Micro-Economics Chapter 1 & 2 review

resources are not generally equally efficient in producing every good.

A nation's production possibilities curve is bowed out from the origin because

the prices of both products and the budget allocated for both products are assumed to be constant.

Along a given budget line price of the product in the x-axis decreases as more of it is purchased the prices of both products and the budget allocated for both products are assumed to be constant. money income varies, but the prices of the two goods are constant. the prices of both products are assumed to vary, but money income is constant.

Market

An institution that brings buyers and sellers together:

increasing

As we produce more computers, opportunity costs are

yes

Assume now that a new technique, technique 4, is developed. It combines 2 units of labor, 2 of land, 6 of capital, and 3 of entrepreneurial ability. In view of the resource prices in the table, will the firm adopt the new technique?

A

Businesses:

E

Consumer expenditures:

C

Costs:

make simplifying assumptions.

Economic models make simplifying assumptions. include all available information. must use mathematical equations. attempt to duplicate the real world.

mutually agreeable

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off:

Yes

Evaluate this statement: "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Does your answer to part c, above, bear out this contention?

$16 billion

Follows a circular flow chart: Suppose that businesses buy a total of $130 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $72 billion in wages, $16 billion in rent, and $26 billion in interest, how much are households paid for providing entrepreneurial ability?

$130 billion

Follows a circular flow chart: If households spend $70 billion on goods and $60 billion on services, how much in revenues do businesses receive in the product market?

fewer

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. 11 units at which MC = $4 and MB = $3:

more

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. 3,000 units at which MC = $10 and MB = $13

Current number

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. 43,277 units at which MC = $99 and MB = $99:

fewer

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. 5 units at which MB < MC

more

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. 82 units at which MC < MB:

I & J

Goods and Services

B

Households:

Curve shifts inward

How (if at all) do each of the following events affects the location of a country's production possibilities curve? A devastating earthquake destroys numerous production facilities:

Curve shifts outward

How (if at all) do each of the following events affects the location of a country's production possibilities curve? A new technique improves the efficiency of extracting copper from ore:

No change

How (if at all) do each of the following events affects the location of a country's production possibilities curve? The number of unemployed workers increases:

Curve shifts outward

How (if at all) do each of the following events affects the location of a country's production possibilities curve? The quality of education increases:

Through changes in prices and profit

How will the system accommodate change?

what must be sacrificed in using a resource for its next-best use.

In a market system, the allocation of scarce goods involves the consideration of

3 pounds of potatoes

Janice really likes potatoes. Potatoes cost $1 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. How many pounds of potatoes will she purchase?

2 pounds of potatoes

Janice really likes potatoes. Potatoes cost $1 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. What if she only had $2 to spend?

1 pound of potatoes

Janice really likes potatoes. Potatoes cost $1.25 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. How many pounds of potatoes will she purchase?

1 pound of potatoes

Janice really likes potatoes. Potatoes cost $1.25 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. What if she only had $2 to spend?

very limited government role in the economy.

Laissez-faire capitalism is characterized by

H

Land, labor, capital, and entrepreneurial activity:

marginal analysis

Making choices based on comparing marginal benefits with marginal costs:

D

Money income:

The price of smartphones increased 2.8 percent last year.

One of the following is not a macroeconomic statement? The real domestic output increased by 1.6 percent last year. The general price level increased by 1.1 percent last year. Unemployment was 5.2 percent of the labor force last year. The price of smartphones increased 2.8 percent last year.

society should produce fewer shoes to achieve the optimal allocation of resources.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then

2, 4, 6, and 8 units of bread.

Refer to the diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is

AF.

Refer to the diagram. Technological advance that is useful in producing consumer goods but not in producing capital goods is shown by the shift of the production possibilities curve from AB to

is attainable with full employment of resources.

Refer to the diagram. The combination of computers and bicycles shown by point C

G

Resources:

F

Revenue:

The organic soap company

Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. If she does quit her current job, which opportunity would she pursue?

yes

Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. Should she quit her current job to become an entrepreneur?

greater in New York City because the alternative uses of the block are more valuable.

Suppose a city block was going to be used for a parking lot in both New York City and a small town. The opportunity cost would be

can buy 2 lattes or 5 muffins if she chooses to buy only one of the two goods.

Suppose that Sam receives a $10 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $5 and the price of a muffin is $2, then we can conclude that Julia can buy 2 lattes or 5 muffins if she chooses to buy only one of the two goods. should only buy lattes. should only buy muffins. can buy 2 lattes and 5 muffins with her $10 gift card.

technique 1

Suppose that an increase in the labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices remaining unchanged. Which technique will the producer now choose?

4 pens

Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:

Increase

Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? Your budget increases from $100 to $150 while the prices stay the same:

Decrease

Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? Your budget remains $100, the price of books remains $25, but the price of movie tickets rises to $20:

Increase

Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? Your budget remains $100, the price of movie tickets remains $10, but the price of a book falls to $15:

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

The assertion that "there is no free lunch" means that

freedom of enterprise

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice

freedom of choice

The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate:

opportunity cost

The next-best thing that must be forgone in order to produce one more unit of a given product

The tendency of competition to cause individuals and firms to unintentionally promote the interests of society.

The phrase "invisible hand" means that

Utility

The pleasure, happiness, or satisfaction obtained from consuming a good or service:

competition

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit:

private property

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property:

Economics

The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity:

Self-Interest

What each individual or firm believes is best for itself and seeks to obtain:

$370

What is the company's total cost?

$480

What is the company's total revenue?

5 dvds

What is the opportunity cost of computers when moving from point A to point B?

10 dvds

What is the opportunity cost of computers when moving from point B to point C?

25 dvds

What is the opportunity cost of computers when moving from point C to point D?

40 dvds

What is the opportunity cost of computers when moving from point D to point E?

$6

What will be the amount of that profit or loss?

Public ownership of all capital

Which of the following is NOT a characteristic of a laissez-faire system? Minimal government intervention Enforcement of contracts Protecting private property rights Public ownership of all capital

Economics is defined as a social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Which of the following is a good definition of economics?

computer programmer

Which of the following is a labor resource? silicon (sand) used to make computer chips a computer software used by a firm a computer programmer

The government ought to lower taxes so people have more money.

Which of the following represents a normative economic statement? Higher taxes will lower spending. The unemployment rate is higher than it was last year. The government ought to lower taxes so people have more money. The government will have a larger deficit if unemployment benefits are extended.

The unemployment rate is 4.8 percent.

Which of the following represents a positive economic statement? Taxes should not be increased since that will lower spending. The government should extend unemployment benefits. The unemployment rate is too high. The unemployment rate is 4.8 percent.

This technique represents the least-cost combination.

Why?

Profit

Will Production using that technique entail profit or loss?

Expand

Will the industry expand or contract?

$0

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. Calculate the amount of economic profit or loss.

no change explanation: If the firm is earning positive economic profit, other firms or individuals will want to produce banana bread. Thus, resources will flow toward this bakery good. If the firm is suffering from an economic loss, then resources would flow away from this bakery good, as firms or individuals would exit the market to avoid the loss. If economic profit equals zero, there will be no change, as no new firms will enter the market and no firms will exit.

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

$800

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. What is its total cost

$800

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. What is the firm's total revenue?

Yes explanation: explanation: If the firm is earning positive, including zero, economic profit, it will continue to produce banana bread. However, if the firm is losing money (suffering a loss because total cost exceeds total revenue), it will stop producing banana bread.

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. Will it continue to produce banana bread?

technique 2

With the resource prices shown, which technique will the firm choose?

price of C is $10 and the price of D is $5.

consumer can obtain a combination of 5 units of both C and D. price of C is $5 and the price of D is $10. price of C is $10 and the price of D is $5. prices of C and D cannot be determined.

would involve an inefficient use of the economy's scarce resources.

would involve an inefficient use of the economy's scarce resources. is irrelevant because the economy is capable of producing a larger total output. will result in the maximum rate of growth available to this economy. is unobtainable in this economy.