micro exam 1

The price of green grapes increases from $1.90 to $2.30 per pound. When this happens, the amount of grapes sold drops from 500 pounds to 400 pounds. Assuming that the demand and supply of grapes held steady, what is the value of the loss of consumer surplus that occurred?

$180

A lawyer can argue a case in court for one hour and make $300. She could alternatively use that hour of time to type a legal brief in her office. What is the opportunity cost of her typing the legal brief?

$300, since that is the amount she could have made by arguing a case in court

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is producer surplus?

$4

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of:

$4 and a producer surplus of $2.

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is:

0.5 lawn mowed.

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus?

11

(Table) The table shows coffee and tea units produced for the United States and Japan. If Japan decides to increase production of tea from 20 units to 35 units, the opportunity cost is:

8 units of coffee.

Rational behavior requires thinking at the margin. Which example represents this type of thinking?

All of these examples represent thinking at the margin.

Which of these is NOT an example of market failure?

Competition leads firms to provide products at the lowest possible price.

The demand for gasoline is rising. Which statement describes a possible cause?

Consumers expect prices to rise in the near future.

Which statement about economics is CORRECT?

Economists consider how rational people respond to incentives.

1. An increase in consumer preference for a good shifts the demand curve to the left.

False

1. In an economy producing just beer and autos, producing increasing amounts of autos requires giving up decreasing amounts of beer.

False

1. Price controls provide only benefits but no costs to society.

False

2. Combinations of output that lie on the PPF are inefficient.

False

3. If a price floor is effective, all suppliers benefit from equilibrium prices below the free market prices.

False

3. If the price of a resource required to produce a good increases, the supply curve will shift to the right, indicating that producers are inclined to produce more of the good at each price point.

False

Which is NOT considered a basic economic question?

How will the system accommodate change?

Which situation(s) may require government intervention?I. A local business has made a profit in each of the last ten years.II. Students are having difficulty deciding whether to go the beach or to go hiking for their class trip.III. A manufacturing firm on a river is dumping production run off into the water.

III only

Which statement is a key idea in economic thinking?

Incentives matter.

Imagine two countries with identical endowments of resources. Using all its resources, Broland can produce 5,000 books or 8,000 forks. Using the same resources, Nomia could produce 4,000 books or 7,000 forks. Which country has a comparative advantage producing forks?

Nomia, because it gives up 0.57 of a book for each fork produced

_____ occurs when goods and services are produced with as few resources as possible, while _____ occurs when the mix of goods and services produced is the most desired by society.

Production efficiency; allocative efficiency

6. What might be done with the surplus caused by a government agricultural price support program?

Some of the surplus might be used for school lunches and in other government institutions; other parts of the surplus might be destroyed.

When supply of a product increases, ceteris paribus, what happens to firms' willingness to produce and to the amount of producer surplus?

They both increase.

Which statement is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

2. A price ceiling is a government-mandated maximum price at which a good can be sold.

True

2. As income increases, the demand curve for an inferior good shifts to the left.

True

Markets tend to provide too little of products with external benefits.

True

In general terms, which item is an example of an inferior good?

a city bus

When a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as:

a misallocation of resources.

Suppose the country of Alphaland can produce more cars than Omegaland can produce, given the same resources. An economist would conclude that Alphaland has a(n) _____ in producing cars.

absolute advantage

3. The typical PPF is:

concave (bowed outward).

A production possibilities frontier that is a straight line is the result of:

constant opportunity costs.

7. An increase in government subsidies for an industry, which reduces production cost, causes the market equilibrium price to _____ and the market equilibrium quantity to _____.

decrease; increase

The limits on international trade include all of these EXCEPT:

decreasing opportunity costs and increasing returns.

1. The supply and demand model assists in analyzing the:

determinants of market price and quantity.

4. The opportunity cost of producing more of a good increases because of:

diminishing returns to inputs.

Suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. One of the effects is a(n):

drop in the quantity of sugar consumed.

Investment in human capital refers to:

education, on-the-job training, and professional training activities.

1. The basic factors of production are land, capital, labor, and:

entrepreneurial ability.

9. To achieve long-run economic growth, an economy must:

expand its capacity to produce.

Consumer surplus is defined as the:

gap between the demand curve and the market price.

Producer surplus is defined as the:

gap between the supply curve and the market price.

2. An effective (or binding) price ceiling is a situation in which:

government sets the maximum price for a good below its free market equilibrium price.

Suppose that an artist has priced his painting at $150, but it remains unsold. We can conclude that the price of $150 is too:

high for this painting and it should be lowered.

Which of these circumstances would NOT affect the supply of new automobiles?

higher interest rates for new car financing

2. The production possibilities frontier (PPF) shows:

how much an economy can produce when using all of its inputs efficiently.

7. A combination of goods that lies outside the PPF is:

impossible.

10. A(n) _____ can cause the PPF to expand.

improvement in production technology

Supply and demand analysis is used:

in both microeconomics and macroeconomics.

In the study of economics, the goals of efficiency and equity are often:

in conflict with one another.

Paying a salesperson more for increased sales is an example of:

incentive

4. Assume that hamburgers and ketchup are complements. If the price of hamburgers falls, demand for ketchup:

increases

Scarcity

is faced by all individuals and societies.

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market.

marginal analysis; marginal analysis

When quantity demanded in a market equals quantity supplied, then the:

market is in equilibrium.

In a _____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources.

market; planned

The economics of uranium mining would be studied in:

microeconomics.

A good example of a government-imposed price floor is:

minimum wage.

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a:

model

2. When the market for a good is in equilibrium, there is (are):

no shortages or surpluses.

If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the:

opportunity cost of the extra health care.

When the government chooses to use resources to build tourist centers, the selected resources are no longer available to build highways. This BEST illustrates the concept of:

opportunity cost.

Which type of payment would NOT be a market transaction?

payment made to a disaster victim

A market exists when:

people exchange money for goods and services.

Economics is BEST defined as the study of how

people make rational decisions to satisfy their wants

"Price gouging" laws are types of _____ and often result in _____.

price ceilings; shortages of a scarce good

3. A change in the quantity demanded of a good results from a change in the:

price of a good.

Production efficiency occurs when goods are:

produced with the lowest possible resource cost.

5. A combination of goods represented by a point on the PPF is considered efficient because the economy is:

producing goods using the fewest inputs possible.

When goods are produced at the lowest possible cost, an economy is said to have achieved:

production efficiency.

8. Short-run economic growth is illustrated on a PPF diagram by movement from inside the PPF toward the PPF. A situation where this would be an appropriate depiction is in an economy:

recovering from a recession.

A good example of a government imposed-price ceiling is:

rent controls.

In the market for coffee, consumers expect the price of coffee beans to rise next week. This would make the demand for coffee this week:

shift left.

6. Assume a farmer's land is equally productive in growing corn or potatoes and is currently producing both. If the price of corn increases but the price of potatoes does not change, the farm's supply curve for potatoes will:

shift to the left, and fewer potatoes will be produced at each price level.

4. If an effective price ceiling is raised:

shortage decreases.

3. When price ceiling for a good is set below the free market equilibrium the result is a(n):

shortage.

The theory of comparative advantage says that countries:

should export those goods they can produce at a lower opportunity cost than another country.

5. Improvements in technology that reduce production costs cause the _____ curve to shift to the _____, indicating a(n) _____ in the amount _____ at each price point.

supply; right; increase; supplied

7. One of the costs associated with a minimum wage is that it creates a:

surplus of workers.

6. A combination of goods that lies inside the PPF is considered inefficient because:

the economy is capable of producing more of both goods.

The opportunity costs of attending college do NOT include:

the expenditures for food.

Other factors held constant, as the price of an iPad rises, the:

the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant.

At any price below the equilibrium price:

the quantity demanded exceeds the quantity supplied in the market.

Flu vaccination shots provide external benefits. Thus:

too few flu vaccination shots are given.

The measure of society's benefits due to a market transaction is called:

total surplus.

3. An economy that finds new inputs or improves technology to use existing inputs in a more productive manner is pushing its PPF outward and can experience long-run economic growth.

true

If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are:

underutilized

1. Price controls are sometimes used when the natural operation of free markets leads to:

undesirable outcomes.

Macroeconomics is concerned with issues such as:

unemployment

Because of scarcity

we face tradeoffs in nearly every choice we make