microeconomics chapter 2

C. $350

A company could produce t-shirts for a $500 profit, long sleeved shirts for a $350 profit, hoodies for a $200 profit, or socks for a $50 profit. If they can only produce one of these four options, what is the opportunity cost of producing t-shirts? A. $600 B. $550 C. $350 D. $200

A. 2

A company produces flashlights. If they hire one worker that worker will produce 10 flashlights in an hour, if they hire a second worker both workers will produce 16 flashlights in an hour, and if they hire a third worker they will all produce 18 flashlights. What is the marginal benefit of hiring the third worker? A. 2 B. 6 C. 18 D. 16

C. 6

A company produces reuseable water bottles. If they hire one worker that worker will produce 10 water bottles in an hour, if they hire a second worker both workers will produce 16 total water bottles in an hour, and if they hire a third worker they will all produce 18 total water bottles. What is the marginal product when hiring the second worker? A. 10 B. 16 C. 6 D. 2

A. They are no longer economically efficient because they are not allocatively efficient

A country is currently producing bricks and spatulas using all of their resources and satisfying the wants of their economy. If the country has a change in preferences and wants more spatulas, which of the following is true? A. They are no longer economically efficient because they are not allocatively efficient B. They are no longer economically efficient because they are not technically efficient C. The country will have a smaller marginal return from bricks D. The country will have an increasing marginal cost of bricks

D. The firm is still technically efficient, but the marginal cost of tables increases

A firm may produce chairs or tables. If the firm is using all of its resources to produce tables and a new technology makes it easier to produce chairs, but the firm continues to produce only tables, which of the following is true? A. The firm is no longer technically efficient B. The firm will experience diminishing marginal returns C. A new point on the production possibilities frontier curve will be reached D. The firm is still technically efficient, but the marginal cost of tables increases

B. Allocatively efficient, but not technically efficient nor economically efficient

A pizza parlor can make 100 pizzas in an evening. They make 35 pepperoni pizzas and 35 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what? A. Technically efficient, but not allocatively efficient nor economically efficient B. Allocatively efficient, but not technically efficient nor economically efficient C. Technically efficient, but not allocatively efficient, and therefore, economically efficient D. Allocatively efficient, but not technically efficient, and therefore, economically efficient

A. Technically efficient, but not allocatively efficient nor economically efficient

A pizza parlor can make 100 pizzas in an evening. They make 40 pepperoni pizzas and 60 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what? A. Technically efficient, but not allocatively efficient nor economically efficient B. Allocatively efficient, but not technically efficient nor economically efficient C. Technically efficient, but not allocatively efficient, and therefore, economically efficient D. Allocatively efficient, but not technically efficient, and therefore, economically efficient

B. Making simplifying assumptions

An economic model makes it easier to understand complex economic problems by doing which of the following? A. Programming all scenarios in a computer program to simulate the economy B. Making simplifying assumptions C. Using regression analysis in conjunction with large datasets D. Looking for consistent patterns in economies

C. The less each additional student will contribute to the project

As a larger number of students are assigned to groups to work on a project, which of the following is true? A. Each additional student drastically reduces the amount of time it will take to complete the project B. The closer they will be to reaching economic efficiency C. The less each additional student will contribute to the project D. The closer they will be to reaching technical efficiency

A. Increase

As resources are moved from the production of one good to another, we would normally expect the cost of producing one more unit of the new good to _______. A. Increase B. Decrease C. Not change

For graph A, a decrease of 2,000 laptops always results in an increase of 2,000 desktops. However on graph B when decreasing production of 2,000 laptops it varies what the resulting increase in desktop production will be. For example, decreasing laptops from 8,000 to 6,000 leads to an increase of 2,000 desktops. But a decrease in laptops from 6,000 to 4,000 leads to an increase in only 1,000 desktops.

Consider two possible production possibility frontiers A and B. One is a straight line as show in A and the other is concave toward the origin in B. Describe what happens to opportunity cost of producing desktop computers as desktop production is increased for graph A and graph B.

B. The country is technically efficient.

If a country is operating on the production possibilities frontier curve, it must mean that which of the following is true? A. The country is allocatively and technically efficient B. The country is technically efficient. C. The country is economically efficient D. The country is allocatively efficient by not necessarily technically efficient

A. 8 units B. 9 units

If a production process follows diminishing marginal returns, and an individual produces 10 units in the first hour, how many units they will produce in the second hour? Select all that apply. Multiple answers A. 8 units B. 9 units C. 10 units D. 11 units

C. 10

If one worker produces 15 cones of ice cream in an hour, two workers produce 25 ice cream cones, and three workers produce 30 ice cream cones in an hour, what is the marginal return of production of the second worker? A. 20 B. 15 C. 10 D. 5

D. More of both goods can be produced

If the economy is producing at a point inside the production possibilities frontier, which of the following must be true? A. All resources are employed B. The economy is as well off as it can be given its limited resources C. That point is unobtainable D. More of both goods can be produced

E. Allocatively inefficient and economically inefficient

If the opportunity cost of an action is greater than the benefits of that action, we would describe the effects on the economy as _______. A. Technically inefficient B. Allocatively inefficient C. Economically inefficient D. Technically inefficient and allocatively inefficient E. Allocatively inefficient and economically inefficient

A. improve technology in the future

In order for a country to be economically efficient and operate at a point beyond the production possibilities frontier curve, the country would have to do which of the following? A. improve technology in the future B. Reallocate its workers C. Experience increasing marginal costs D. Become technically efficient

As you spend more hours studying biology, the score increases at a slower and slower pace.

In what manner do the scores in biology increase? At a faster or slower pace as more time is devoted to studying biology?

D. Diminishing marginal returns

Increasing marginal cost is a direct result of __________. A. Inflation B. Increased demand C. Technical inefficiency D. Diminishing marginal returns

yes bc allocative efficiency only requires that the economy is producing to match the wants and needs of the economy. This can be done without producing as much as possible.

Is it possible to have allocative efficiency without technical efficiency?

sometimes -when PPF is straight line (slope is always the same), MRT is constant -when PPF is bowed out, MRT not constant but opp cost of one good in terms of other is increasing

Is the marginal rate of transformation always constant?

C. Workers became more efficient in producing trucks, so the marginal cost of producing smaller cars increased D. The price of trucks and SUVs increased, so marginal cost of continuing to produce smaller cars was too great.

Over the past year, major American automotive companies have switched some of their production from smaller, more fuel efficient cars to trucks and SUVs. Pick the best response as to why they switched production. A. Families have grown in size and they need larger automobiles B. Gas prices have increased C. Workers became more efficient in producing trucks, so the marginal cost of producing smaller cars increased D. The price of trucks and SUVs increased, so marginal cost of continuing to produce smaller cars was too great.

A. Increasing its production possibility frontier

Tesla is building a car battery factory in Nevada to drastically increase their production capacity from where it is now. Since the factory has not opened yet, Tesla is __________. A. Increasing its production possibility frontier B. Not technically efficient, but they will be technically efficient when the factory opens C. Never going to be technically efficient because of pollution D. Economically efficient

D. Reveal that firm B has an increasing marginal cost of production and firm A does not

The figure below shows two production possibilities curves that do what? firm A is a PPF with a straight line and firm B is a typical PPF curve A. Reveal firm A is allocatively efficient, but firm B is not B. Reveal firm B is allocatively efficient, but firm A is not C. Reveal that firm A has an increasing marginal cost of production and firm B does not D. Reveal that firm B has an increasing marginal cost of production and firm A does not

the biology score goes up and the economics score goes down.

What happens to the scores in both subjects as we increase time spent studying biology?

The opportunity cost is increasing because as you spend more time studying economics you spend less time studying biology. The more time you spend studying economics the less time you spend biology and the more points you give up on the biology exam.

What is happening to the opportunity cost as the number of hours of study of economics is increased? Why?

If deciding whether to spend a third hour studying biology, the cost would be 3 minutes for each point. There is a 20 point increase if you spend a third hour studying and an hour divided by 20 points is 3 which means you add a point every 3 minutes.

What is the cost of adding a point to a test score in biology as we study more biology? hour 2 -> hour 3 = 50 points -> 70 points

B. Allocatively efficient, but not technically efficient

When parents say, "My child is very intelligent, but he just doesn't try. My child would rather play video games than study." The child is _______. A. Not allocatively efficient, but technically efficient B. Allocatively efficient, but not technically efficient C. Economically efficient D. Experiencing diminishing returns

A. Marginal cost must increase as output increases due to diminishing marginal return.

Which of the following best describes the relationship between diminishing marginal returns and marginal cost? A. Marginal cost must increase as output increases due to diminishing marginal return. B. If marginal returns are diminishing while output increases, marginal cost must be decreasing. C. Marginal cost must increase as output decreases because of diminishing marginal returns D. Marginal returns diminish as output increases, and thus marginal cost must decrease.

C. Makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood

Which of the following is true of an economic model? A. Must be a mathematical formula to calculate the effects of economic forces such as unemployment and interest rates B. Is specifically used to forecast future economic events C. Makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood D. Is really only used by banks to calculate the effect of macroeconomic events on loans

Diminishing returns applies in so many cases because it refers to what happens to increases in output of scores, goods, and all kinds of activities when we increase only one input and hold all others constant. It means that we expand labor, but don't expand the capital which the workers use. Adding more workers increases production more, but eventually more workers will add less output. The worker simply may not have sufficient tools, space, or material with which to work. Diminishing returns implies increasing marginal costs. The reason is that if one additional worker costs $100 per day, for example, and that worker expand production by 10, the cost of each of those additional units of output is $10 per additional unit ($100 / 10). When we face diminishing returns, that additional worker may only product 8 units of additional output. Thus, the cost ($100 / 8) of those additional units of output will increase to $12.50.

Why does the law of diminishing returns apply to so many different types of production? Why does that mean increasing marginal costs?

diminishing; increasing

__________ marginal returns lead to ________ marginal cost

marginal product: how to calculate

____________ _______ of studying 2 hours of econ instead of 1 = difference in scores 50(2 hr score)- 25(1 hr score) = 25 OR spending 1 additional hour studying econ results in an increase of 25 points

economic model

abstract description of part of economy; simplifying assumptions made with goal of understanding and explaining effects of economic events ex: GPS map bc simplification of reality

marginal product

additional output that can be produced by adding one more unit of a specific input (resource)

law of diminishing marginal returns

after a certain point as more and more of one input is added - all else equal - marginal product (ie additional output) obtained will start decreasing -ex: add new worker but doesn't have sufficient tools or space so has to share and worker cannot add as much production as worker hired before her = ___________ _________

ceteris paribus

aka all else equal; hold fixed all other variables in model

marginal rate of transformation (MRT)

aka slope of PPF; show ratio of change in laptops to change in desktops (for ex); opp cost of desktops in terms of laptops is equivalent to slope of PPF at point of calculation -ex: want to increase desktops from 4 to 6 thousand means you have to produce 2 thousand fewer laptops (8000-6000) and 2000 is slope and opp cost

principle of increasing marginal (opp) cost

as increase production of good, opportunity cost of producing one more unit of output eventually increases

technical efficiency

economy getting most output from our labor, capital, and land

allocative efficiency

given our wants is the economy producing kinds of goods/services we value most?

production possibilities frontier model (PPF)

graph that illustrates the maximum possible output combinations of goods and services that can be produced in an economy, if all available resources are used and are used efficiently as well; choice between 2 goods to produce -ex: students can either study bio or econ and one hour studying bio is one hour not studying econ

-point under the curve (point A) = attainable but inefficient (not using all resources/tech) -point beyond the curve (point B) = unattainable and not efficient(not possible to reach with current tech, but can achieve if econ growth) -point on curve (point C and D) = attainable and tech efficient and depending on preference (C or D) could be allocatively efficient (used figure 2.3)

how is economic efficiency shown on PPF?

more resources/technology economy has for producing goods, PPF shifts outwards bc max output increases

how is economic growth shown on PPF?

diminishing marginal returns

increasing one input while holding all other inputs constant will eventually result in smaller and smaller additions to output -ex: each additional hour of studying will result in a smaller and smaller score increase; can't add more hours to day and can't drink coffee bc time to study is fixed (6 hours)

empirical

law of diminishing marginal returns is an _________ law meaning it always holds true

marginal cost

opportunity cost of producing additional unit of good or enjoying 1 more hour of activity

variable

quantity that can change over time -mathematical models used to show relationship between two or more ___________

economic efficiency

using all of our resources in a technically and allocatively efficient manner; when we've exhausted all opportunities to reallocate resources in a way that makes people better off -action moves us to this point if benefits > costs

opportunity cost

value of forgone opportunity (what needs to be given up in order to obtain something else); not always $, can be time

-are all resources available being used? -are we technically efficient? -are we allocatively efficient?

what are the components of economic efficiency?

need to isolate impact of single variable (ceteris paribus)

what do we need to do to build an economic model?

produces outward bending shape of PPF -> as add more to econ at first increases are large but as add more the increases get smaller

what is the connection between PPF and law of diminishing marginal returns?

shape of PPF illustrates principle of increasing opportunity cost -> if want to spend more time studying bio have to give up time studying econ (studying econ is opp cost)

what is the link between PPF and increasing marginal costs?

two sides of same coin; diminishing marginal returns leads to increasing marginal cost; as more hours of work (input) are added to the production process, the additions to output decrease; since wage is the same each hour, the cost of producing each cookie will be increasing (table 2.3 on tophat)

what is the link between diminishing marginal returns and increasing marginal costs?

D. 15

what is the marginal product of increasing the hours spent studying economics from 3 hours (70 points) to 4 hours (85 points)? A. 70 B. 85 C. 20 D. 15

at the beginning a little bit of studying is very helpful; after only 2 hours of studying you get 50 points; student may start to lose focus after this point and that's why the score increases in smaller increments

why does diminishing marginal returns happen?

bc we'll focus on effects of single event/choice and breaking it down into a model to help us understand or recognize changes to make

why is ceteris paribus important?