Microeconomics Test 1
Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing three hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take everyday. Which of these activities would you be able to compare opportunity costs?
you can compare all the activities after you translate all the missed activities into dollar amounts
Some people choose to live close to the city center, others choose to live away from the city center and take a longer commute to work everyday. Does this mean that those who stay away from the city center are being irrational?
no, because their opportunity cost of commuting must be lower
Since the inputs used to produce goods are scarce, the total amount produced of most goods is (below, above, equal to) the amount that consumers would like to buy. To allocate the goods produced to the people who value them the most, we use (the price mechanism, market inversion, government mandates).
below, the price mechanism
Maimonides' rule generates a (laboratory experiment, natural experiment) to study the effect of class size. One might perform the experiment as follows: 1. Collect a (large, small) (nonrandom, random) data set of students' grades with and without the specified number of teachers based on class size. 2. Analyze the data to see if it supports the rules issued by Maimonides. 3. Make a determination if relationships in the data are (correlation, but not causation.. correlation or causation... causation but not correlation) by understanding logical, (cause and effect, positive and negative) relationships exists.
natural experiment, large, random correlation or causation, cause and effect
Free riding occurs because ___.
people sometimes pursue their own private interests and dont contribute voluntarily to the public interest
Statement 1: You can either stand during a football game or sit. You believe that you will see the game very well if you stand and others sit but that you will not be able to see at all if you sit and other stand. You therefore decided to sit. Statement 2: Your friend tells you that he expects many people to stand at football games. Statement 3: An economist studies photos of many college football games and estimates that 75% of all fans stand and 25% sit. Statement 1 deals with ___. Statement 2 deals with __. Statement 3 deals with ___.
1: optimization because you are choosing your best feasible option 2: equilibrium because your friend presumes everyone is behaving optimally 3. empiricism because it describes behavior using real world data
Which of the following is subject to the free rider problem?
A neighborhood watch, public libraries, national security (all of the above)
Identify the cause and effect: 1. Lower infant mortality is (the cause, the effect) and an improvement in nutrition is (the cause, an effect). 2. A surge in cocoa prices is (an effect, the cause), and a pest attack on the cocoa crop is (an effect, the cause).
An effect, the cause. An effect, the cause.
To say that economists use the scientific method means that they are using ___.
An ongoing process to develop models of the world and then test and evaluate those models.
In which of the following areas will taking an economics course help benefit you throughout your life?
It will give you the logic behind using cost-benefit analysis when making decisions. Helps analyze and predict human behavior. Instill the concept that what activity is given up by a decision plays an important role when making choices. (all of the above)
How does microeconomics differ from macro?
Micro studies how individuals, households, and firms, and govenrments make choices while macro studies the economy as a whole.
Oregon expanded its Medicaid coverage in 2008. Roughly 90,000 people applied but the state had funds to cover only an additional 30,000 people. The state used a lottery to determine who would receive this free health care insurance from Medicaid. How could you use the Oregon experience to estimate the impact of increased access to health care on health outcomes? The Oregon experience is a (natural, laboratory, statistical experiment). One might analyze the data as follows: gather and analyze the data on the health care outcomes for the two groups to determine if (more doctor visits results in more emergency visits, free health care results in better health outcomes, free health care results in a larger public debt).
Natural experiment, free health care results in better health outcomes
There is a proverb, "anything worth doing is worth doing well." Do you think an economist would agree with this proverb?
No, because the marginal cost of extra effort may be greater than the marginal benefit
Which of the following is the best example of causation (versus correlation)?
Oil prices go up and gasoline prices go up
Optimization is the process that describes __
The choices that businesses/people make.
How do economists distinguish between models that work, and those that don't?
They test their models against real-world data.
Which of the following is more susceptible to the free-rider problem: state parks or street lights?
Use of street lights is more susceptible since even those who don't pay taxes still benefit, while state parks can charge for admission, so that everyone who goes pays their share.
Which of the following is not an example of causation?
Washing your car will lead to raining that day, and wearing your lucky socks while watching the football game will lead to your team winning.
What is meant by comparative statics? Explain with an example.
a change in an outcome, such as work, that results from a change in a factor, such as th wage
Which of the following would be considered a scarce resource for producers? A. equipment and tools B. low-skill labor C. natural resources for production D. all of the above.
all of the above
in a perfectly competitive market, sellers __ and buyers ___.
cannot charge more than the market price; cannot pay less than the market price
Which of the following is NOT an item studied under macroeconomics? A. Cigarette taxes B. the money supply C. Aggregate issues D. economic input
cigarette taxes
Economists mostly use optimization in differences, as opposed to optimization in levels, because ___.
comparing different features of alternatives is simple
Budget Pair of shoes Pair of jeans $400 4 0 400 3 2 $400 2 4 $400 1 6 $400 0 8 The table above shows that for a given budget, if you increase the amount of one type of good that you buy, you must (increase, decrease, not change)___ the amount of the other good that you buy. Therefore, a budget constraint implies that the consumer faces ____(rising benefit, trade off, or fixed consumption).
decrease, trade offs
The concept of diminishing marginal benefits means that __
each additional unit consumed is worth less to you than the previous one
The concept of diminishing marginal benefits (does not exist, holds true) for goods that you like a lot.
holds true
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will ___
lose all or almost all of its customers
Which of the following is not a characteristic of a market?
markets are physical locations where trading occurs
Free riding occurs when __ are out of sync with ___.
peoples private benefits, the public interest.
The Law of Supply states that, in most cases, the quantity supplied of a good __ when the price of a good rises. This means we would expect a typical supply curve to be ___.
rises; upward sloping
What does it mean to say that we are running out of "cheap oil?" What does this imply for the price of oil in the future?
that oil reserves are becoming more expensive to find and extract over time the supply of oil will decrease, which will lead to higher prices in the future
A budget constraint represents ___
the bundles of goods or activities that a consumer can choose given her limited budget
How would an increase in supply affect the equilibrium price in a market?
the equilibrium price decreases
How would the equilibrium in a market be affected if there were a small decrease in supply and a large decrease in demand?
the equilibrium price decreases
How would the equilibrium price in a market be affected if there were a small increase in supply and a large increase in demand?
the equilibrium price increases
Give an example of a pair of variables that have negative correlation.
the number of winter coats sold and the temperature outside
The concept of opportunity cost is a measure of __
the value of the best alternative use of a resource
Best graph: Income inequality in the US has increased over the past 10 years. This could be represented with a ___. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5% are HS dropouts, 63.5% have a regular HS diploma, and the rest have a vocational training certificate. This could best be represented with a ___. The median income of a household in Alabama was $43,464 in 2012, and the median income of a household in Connecticut was $64,247 in 2012. This could best be represented with a ___.
time series graph, pie chart, bar graph
Optimization in levels examines ___, while optimization in differences analyzes ____.
total net benefits of alternatives; the change in net benefits
Which of the following is true regarding the concept of causation?
It describes how one event can bring about change in another.
Empiricism is a principle in economics that ___.
uses data to test economic models
Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?
when you buy the fourth battery
Does the principle of optimization imply that people always make the best choices?
yes, it is a good approximation for the decisions people make
The three principles of economics include optimization, equilibrium, and empiricism. Optimization describes a situation where___. Equilibrium describes a situation where ____. Empiricism describes a situation where ___.
Optimization: people weigh costs and benefits when making a decision. Equilibrium: no one would benefit from changing his or her behavior. Empiricism: economists use data to analyze what is happening in the world.
Which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting college right away?
all of these is a possible opportunity cost (using college fund for car, getting full time job, backpacking in europe)
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve? We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in (the price of a good and incomes, only the income of customers, only the price of a good).
all variables that can affect the demand for the good are held constant only the price of a good
