

the quantity supplied of a good or service is the amount that

producers plan to sell during a given time period at a given price

Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is _______ his production possibilities frontier.

producing on

the social arrangements that govern the ownership, use, and disposal of proper are referred to as

property rights

the elasticity of supply measures the sensitivity of

quantity supplied to a change in price

a relative price is the

ratio of one money price to another

the opportunity cost of hot dogs in terms of hamburgers is the

ratio of the money price of a hot dog to the money price of a hamburger

a scatter diagram shows the

relationship between two variables

If the price of a hot dog is $2 and the price of a hamburger is $4, then the

relative price of a hot dog is 1/2 of a hamburger per hot dog

Using a production possibilities frontier, economic growth is illustrated by a

rightward shift of the curve

the quantity of shoes produced is measured along the horizontal axis of a PPF and the quantity of shirts is measured along the vertical axis. As you move down toward the right along PPF, the marginal cost of

shoes increases

if a 1 percent decrease in the price of a pound of squash results in a larger percentage decreases in the quantity supplied

supply is elastic

On most days the price of a rose is $1 and 80 roses are purchased. On Valentine's Day the demand increases so that the price of a rose rises to $2 and 320 roses are purchased. Therefore, the price elasticity of

supply of roses is about 1.8

If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 12,000 per year, there is a ________ in the market and the price will ________.

surplus; fall

the production possibilities frontier shifts as

technology changes

marginal benefit is the benefit

that arises from an increase in an activity.

in part, microeconomics is concerned with the study of

the effect government regulation has on the price of a product.

a production possibilities frontier figure does not illustrate

the exchange of one good or service for another

if there is a direct relationship between two variables

the graph of the relationship will be upward-sloping.

When the price of a pizza decreases from $14 to $12

the income effect points out that the total purchasing power of people who buy pizza increases.

which of the following increases the demand for a normal good?

the price of a good is expected to increase in the future

the income elasticity of demand is the percentage change in ______ divided by the percentage change in _____.

the quantity demanded; income

on the vertical axis, the production possibilities frontier shows _____: on the horizontal axis, the production possibilities frontier shows ______.

the quantity of one good; the quantity of another good

the marketing people at Ben and Jerry's Ice Cream Company believe that if they lower the price of their Cherry Garcia flavor by 25 percent, the quantity demanded will increase by 5 percent. If the are correct in their belief, then

their revenue from Cherry Garcia will decrease if they lower the price

When a market is in equilibrium

there is no shortage and no surplus at the equilibrium price

if an increase in price results in no change in total revenue, the demand must be

unit elastic

on the horizontal axis of a graph, generally

values increase from left to right/values can be negative and or positive

all economics questions arise because we

want more than we can get

Scarcity guarantees that

wants will exceed demands.