Test 1 Micro
A company mines 360,000 tons of coal per year in a rural county. The coal is worth $73 per ton. The average price for a 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this county is $240,000. The average price for a similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 5 percent lower. Using comparative statics, what is the effect of mining on home prices in this county?
-12,000
Policy decisions made by the government are analyzed by ___
Both microeconomics and macroeconomics
Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its:
Both normative and positive
Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. Debbies method is _____ Troys method is ____ Group A is ___ Group B is ___
Controlled, natural, treatment, control
the length of women's skirts and stock market performance is likely to be:
Correlation
Choice is the unifying them among:
Economists
Empiricism describes a situation where
Economists use data to analyze what is happening in the world
A surge in cocoa price is an ____, and a pest attack on the cocoa crop is the ___
Effect, Cause
Lower infant mortality is an ___ and an improvement in nutrition is the ___
Effect, Cause
The amount produced by sellers must be ______ the amount purchased by buyers
Equal to
The ratio of the mean income changes with
Extreme Values
A policy such as those limiting a firm's monopoly powers would be studied under _____, since it deals with ______
Microeconomics, a small part of the overall economy
When making your decision about which activity to chose, you should consider the monetary costs as well as the opportunity costs of the activities. The goal is to choose the option that offers the greatest:
Net benefit
The three principals of economics include:
Optimization, equilibrium, and empiricism
Free riding occurs when _____ are out of sync with the ____
People's private benefits, the public interest
The statement that the United States has a lower unemployment rate than Spain is a ____ statement since it describes what people ___ .
Positive, Actually do
When economic analysis is used to help individual economic agents choose what is in their personal best interest, this type of normative economics is referred to as:
Prescriptive economics
People don't always pick the best choice, but they:
Try to
Which of the following is more susceptible to the free rider problem: fishing in public lakes or city wide pest control?
Use of city wide pest control since those who don't pay taxes still benefit while fishing in public lakes requires a fishing license
Which of the following is NOT an example of causation
Washing your car will lead to raining that day
The opportunity cost of an activity is a measure of ______ when you do that activity
What is given up
A postive question asks
What is or what will be
evaluating the rationality of a decision means examining the quality of your initial decision, not the ____
Outcome
The goal of optimization for an individual is to maximize:
Overall well-being
Comparing a set of feasible alternatives and picking the best one is an optimization process called:
Cost benefit analysis
Economics will help you:
Make choices, analyze human behavior, logic behind cost benefit analysis
Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200.
Optimization in levels since she is comparing the net benefits between alternatives
Model:
Simplified version of reality
Normative economics depend on:
Subjective judgments like feelings or taste
What is meant by randomization in the context of an economic experiment
Subjects are assigned by chance, rather by than by choice, to a group
Empiricism =
Data
A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model incorrect?
No because it predicts the outcome of increased bus ridership on average
There is a proverb "anything worth doing is worth doing well", do you think an economist would agree?
No because the marginal cost of extra effort may be greater than marginal benefit
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?
No the model is a simplified representation of reality
The statement that the United States is too aggressive in increasing the money supply is a ____ statement since it describes what people ___
Normative, ought to do
John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie.
Optimization in differences since he is calculating the change in net benefits between alternatives
During the process of optimization, economists believe that people are considering ____
The feasibility of a choice, given the information available at the time
How does the sample size affect the validity of an empirical argument?
The larger the sample size the better
Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?
The opportunity cost would be sleeping in late, since it was your next best option
How do economists distinguish between models that work and those that don't?
They test their models against real world data
Some people go to the doctor once a year because it is fully covered by their health plan Using the concept of a natural experiment, which of the following statements is true about the scenario?
This is a decent natural experiment
The signaling argument implies that:
a college student who drops out of school one month before graduation should earn much less than a student who graduates
Good economic questions address topics that are important to:
economic agents and society
optimum
ideal option
Zero Correlation:
two variables are not related
Negative Correlation:
two variables move in opposite directions
Positive Correlation:
two variables move in the same direction
Scarcity:
unlimited wants and limited resources
You have been invited to play a 4-hour round of golf that has a value to you of $80. The total price to play the round of golf is $35. The net benefit of the round of golf is
45
Causation occurs when there is ____
A logical cause and effect relationship
Which of the following is subject to the free-rider problem?
A neighborhood watch, public libraries, national security
Should welfare be repealed
A normative question
How much is the national debt
A positive question
More economic growth and higher employment levels is likely to be:
Causation
More police officers and lower crime rates is likely to be:
Causation
Business leader, person, criminal, sports team, firm, university are all examples of:
Economic Agents
The cost of making a product must be _____ the final price at which the product sells
Less than
A normative question asks
What ought to be
The cause, or independent variable should be plotted on the:
X axis
The dependent, or effect variable should be plotted on the:
Y axis
How would you test this model?
You should run a natural experiment buy analyzing bus ridership and price changes
The human capital argument implies that:
a college student who drops out of school one month before graduation should earn almost the same as a student who graduates
The definition of economics states that it is the study of how ___
agents choose to allocate scarce resources and the impact of those choices on society
Natural Experiment:
an empirical study in which some process - out of the control of the experimenter - has assigned subjects to control and treatment groups in a random or nearly random way
Economic agent:
an individual or a group that makes choices
Good economic questions can:
be answered
Equilibrium describes a situation where
no one would benefit from changing his or her behavior
The ethical implications of a hotly debated government policy would best be considered a ___
normative question, since it deals with a subjective issue based on personal preferences
Reverse Causality:
occurs when we mix up the direction of cause and effect
Optimization describes a situation where
people weigh costs and benefits when making a decision
Omitted Variable:
something that has been left out of a study that, if included, would explain why two variables that are in the study are correlated
Principal of Optimization at the Margin:
states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off
Economics is divided into two broad fields of study: microeconomics and macroeconomics. Micro studies ___ while macro studies ____
A small piece of the economy; the economy as a whole
Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment?
Amount spent on iTunes + Amount spent at Redbox = $20.
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
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team ____________
Design and execute an experiment
Scientific Method:
Develop models of the world, test them with data
Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one?
Do a cost benefit analysis to compare the alternatives
Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism?
Economic models are meant to be approximations that predict what happens in most circumstances
Greater mean income =
Greater income inequality
Buyers must place a value on the uses of a product that is ____ the cost of buying the product
Greater than
Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam.
Optimization in differences since she is calculating the change in net benefits between alternatives
Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90.
Optimization in levels, since she is comparing the net benefits between alternatives
Economics differ from other social sciences because it also addresses these three key concepts:
Optimization, equilibrium, and empiricism
He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by _____ with _____ .
Testing its predictions; empirical data
Optimization is process that describes:
The choices the households make
When deciding whether to install visible countdown timers for pedestrians at crosswalks which of the following would be considered in the cost benefit analysis?
The cost in terms of dollars of installing these new timers all over the city, The value of the lives lost by drivers who watch the countdown timers and try to make it through a light, The value of the pedestrians' lives saved by having the timers to assist in crossing the street, The higher maintenance bill associated with fixing these more complex signals when they break down
You and your friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel that, given your budget, it is best to buy a used one. Your other options are to buy one online or get a couch custom-made at the same furniture store. How would you arrive at an optimal solution here? Assume that your opportunity cost of time is $5 per hour. You and Jim would need to consider ___________.
The direct costs and the indirect opportunity cost of your time required to shop
Advances in wireless communication technology reduce the non-financial costs of long commutes: People who ride trains can get work done, and people who drive cars have more entertainment options. Given this information, which of the following will be an effect on the geographic area of cities? What is the result?
The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall; People will be willing to locate further from the city
Optimization in levels examine ____, while optimization in differences analyze ___
Total net benefits of alternatives; the change in net benefits
Budget constraints quantify
Trade offs
Your budget constraint for entertainment illustrates the concept of ___, since as you increase your purchase of one item, you must ____ your purchase of the other item.
Trade offs, decrease
T/F: Causation describes how one event can bring about change in another
True
T/F: In the cases where agents make mistakes, normative economic analysis can help them realize their mistakes and make better choices in the future.
True
Marginal Analysis:
cost benefit calculation that focuses on the difference between alternatives