Microecon Topic 1

Which of the following costs will you consider when deciding whether it is efficient to take a hike one afternoon? A. Gas it takes to get to the hiking trail B. Studying you won't be able to do C. Wear and tear on your hiking boots D. All of the above

D. All of the above

Which of the following is true of the statement "All pollution must be stopped"? A. Ignores importance of comparing MB and MC B. Doesn't consider we have too much pollution control C. Ignores the fact that to get more of anything we must give up something else D. All of the above

D. All of the above

Steve is walking along 5th avenue passing by a penny, a nickel, a dime, and a quarter along the way. He only bothers to pick up the quarter. We can infer that the opp cost to Steve of picking up a coin measured in monetary units is A. One cent B. Five cents C. Ten cents D. Greater than 10 but less than 25 cents E. At least 25 cents

D. Greater than 10 but less than 25 cents

The concept of opportunity cost suggests that the cost to airlines of allowing employees to fly for free A. Depends on the alternatives available to the employees B. Is zero C. Depends on the value employees place on free travel D. Is greater at Christmas than in Mid February

D. Is greater at Christmas than in Mid February because A,B,C are from the employees perspective

Diminishing marginal returns

Decreasing satisfaction or usefulness as additional units of a product are acquired This is why you would pay less for more products

Producer surplus

price - cost

Trade

Exchange of goods and services People only trade if they expect to be made better off because people act as if their MB>MC

Scarcity

"Scarce" doesn't mean rare A good is scare if you must give something up to get more of it Diamonds are scarce and rare M&Ms are scare but not rare

Sunk cost

A cost that has already been committed and cannot be recovered so they don't influence current decisions, but they can influence future decisions Good decisions focus on the costs affected and ignore sunk costs

The scooter factory reduces its output from 20 to 19 scooters, its costs will fall from $2000 to $1900. The marginal cost of the 20th scooter is therefore A. $100 B. $1900 C. $2000 D. 3900

A. $100

The NBA negotiates a contract that dramatically increases all player's salaries. How would this influence the cost to a player of quitting basketball to be a broadcaster? A. It would increase the cost B. It would decrease the cost, because the player could make more money in the meantime C. It wouldn't affect the cost, only the benefits D. It wouldn't affect either the cost or benefits of becoming a broadcaster

A. It would increase the cost

You and your friend live in the wild for a year. Your friend has a small comparative advantage at hunting and you have a small comparative advantage at fishing. Therefore, A. You both will eat better if your friend does the hunting and you do the fishing B. You both will eat better if the one who can catch more fish per hour does the fishing, and then one who can shoot the most deer per hour does the hunting

A. You both will eat better if your friend does the hunting and you do the fishing

The opportunity cost to a ski instructor of taking a day off A. is higher on weekend when more people ski B. Falls when it snows C. Rises when it rains, and ruins the ski resort D. rises when there are lots of other instructors around

A. is higher on weekend when more people ski

When economists refer to tradeoffs, they are highlighting A. the existence of scarcity and opportunity cost B. the fact that trade makes us better off C. importance of gains from trade D. Importance of ensuring that gains from trade are distributed equitably

A. the existence of scarcity and opportunity cost

Good Institutions

Align self-interest with social interest under the right conditions

Trade-offs

Alternatives that must be given up when one is chosen rather than another

Can you have too much airline safety? A. No, because the safer you are, the better off you are. B. No, because people respond to incentives. C. Yes, if the marginal benefits are less than the marginal costs. D. Yes, but only if the total benefits of safety are less than the total cost.

Answer is C

I traded my bike for a skateboard. As a result of this deal, A. Gains from trade were created B. I was made better off C. My bike increased in value D. All of the above E. Just A and B

Answer is D

Which of the following is an "at the margin" decision? A. Whether to buy another dog B. Whether to eat another pancake C. Whether to spend a fifth year at Clemson D. All of the above

Answer is D At the margin means you're thinking about the next cost

Which of the following goods isn't scarce A. Money B. Time C. Econ classes D. Apples E. None of the above

Answer is E

Douglas enter the Air Force academy. Had he not, he would've gone to Duke business. Had he not been accepted into either Duke or the Air Force he would've worked for his father. The opp cost of him going into the air force is

Attending Duke because this is the value of the next best thing

John drives 10 min out of his way to go to a gas station where he will save 5 cents per gallon, while Jane stops at the first gas station she sees and pays 5 cents more per gallon than John. As economists, we can conclude that A. Either John or Jane acted irrationally B. John has a lower opp cost than Jane of time C. Jane is wealthier D. Jane's car gets better gas mileage

B. John has a lower opp cost than Jane of time

Specializing

By employing people in tasks which they are best, greater wealth is created, and then can be traded

Which of the following are costs of attending college to you? A. Tuition B. Room and board C. Forgone earnings

C is opportunity cost, A,B are costs of attending college

Which of the following is a positive statement A. It is absolutely necessary that living standards be raised B. It is unforgivable to allow poverty to persist C. If we provide a basic income to all living people, world hunger will decrease

C. If we provide a basic income to all living people, world hunger will decrease because positive = "if...then"

You are considering joining a shopper's club, where you pay $100 membership then get 25% off purchases. In making your decision, you should A. Only join if you plan to make at least $100 worth of purchases B. Ignore the membership fee since it is sunk cost C. Only join if you expect to get $100 in discounts D. Only join if they promise to refund your membership fee if you aren't satisfied

C. Only join if you expect to get $100 in discounts

If you buy a motorcycle for $1000 and then discover that you hate riding it and will never ride it again, the best thing to do is

C. Sell the motorcycle for the best offer you can get

University enrollment tends to increase during recessions. A plausible explanation is: A. Benefits of education fall when unemployment rises B. Many people enjoy going to university whether times are good or bad C. The opp cost of being a student falls when unemployment rises D. A college degree can get one a better job

C. The opp cost of being a student falls when unemployment rises

Opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another Costs are really opportunities given up Same as marginal cost

Economists use the term "opportunity cost" to highlight the fact that

Costs are really opportunities given up

Your very smart friend turns down a Clemson football scholarship to go play minor league baseball. As economists, we can conclude that A. Your friend gets higher benefits from playing MLB than college football B. Getting a salary is something your friend values greatly C. Your friend values education less than you do - you chose to pay for Clemson education D. None of the above

D. None of the above because we don't know the benefits or what your friend wants

Which of the following is not an assumption of the economic model? A. People respond to incentives B. Goods are scarce C. People make decisions by comparing marginal benefits and marginal costs D. The only costs that matter are opp costs E. All are assumptions

E. All are assumptions

The marginal costs of your European vacation include A. Passport application fee if you wouldn't have gotten a passport otherwise B. Plane ticket to Europe C. All the food you consume in Europe D. All of the above E. Just A and B

E. Just A and B

Some parents changed their plans and skipped Parent's Weekend because of the looming hurricane. We can conclude that, A. Given the hurricane, the benefits of attending were less than the cost B. The hurricane either raised the costs or lowered the benefits of attending C. The hurricane made driving to Clemson too costly D. All of the above E. Just A and B

E. Just A and B because we don't know if C is true, but A and B both are true

Beth is in honors so she gets free tickets to plays while Rob is not in honors and doesn't get free tickets. A. The opp cost the Beth of going to a play is less than opp cost to Rob B. Beth will go to more plays than Rob C. Beth will get greater net benefits from plays than Rob will D. All of the above E. None of the above

E. None of the above

If you pay $400 for a season pool pass at a private club, the marginal cost to you of swimming on any given weekday will be? A. $400 B. $10 if you swim 40 times C. $20 if the swim season lasts 20 weeks D. $3 if the swim season lasts 21 weeks E. Zero

E. Zero because it is a sunk cost

"Microeconomics" focuses principally on

How individuals choose among scarce goods

Normative statements

Normative statements are subjective and value based Usually based on opinion Usually contain "should"

The fact that more pedestrians were killed after laws made cars safer, demonstrates that

People respond to incentives This is correct because cars were made safer, so more people started driving, which made more people get killed

Positive statements

Positive statements are objective and fact based Usually contain "is" "are"

Incentives

Rewards and penalties that motivate behavior These can be monetary, social, etc

Marginal benefit

The additional benefit to a consumer from consuming one more unit of a good or service The rational decision: an act when the marginal benefits they would enjoy exceed the marginal cost. Can have too much of any good thing if we reach a point where the MB associated with the last little bit of it is smaller than its MC.

The gov spends $7 billion on airport security annually. It would be worth spending more only if

The benefits of the additional safety are greater than the additional costs

Marginal cost

The cost added by producing one additional unit of a product or service.

Sunk costs are irrelevant to economic decisions because

They can't be affected by the decision in question

If it costs a theater $180,000 to put on four shows, and the cost would rise to $200,000 if the theater adds a fifth show, a. the marginal cost of the fifth show is $20,000. b. the marginal cost of the fifth show is $40,000. c. the marginal cost of the fifth show is $200,000. d. the marginal cost of the fifth show is $50,000.

a. the marginal cost of the fifth show is $20,000.

If we as a country decide to dedicate more resources to making meat safe a. there will be less fewer resources to do other desirable things b. we will have too much safety c. we are not thinking at the margin d. we will never face another case of e-coli poisoning

a. there will be less fewer resources to do other desirable things

Total gain from trade

the sum of consumer surplus and producer surplus or WTP - cost

Consumer surplus

willingness to pay - price