Micro Exam #1
competitive
. Price takers exist throughout ________ markets.
inferior, luxury
1 A negative income elasticity would indicate ▼ good. If your income increased 10% and your demand for diamond jewelry increased 15%, diamond jewelry would be considered ▼ good.
They test their models against real-world data.
How do economists distinguish between models that work and those that don't?
A budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income.
How does a consumer's budget set differ from his budget constraint?
The equilibrium price increases
How would a decrease in supply affect the equilibrium price in a market?
the equilbrium price increases
How would the equilibrium price in a market be affected if there were a large decrease in supply and a small decrease in demand?
the equilibrium price decreases
How would the equilibrium price in a market be affected if there were a large increase in supply and a small increase in demand?
No, it only means that its income elasticity of demand is greater than 1.0, so the Law of Demand still holds.
If a good is considered to be a luxury good, does it mean that the Law of Demand does not hold?
substitutes, negative, complements
If a cross-price elasticity is positive, then the two goods are ▼ substitutes complements . If the price of coffee goes up, and as such, the demand for Coffee Mate decreases, this would indicate a ▼ positive negative cross-price elasticity and that the two goods are ▼ substitutes complements .
inferior
If the income elasticity of demand for a good is negative, the good
normal
If the income elasticity of demand for a good is positive, the good is
. you wanted a smart phone. B. you would rather have a laptop that costs $700. C. you believed that smart phone would bring satisfaction. D. you prefer that smart phone to anything else costing $700. ANSWER=b
If you were to purchase a $700 Samsung smart phone from Amazon, we could conclude all of the following, except:
omitted variables
In this case, correlation does not equal causation most likely due to
Scientific Method
In your first presentation to management, how would you describe your planned methodology to perform the analysis?
This is a normative economic question, so the answer is a matter of the norms or values of the person answering.
Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"?
price, marginal analysis
The demand curve graphs a consumers responsiveness to a change in ______ . The points on the curve can be verified through _______
Normative analysis is concerned with what ought to be.
Which of the following statements about normative analysis is correct?
A. price elasticity of demand. B. behavioral elasticity of demand. C. income elasticity of demand. D. cross-price elasticity of demand. answer=b
All of the following are elasticity measures, except:
decrease negative
An increase in a fuel tax would cause a ______ in demand for automobiles, and the cross-price elasticity would be ______
exactly exhaust a consumers entire budget
A consumer's budget constraint refers to the collection of all possible bundles that
a consumer can pay with her income
A consumer's budget set refers to the collection of all possible bundles that ___________.
the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off.
A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ___________.
No, he should shift consumption toward pizza and away from soft drinks to maximize total benefits.
Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $ 130 and his marginal benefit from an additional slice of pizza is $ 120. If the price of a soft drink is $ 5 and the price of a slice of pizza is $ 4, is Charley maximizing his total benefits?
budget set, budget constraint
Combinations of apples and loaves of bread that a consumer could purchase would represent a ___________ while a __________ represents the amount of apples and bread that a consumer could choose using his or her entire budget.
the value or total benefits one receives from a good in excess of the price paid for it.
Consumer surplus is __________.
No, since considerable variation exists among consumers in terms of tastes and incomes.
Do all consumers in a competitive market enjoy the same amount of consumer surplus?
Consumers will prefer the domestically produced laptops over the imported laptops.
Due to changes in the government's foreign policy, there is a 15% increase in the prices of laptops imported from other countries while there is a 5% decrease in the prices of similar, domestically produced laptops. Which of the following statements is not true about the consumer's choice?
decrease
During an economic slump, such as the 2008 recession, if McDonald's faces an elastic demand curve, to maintain its sales it is likely to ▼ the price of its produc
willingness
For an individual, consumer surplus is calculated as the difference between the ________ to pay and the price actually paid for a good.
negative
For two goods that are complements, the cross-price elasticity of demand will be
positive
For two goods that are substitutes, the cross-price elasticity of demand will be
how consumers arrive at a choice as to what to purchase.
For economists, the "buyer's problem" refers to
The commodity that best suits the consumer's tastes and preferences and maximizes satisfaction.
Given the prices and budget, which of the following commodities would any rational consumer purchase?
a shift left (inward)
John is a soda drinker that likes both Coke and Pepsi. He usually picks whichever has the best price or is most convenient. If Pepsi is on sale for $1 a liter and Coke is charging $1.50 for the same, John's demand curve for Coke will experience:
A. There is a close availability of substitutes for automobiles. B. There is a reduction in the price of public transportation. C. There is more available time to adjust to the price change. D. A large share of a consumer's budget is spent on automobiles answer= a and d
Suppose there is an increase in demand for public transportation because of an increase in the price of automobiles. Which of the following is a possible reason for this elastic demand for automobiles
the higher the budget share spent on the good. B. the longer the available time during which consumers can adjust. C. the larger the number of close substitutes for the good. D. all of the above. answer= D all of the above
The price elasticity of demand for a good is likely to be more elastic __________.
three pairs of sandals.
When faced with the option of buying one pair of boots for $60 or three sets of sandals for $20 each, Janet chose the pair of boots. The opportunity cost for the boots was:
Individual transactions are too small to have much impact on the market price.
Which of the following best describes why consumers are price takers?
A binding price ceiling will always cause the quantity demanded to exceed the quantity supplied. TRUE B.A government price control will always cause the quantity demanded to exceed the quantity supplied. FALSE C.A government price control can be used to bring markets into equilibrium. FALSE D.Equilibrium is attained when prices are allowed to respond to market pressure. TRUE
Which of the following statements are true? (Check all that apply.)
Slope is based on absolute change and elasticity is based on percentage change.
Why does a demand curve with a constant slope not have a constant elasticity?
lower
consumer with a given level of income, the combinations of goods for the budget constraint will be _______ than for the budget set
decrease, decrease
d.) Supply is constant and demand decreases. Price: A. Increases B. Decreases C. Indeterminate Quantity: A. Decreases B. Indeterminate C. Increases
intermeditate, decreases
h.) Supply decreases and demand decreases. Price: A. Increases B. Decreases Your answer is not correct.C. Indeterminate This is the correct answer. Quantity: A. Indeterminate B. Decreases Your answer is correct.C. Increases
more
in a consumer's income causes her budget constraint to encompass _______ bundles.
increase, decreases
b.) Supply decreases and demand is constant. Price: A. Decreases B. Indeterminate C. Increases Quantity: A. Indeterminate B. Increases C. Decreases
increase,increase
c.) Supply is constant and demand increases. Price: A. Increases B. Decreases C. Indeterminate Quantity: A. Decreases B. Increases C. Indeterminate
intermediate, increase
e.) Supply increases and demand increases. Price: A. Decreases B. Increases C. Indeterminate Quantity: A. Indeterminate B. Increases C. Decreases
decrease,intermeditate
f.) Supply increases and demand decreases. Price: A. Increases B. Decreases C. Indeterminate Quantity: A. Indeterminate B. Increases C. Decreases
increase, intermeditate
g) Supply decreases and demand increases. Price: A. Indeterminate B. Increases C. Decreases Quantity: A. Decreases B. Increases C. Indeterminate
move towards equilibrium quantity because both producers and consumers act in their own best interest.
A competitive market will
negative, less
A demand curve has a ▼ positive negative slope due to the Law of Demand. The Law of Demand is based off of a consumer's willingness to pay ▼ more less as marginal units are consumed.
market
A group of economic agents who are trading a good or service would define a
should not
A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is $2 comma 000 and the marginal cost is $8 comma 000 per bed, then the corporation ▼ should should not offer additional beds.
demanded, supplied
A price ceiling set below the natural equilibrium price would cause the quantity _______ to exceed quantity ________ .
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.
A primary difference between macroeconomics and microeconomics is
the marginal benefit of attending exceeds the marginal cost of attending.
A student will decide to attend class when
positive, increase
A supply curve has a ▼ positive negative slope due to the Law of Supply. The Law of Supply states that supplies ▼ decrease increase as price increases.
rises, upward-sloping
A supply curve has a ▼ positive negative slope due to the Law of Supply. The Law of Supply states that supplies ▼ decrease increase as price increases.
price of the good, quanity of demand
Aggregation consists of fixing the ________ and adding up the _________ by each buyer.
A. a freeze over all of Florida for three nights in a row. B. a new medical discovery about the benefits of citrus. C. new machinery that speeds up the picking process. D. tax credits for citrus farmers. ANSWER B
All of the following would cause a shift in the supply curve for orange juice, except
casuation, randomly
An experiment would be conducted to determine ▼ causation correlation among the chosen variables. Subjects should be assigned ▼ selectively randomly to either a test or control group in order to get the most unbiased comparison.
No, there are other market types where firms have considerable power to control the price.
Are all markets perfectly competitive?
increases, increases
As a firm produces more of a good, the cost of producing each additional unit ▼ decreases stays the same increases . This implies that the marginal cost of producing a good ▼ does not change decreases increases as you make more of that good.
A.positive B. normative C. positive D. normative
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents ▼ positive analysis normative analysis . b. The federal government should spend more on AIDS research. This represents ▼ positive analysis normative analysis . c. Rising paper prices will increase textbook prices. This represents ▼ positive analysis normative analysis . d. The price of coffee at Starbucks is too high. This represents ▼ positive analysis normative analysis .
No, they both tend to be downward-sloping curves.
Does the shape of the market demand curve differ from the shape of an individual demand curve?
to test models
Economic data is used
Optimization, equilibrium, and empiricism.
Economics differs from these other social sciences because it also addresses these three key concepts: _________.
positive analysis
Economics is about __________________ , which measures the costs and benefits of different courses of action.
the marginal benefit from the activity is equal to the marginal cost.
Economists believe that an activity should be continued up to the point where
to answer questions and analyze issues.
Economists use models
marginal benefit equals marginal cost.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
economists use data to determine what is going on in the world
Empiricism describes a situation where
no one would benefit from changing his/ her behavior
Equilibrium describes a situation where
The number of winter coats sold and the temperature outside.
Give an example of a pair of variables that have negative correlation.
treatment, control
Group A is the ___________ and Group B is the ____________ .
supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease.
Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then
a decrease in the quantity demanded of digital cameras.
Holding all else equal, if the price of a digital camera rises, then we can expect
increase (shift right)
If new irrigation technology improves i the average yield of a vineyard, then the supply curve for sparkling wine would __________.
increase and net benefit would decrease.
If opportunity cost were to suddenly increase, total cost would
decrease (shift left)
If people began to believe that SUVs were causing global warming, then the demand for the Toyota Rav4 SUV would __________.
increase (shift right)
If the number of people over the age of 16 in the country increased significantly, then the demand for the Toyota Rav4 SUV would __________.
lose all or almost all of its customers.
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________.
cannot charge more than the market price; cannot pay less than the market price.
In a perfectly competitive market, sellers _________ and buyers _________.
fixing the price and adding up the quantities that each buyer demands.
Market demand is derived by __________.
people weigh costs and benefits to make decisions
Optimization describes a situation where
change the opportunity cost for students whose alternative activities vary throughout the day.
Playing games in the late afternoon or evening, rather than in the morning, would
every choice involves an opportunity cost.
Scarcity is central to the study of economics because it implies that
quantity demanded would exceed the quantity supplied, resulting in a shortage.
Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____________.
1. It is important to individuals or society 2. it can be answered
Suppose you are on a date with an economics major, and you want to impress them by asking good economic questions. Two characteristics of a good economic question are:
Wealthy individuals who can afford to spend more time reading can also afford better medical care.
Suppose you come across a study that has discovered a link between reading books and life expectancy: People who read more books live longer. Which of the following correlations might exist between reading books and life expectancy even though there is no direct causal link between them
when you buy the 4th battery
Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?
design and execute an experiment.
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________.
1) quanity-demanded 2) downward sloping 3) demand schedule
The Law of Demand states that as the price of a good increases, ceteris paribus, the ▼ quantity demanded quantity supplied demand supply decreases. This can be shown graphically with ▼ an upward-sloping a downward-sloping demand curve or numerically in a table using a ▼ statement of demand demand schedule .
1. quanity supplied 2.an upward sloping 3.supply schedule
The Law of Supply states that as the price of a good increases, ceteris paribus, the _________ of that good increases. This can be shown graphically with an ________ supply curve or numerically in a table using a _________ .
quantity supplied to quantity demanded.
The competitive equilibrium price equates
hold true
The concept of diminishing marginal benefits _______ for goods that you like a lot.
each additional unit consumed is worth less to you than the previous one.
The concept of diminishing marginal benefits means that __________.
the more you consume of a good, your willingness to pay for an additional unit declines.
The concept of diminishing marginal benefits states that
negatively related
The relationship that exists between these two variables can be described as
positively related
The relationship that exists between these two variables can be described as
a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data.
The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is ___________.
the minimum price sellers are willing to accept to sell an extra unit of a good.
The supply curve represents ___________.
It is an inferior approach to a randomized method.
This chapter discussed natural and randomized experiments. Which of the following is not a characteristic of a natural experiment?
an ongoing process to develop models of the world and then test and evaluate those models.
To say that economists use the scientific method means that they are using ___________.
false
True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.
Its demand curve will shift to the right.
Two airlines serve the route between Tampa and Houston. What will happen to one airline if the other one raises its prices?
only the price of a good
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in
extra or additional
What do economists mean by the word "marginal"?
That oil reserves are becoming more expensive to find and extract over time.
What does it mean to say that we are running out of "cheap oil"?
The supply of oil will decrease, which will lead to higher prices in the future.
What does this imply for the price of oil in the future?
A. increase B. increase C. increase D. decrease E.cannot be determined
What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a. Small automobiles become more fashionable: b. The price of large automobiles rises (with the price of small autos remaining the same): c. Income declines and small autos are an inferior good: d. Consumers anticipate that the price of small autos will greatly come down in the near future: e. The price of gasoline substantially drops:
All variables that can affect the demand for the good are held constant.
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?
Subjects are assigned by chance, rather than by choice, to a group.
What is meant by randomization in the context of an economic experiment?
MC=MB
What is the golden rule of decision-making in economics (and all of life)?
Economic Method
What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?
people are rational
When economists develop models designed to explain the choices people make, they generally assume that
rightward
When one of the five major factors changes, causing an increase in demand, the demand curve shifts
added to, equal
When optimizing for total value, opportunity cost must be ▼ added to subtracted from total cost. Assuming ▼ equal varying benefits, the lowest cost option is the optimal choice.
the policies are consistent with economic incentives.
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the price of the good itself
Which change causes a movement along the demand curve?
Unlimited wants exceed the limited resources available.
Which of the following best describes scarcity?
How much is the national debt?
Which of the following do you provide as a positive question?
Should welfare be repealed?
Which of the following examples do you provide as a normative question?
Make a value judgement about the merits of the hypothesis.
Which of the following is not a step that economists use in developing a useful economic model?
the price of the good itelf
Which of the following is not one of the five major factors that shifts the demand curve when it changes?
Positive analysis is concerned with what is.
Which of the following statements about positive analysis is correct?
A. An online auction site such as ebay B. A dating website C. Your corner gas station D. All of the above are examples of a market ANSWER: all of the above
Which of the following would not be considered a market by an economist?
Supply would shift right, demand would shift right, equilibrium price would be indeterminable, and equilibrium quantity would increase.
Which would be the correct sequence of events in the speedboat industry if waterway access was improved and, at the same time, a lighter polymer became available that increased production efficiency?
lowest, marginal
Willingness to accept is the ▼ highest lowest price that a seller is willing to get paid to sell an extra unit of a good. Willingness to accept is the same as the ▼ fixed marginal cost of production.
A) 40- 24= 16 B)95-48-40=7 C) tennis
You have the option to play tennis or a round of golf (but not both). The tennis match requires you to take 2 hours off from work and the round of golf requires you to take 4 hours off from work. Playing tennis has value to you equal to $40, while golf has value to you equal to $95. Tennis courts are publicly available at no cost, but golf costs $40 per round. Suppose your wage from working is $12 per hour. The net benefit from playing tennis is _______ and the net benefit from playing golf is $ _________ Therefore, you should play __________ .
sum, right
he market supply curve is the ▼ sum product of all the supply curves of potential producers and would be graphed to the ▼ right left of the individual curves.
Economics
is the study of the choices people make to attain their goals, given their scarce resources.
a. large b. empiricial evidence c. hypotheses
ou should collect ▼ an odd-numbered an even-numbered a small a large amount of data to create ▼ hypothetical evidence derived evidence empircial evidence government-generated evidence to test the ▼ best guesses random data hypotheses unbiased data indicated by the economic model.
positive, omitted variables
study was conducted examining diabetes rates by ethnicity. It was determined that Hispanics had the highest rate of diabetes. A conclusion might be made that people of Hispanic origin are the most inclined to be diabetic. However, that ▼ positive negative correlation could be the result of ▼ omitted variables reverse causality , given that other factors, such as diet, that were not considered.
decrease ( shift left)
the number of sellers of sparkling wine decreases significantly, then the supply curve for sparkling wine would __________.
should not, correlation not casuation
uppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client has requested that your consulting team expatiate on the factors that impact gasoline prices. One of the members of your team, Debbie, states that she has noticed that gasoline prices seem to rise in years when a National League baseball team wins the World Series. You ▼ should should not include this observation in your report because it is ▼
controlled, natural
Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. Debbie's method is a ▼ natural experiment controlled experiment laboratory experiment surveyed experiment and Troy's method is a ▼ surveyed experiment controlled experiment laboratory experiment natural experiment .
economic incentives
Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extended periods of paid family leave from work and, consequently, the birthrate per woman increases. If so, then this could best be characterized as an example of people responding to
a) decrease, increases
a.) Supply increases and demand is constant. Price: A. Decreases B. Indeterminate C. Increases Quantity: A. Increases B. Decreases C. Indeterminate