Microeconomics Exam #1 Review
The common way of expressing the efficient market concept is
"There's no such thing as a free lunch"
If you can download 10 ring tones for your cell phone for $10 or you could download 11 ring tones for your cell phone for $10.50, then the marginal cost of the eleventh ring tone is
$0.50
You have decided that you want to attend a renaissance fair as King Henry VIII. You estimate that it will cost $80 to assemble your costume. After spending $80 on the costume, you realize that the additional pieces you need will cost you $20 more. The marginal cost of completing the costume is
$20
You have decided that you want to attend a renaissance fair as King Henry VIII. You estimate that it will cost $80 to assemble your costume. After spending $80 on the costume, you realize that the additional pieces you need will cost you $20 more. The marginal cost of completing the costume is
$20
If your tuition is $20,000 this semester, your books cost $2,000, you can only work 10 rather than 40 hours per week during the 15 weeks you are taking classes and you make $15 per hour, and your room and board is $8,000 this semester, then your opportunity cost of attending college this semester is
$28,750
If your tuition is $2,000 this semester, your books cost $400, you can only work 10 rather than 40 hours per week during the 15 weeks you are taking classes and you make $12 per hour, and your room and board is $4,000 this semester, then your opportunity cost of attending college this semester is
$7,800
Which of the following will NOT cause a shift in the demand curve for DVDs?
A change in the price of DVDs
The reoccurrence of contagious diseases should be significantly lower in a technically advanced nation such as the United States. This statement is bes-described as
A normative statement
The amount of exercise that one gets is an important factor in the determination of his general state of health. This is best described as
A positive statement
Firms engage in production to
Acquire profits
A technological change in the production of cars will
Affect input and output markets in the automobile industry and other related industries.
Ceteris Paribus
All else equal
An increase in demand for laptop computers would likely be caused by
An increase in the price of a substitute good
If the price of spinach decreases, there will be ________ of spinach enchiladas.
An increase in the supply
The price of circuit boards used in the manufacturing of LCD televisions has fallen. This will lead to ________ LCD televisions.
An increase in the supply of
Normative economics
Answers the question "What ought to be?"
Sunk costs
Are costs which have been incurred
Comparative statics
Casual statements
Economics is best defined as the study of
Choices made by people faced with scarcity
Empirical economics refers to the
Collection and use of data to test economic theories
Suppose the demand for lawnmowers goes down when the price of gasoline goes up. We can say that these two goods are
Complements
When the increase in the price of one good causes the demand for another good to decrease, the goods are
Complements
________ curves are derived while holding constant income, tastes, and the prices of other goods.
Demand
The law of ________ implies that as prices fall, ________.
Demand; quantity demanded increases
Households ________ in output markets and ________ in input markets.
Demand; supply
An economist collecting data on the employment benefits and salaries in the chemical engineering industry is an example of
Descriptive economics
The compilation of data that describe phenomena and facts refers to
Descriptive economics
The compilation of data that describes phenomena and facts is referred to as
Descriptive economics
Every demand curve must eventually hit the quantity axis because with limited incomes, there is always a price so high that there is no demand for the good. Do you agree or disagree? Why?
Disagree: Every demand curve hits the quantity axis because of diminishing marginal utility. At a price of zero, there is a limit to how much a person can or wants to consume.
An efficient market is characterized by the face that profit opportunities are
Eliminated almost instantaneously
The Industrial Revolution refers to the rise of the modern factory system in ________ during the late eighteenth and early nineteenth centuries.
England
Many economists argue that items such as food and clothing should be exempt from sales tax because low-income people spend a greater percentage of their income on these goods than do high-income individuals. This argument is motivated by concerns over
Equity
The four criteria that are frequently used in judging the outcome of economic policy are efficiency, stability, economic growth, and
Equity
You have noticed that there is an increase in the number of homeless people in your city and at the same time you observe that there are a number of vacant apartments. You believe that if landlords were required to rent their apartments for less than they are currently charging, the government could reduce the number of homeless people . This policy recommendation would be motivated by concerns over
Equity
A change in economic output is potentially efficient if the value of the resulting gains ________ the value of the resulting losses.
Exceeds
Resources are exchanged in ________ markets.
Factor
An efficient economy is one that produces what the government demands and does so at the least possible cost.
False
Normative economics seeks to understand behavior, but not make judgments.
False
Opportunity costs arise because resources are limited
False
Positive economics questions ʺWhat ought to be?ʺ Normative economics predicts the consequences of alternative actions, answering the questions ʺWhat is?ʺ or ʺWhat will be?ʺ
False
Stability implies a steady rate of economic growth regardless of the inflation rate.
False
Sunk costs affect marginal decision making
False
The compilation of data to describe phenomena and facts is known as empirical economics.
False
The rate of unemployment is a topic of microeconomics
False
The value of the best alternative foregone is the sunk cost of making a decision
False
Organizations that transform resources into products are known as
Firms
In factor or input markets
Firms demand resources
Economics is the study of
How society uses limited resources
An efficient market is a market
In which profit opportunities are eliminated almost instantaneously
For inferior goods, demand will fall when
Income increases
In response to news reports that drinking a glass of red wine each day can reduce an individualʹs risk of heart disease, there will most likely be a(n)
Increase in the demand for red wine
During an economic upturn when consumer income rises, the demand for caviar increases and the demand for hummus decreases. This implies that caviar
Is a normal good and hummus is an inferior good
During an economic upturn when consumer income rises, the demand for caviar increases and the demand for hummus decreases. This implies that caviar
Is a normal good and hummus is an inferior good
Income ________ along the demand curve
Is held constant
Consumer surplus
Is the amount a consumer is willing to pay minus the amount the consumer actually pays
You own The Wedding Crasher on DVD. The opportunity cost of watching this DVD for the fourth time
Is the value of the alternative use of the time you spend watching the DVD
If information is more costly and less available, then usually this
Makes markets less efficient
A good whose demand is directly related to income is a(n)
Normal good
In college you could barely afford to dine in restaurants. Now you earn $80,000 a year. and dine out at least three times per week. We can safely conclude that you consider restaurant meals to be a(n)
Normal good
The statement ʺpeople should pollute as little as possibleʺ is an example of a
Normative statement
Scarce resources give rise to the concept of
Opportunity cost
That which we forgo, or give up, when we make a choice or a decision is known as
Opportunity cost
Consumers purchase products in ________ markets
Output
If two goods are substitutes, their cross-price elasticity will be
Positive
An approach to economics that applies statistical techniques and data to economic problems is called
Positive economics
There is great concern over the fact that global warming is causing permanent damage to the global environment. A study of the costs and benefits of purchasing carbon offsets to combat global warming is an example of
Positive economics
The statement ʺthe unemployment rate is 5.1%ʺ is an example of a
Positive statement
A change in the ________ of a good or service leads to a change in ________ that leads to a ________.
Price; quantity demanded; movement along the demand curve
The change in the ________ of a good leads to a change in ________, which leads to a ________.
Price; quantity supplied; movement along a supply curve
According to the law of demand, quantity demanded increases as
Prices fall
Suppose there is a permanent shift of consumer preferences away from pretzels and toward potato chips. The most likely result would be
Short-run profits in the potato chip market.
Demand for one item goes down when the price of another item goes down. These items must be
Substitutes
Costs that cannot be avoided, because they have already been incurred are known as
Sunk costs
Suppose that two weeks ago you purchased a ticket to the symphony for $40. Last week someone invited you to go camping on the same night as the symphony concert. You would much rather go camping than go to the symphony. You have tried unsuccessfully to sell the symphony concert ticket. Which of the following statements regarding this situation is correct?
The $40 you paid for the symphony ticket should be irrelevant in your decision making, because it is a sunk cost.
Quantity demanded
The amount of a good that buyers are willing and able to purchase
Microeconomics is best described as the study of
The choices made by individual households, firms, and governments
Opportunity cost is
The cost involved when choosing between alternatives
Efficiency occurs when
The economy is producing what people want at least possible cost
When quantity demanded equals quantity supplied
The market is in equilibrium
Macroeconomics is best described as the study of
The nation's economy as a whole
The quantity demanded of Coca Cola has increased. The best explanation for this is that
The price of Coca Cola has decreased
Emilio buys pizza for $10 and soda for $2. He has income of $100. His budget constraint will experience a parallel outward shift if which of the following events occur?
The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $400.
Marginalism is...
The process of analyzing the additional costs or benefits arising from a decision.
Production set
The set of feasible combination of things one can produce
An electronics manufacturer can produce either MP3 players or cell phones. As the result of a decrease in the price of cell phones, the firm produces more MP3 players and fewer cell phones. An economist would explain this by saying
There has been a decrease in the quantity supplied of cell phones and an increase in the supply of MP3 players.
If you own a condo and you decide to lease it to your cousin
There is an opportunity cost of leasing the condo because you could have chosen to live in it
Normative economics questions ʺWhat ought to be?ʺ Positive economics predicts the consequences of alternative actions, answering the questions ʺWhat is?ʺ or ʺWhat will be?ʺ
True
Resources are limited in both wealthy and poor societies.
True
Sunk costs are those that cannot be recaptured
True
The rate of inflation is a topic of macroeconomics
True
We can use macroeconomic analysis to
Understand why economies grow
Opportunity cost is
What we give up to get something else
Law of Demand
When the price of a good falls, the quantity demanded increases.
When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs
Where the indifference curve is tangent to the budget constraint.
At any point on an indifference curve, the slope of the curve measures the consumer's
Willingness to trade one good for another
An efficient economy is an economy that produces what ________ demand and does so at the ________ possible cost.
consumers; least
A change in ________ leads to a change in demand that causes a ________.
income or price of other goods; shift in the demand curve
According to the law of demand there is negative relationship between ________ and ________.
price; quantity demanded
According to the law of ________, there is a positive relationship between price and ________.
supply; the quantity supplied
If you eat at a Las vegas casino that charges $12 for its all you can eat buffet, then the marginal cost of your third trip to the buffet is
zero
