MICRO exam No. 1

CarMax is a national chain that sells used cars. The likely impact of its arrival in the market would be to _____. Everything else held constant, this would likely _____ the price of used cars.

shift the supply of used cars to the right; lower

If the quantity demanded is greater than the quantity supplied

some consumers will offer to pay more for the product.

(Figure: Corn and Oil in the United States and the United Kingdom) Refer to the graphs for the United States and the United Kingdom. If the starting point is a, what is the opportunity cost of the United Kingdom producing one more barrel of oil?

0.5 bushel of corn

Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we would expect the

supply of flour to decrease.

A _____ occurs when price is above market equilibrium.

surplus

Choosing to work an extra hour of overtime is an example of

thinking at the margin.

Flu vaccination shots provide external benefits. Thus

too few flu vaccination shots are given.

Markets are efficient when

total surplus is maximized.

(Figure: Determining Surplus) In the graph, which shape represents consumer surplus?

triangle hik

Economic analysis gives us a structure for making decisions in a rational manner.

true

Economists often call our market economy the price system.

true

(Figure: Interpreting Supply Shifts 3) When the supply shifts from S0 to S1, the equilibrium quantity changes from

20 units to 15 units.

(Figure: Determining Surplus 6) Using the graph, we can calculate the maximum possible producer surplus as

20,000$

(Figure: Determining Surplus 4) In the graph, producer surplus is equal to

25$

Free trade is known as a positive-sum game because both parties to a transaction can receive positive gains.

true

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.

_____ is how well resources are used and allocated.

efficiency

In a market-based economy, producers will tend to prefer less competition because it

enables higher prices.

When a good has an external cost, the market is said to

fail because it overproduces the good.

(Figure: Determining Surplus and Loss) In the graph, $8 would allow for a binding price ceiling.

false

(Figure: Understanding Price Ceilings and Floors) In the graph, a maximum price of $50 would allow for a binding price ceiling.

false

An increase in the price of Lay's potato chips causes the supply curve for this product to shift up and to the left.

false

If consumer surplus is $6 million and producer surplus is $4 million, then we know that deadweight loss is $2 million.

false

Production efficiency is defined as producing the mix of goods and services most desired by society.

false

Simple graphs never provide information about the relationship between variables.

false

Economists generally do NOT define an institution as a

government that controls resource allocation.

In a particular market, deadweight loss equals $6 million. Therefore, a market failure exists in this market.

true

Linear relationships show the same slope between any two points on a line.

true

Nonprice factors that affect demand include income, prices of related goods, the number of buyers, and expectations about future prices, income, and product availability.

true

The assumption that people will act in such a way as to maximize their self-interest is a reasonable one for most cases that economists analyze.

true

Water is included in the definition of land.

true

(Figure: Understanding Surplus and Efficiency) In the graph, efficiency in this market is achieved at a price of

$10

Suppose the market price is $5. The buyer who buys the first unit of output has a willingness-to-pay equal to $10; the buyer who buys the second unit of output has a willingness-to-pay equal to $9; and the buyer who buys the third unit of output has a willingness-to-pay equal to $8. Total consumer surplus is

$12

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

(Figure: Understanding Price Ceilings and Floors) In the graph, which price would NOT allow for a binding price ceiling?

$60

(Table) If the numbers in the table were placed on a graph, with hot chocolate sales on the vertical axis and temperature on the horizontal axis, the slope would be

-2

The father of modern demand-and-supply analysis is

Alfred Marshall.

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. One can conclude that

Ashanti has absolute advantage in dog-walking, and Paolo has comparative advantage in lawn-mowing.

(Figure: PPF of Econia (a small nation)) Looking at the production possibilities frontier (PPF) of Econia, which attainable point would be productively efficient but might be allocatively inefficient?

D

Consider the following statements. Which, if any, are positive statements?I. Main Street needs more coffee shops.II. A new parking garage on campus will reduce parking congestion.III. Last winter, the state should have spent more money on snow removal.

II only

Which scenario is part of a planned economy?

Most of the productive resources are owned by the state.

Which statement defines absolute advantage?

One country can produce more of a good than another country if both work with identical resources.

Which statement does NOT involve thinking at the margin?

Sally worked eight hours today.

Which statement is NOT a macroeconomic issue?

The production of automobiles decreased last year.

(Table) According to the table, the shape of the production possibilities frontier is

a straight line.

(Figure: Turtletopia and Frogland PPFs) _____ has the absolute advantage for producing corn; and _____ has the absolute advantage for producing pork.

Turtletopia; Turtletopia

Which factor will cause an increase in the quantity of iPhones demanded?

a decrease in the price of iPhones

Which factor would cause a decrease in the demand for coffee?

a decrease in the price of tea (a substitute for coffee)

Which factor would shift the supply of skateboards to the right?

a large reduction in the price of wheels used to produce skateboards

A production possibilities frontier with constant opportunity costs is

a straight line

Marginal analysis would put an emphasis on _____ costs and benefits.

additional

The Scandinavian countries of Europe

allow a large role for government services.

Supply refers to the

amount of a product that sellers are willing and able to sell at various prices.

Which of these would be LEAST likely to increase economic growth?

an increase in tariffs to protect domestic industries from foreign competition

The main reason a production possibilities frontier would have a concave shape is because

as a country specializes in one product, it must give up more of the other.

Points inside (below and to the left of) the production possibility frontier are

attainable and inefficient.

A market demand curve

can be estimated with statistical techniques.

Deadweight loss reduces

consumer surplus and producer surplus.

The main focus of efficiency is for

consumers to get the goods and services they want at the lowest possible cost

In the equation S = 130 - 2T, where S is hot chocolate sales and T is temperature, sales _____ if temperature increases by 10 degrees.

decreased by 20

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

in conflict with one another.

When a consumer's income level falls, it is MORE likely the consumer will purchase _____ goods.

inferior

An individual's valuation of a good or service is

known as willingness-to-pay.

A price ceiling is a legally mandated _____ which goods or services cannot be sold.

maximum price above

The economics of uranium mining would be studied in

microeconomics

A question whose answer is based on what should or should not take place is a _____ question.

normative

If the number of tomato growers in the market increases, the supply

of tomatoes increases.

economic growth looks like

positively affected by increasing physical capital.

On a demand curve

price is on the vertical axis and quantity demanded is on the horizontal axis.

Suppose that a customer's willingness-to-pay for a product is $1,480, and the seller's willingness-to-sell is $1,210. If the negotiated price is $1,479

producer surplus is greater than consumer surplus.

(Table) Using the data in the table for the market for lattes, at a price of $8, there is a _____ and the price will _____.

surplus; fall

If a price floor is set below the equilibrium price in the market, consumer surplus will be

the same as it would be without the price floor.

If a society's production possibilities frontier shifts to the right

there is likely an increase in the society's resources.

Economists like to use graphs and equations primarily because

these tools efficiently express economic concepts.

(Figure: Biscuit and Cookies PPFs) Greg and Melissa face the production possibilities frontiers shown for biscuits and cookies. Assume that Greg and Melissa trade 60 biscuits for 60 cookies after they have completely specialized in producing the good in which they have a comparative advantage. We know that Greg and Melissa are each made better off with specialization and trade than acting alone because _____ production possibilities frontier.

they are both consuming outside of their