chapter 3 and 4
which of the following is not a characteristic of a market
Markets are physical locations where trading occurs
optimization in levels has three steps
1. translate all costs and benefits into common units, like dollars per month 2. Calculate the total net benefit of each alternative 3. Pick the alternative with the highest net benefit
Optimization in levels
calculates the total net benefit of different alternatives, and then chooses the best alternative
According to the video "Gas Prices Continue Rise, Approach $4 A Gallon", over to a two week period the price of gas rose from $3.50 per gallon to $3.79 per gallon. This was a price increase of % (round your response to two decimal places) At the same time, data from MasterCard's spending pole showed that fuel consumption was down by 3.6% If we hold everything else constant, the quantity demanded decreased, which is indicated by movement along the demand curve.
8.29
For a trade to take place, a buyer's willingness to pay must be
A and B only
For a trade to take place, a buyer's willingness to pay must be
A and B only Higher than the seller's willingness to accept equal to the seller's willingness to accept
What is the difference between marginal values and average values?
Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good
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
The video "U.S. Consumes The Most Gas Per Person Globally" showed a chart where the average person in the U.S. consumed 350 gallons of gasoline per year when the average price per gallon was about $3.75. This is about 3 times more per person than in Venezuela where the price per gallon is significantly less ($0.04 per gallon). Source: http://youtu.be/fD_baWjjMXY Does this invalidate the law of demand? Explain.
No, something other than the price of gasoline is affecting per capita consumption such as differences in income per person.
Does the shape of the market demand curve differ from the shape of an individual demand curve?
No, they both tend to be downward-sloping curves.
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
Only the price of a good
Determine if the following statements better describe optimization in levels or optimization in differences. 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 chance in net benefits between alternatives
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.
Scott loves to go to baseball games, especially home games of the Cincinnatti Reds. All else equal, he likes to sit close to the field. He also likes to get to the stadium early to watch batting practice. The closer he parks to the stadium the more batting practice he able to watch (the garages all open simultaneously). Find scott's optimal seat type and parking garage using the information that follows
Scott's optimal seat type is Club Seating Scott's optimal parking is East river parking different
How would an increase in supply affect the equilibrium price in a market?
The equilibrium price decreases
How would the equilibrium price in a market be affected if there were a large increase in supply and a small increase in demand?
The equilibrium price decreases
How would the equilibrium price in a market be affected if there were a small decrease in supply and 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 demand and a large increase in supply?
The equilibrium price decreases
How would a decrease in supply affect the equilibrium price in a market?
The equilibrium price increases
How would the equilibrium price in a market be affected if there were a large decrease in supply and a small decrease in demand?
The equilibrium price increases
How would the equilibrium price in a market be affected if there were a small decrease in demand and a large decrease in supply?
The equilibrium price increases
How would a decrease in supply affect the equilibrium price in market?
The equilibrium price increases.
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 concept of opportunity cost would explain whether someone chooses to drive, take a cab, take a bus, or walk to school or work because with
a high wage is more likely to drive or take a cab to work because his time is worth more
suppose you had information on the sales similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by
dividing the difference in the prices of similar homes between districts by the difference in test scores between districts
Optimization in difference
calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternative
Economists mostly use optimization in differences, as opposed to optimization in levels, because
comparing different features of alternatives is simple
If people expect the price of SUVs to decrease in the future, then the demand for the Toyota Rav4 SUV would
decrease (shift left)
If widespread unemployment leads to a drop in incomes, then the demand for the Toyota Rav4 SUV would
decrease (shift left)
if the number of sellers of sparkling wine decreases significantly, then the supply curve for sparkling wine would
decrease (shift left)
Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university
quantity demanded would exceed the quantity supplied, resulting in a shortage
When one of the five major factors changes, causing an increase in demand, the demand curve shifts
rightward
Optimization is the process that describes
the choices that people make
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
Consider the total cost of traveling form point A to point B. The cost of traveling by car would include the cost of gasoline and the opportunity cost of time; the cost of hopping on a bus would include the bus ticket and the opportunity cost of time. Assume that the bus ticket costs less than the gasoline. Does this imply that using a bus to get to the destination involves lower total costs than getting there by car? What if the bus doesn't take the fastest route from point A to point B
the marginal cost of using a bus may be higher if it takes more time than by car
Optimization in levels examines----, wile optimization in differences analyzes-----
total net benefits of alternatives; the change is net benefits
The lowest price that a seller is willing to receive to sell an extra unit of a good is called
willingness to accept
While the highest price that a buyer is willing to pay for an extra unit of a good is called
willingness to pay
What is meant by comparative statics? Explain with an example
A change in an outcome, such as saving, that result from a change in a factor, such as the interest rate
Which of the following is likely to lead to an increase in the quantity supplied of steel
A rise in the market price of steel
Which of the following would not be considered a market by an economist
All of the above examples of a market
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?
All variables that can affect the demand for the good are held constant.
Which of the following is likely to lead to a right shift in the supply curve of cotton
An increase in labor productively due to training programs
Suppose you have just landed a job near the center of a city and you need to decide where to live. if you live close to the city center, your round-trip commute will be 15 minutes. if you live in the distant suburbs, your round-trip commute will be 60 minutes. there are lots of workers like you who work. Since there are only a limited number of apartments near the city center, these apartments will be allocated based on
Both the costs and benefits that you face. this process is known as optimization
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 lecture-based format gave her a net benefit of $90
Optimization in levels, since she is comparing the net benefits between alternatives
You are taking two courses this semester, biology and chemistry. you have quizzes coming up in both classes. The table below shows your grade on each quiz for different numbers of hours studying for each quiz. For instance, the second row implies that one hour of studying for Chemistry will generate an expected grade of 72 on Chemistry, whereas one hour of studying for Biology will generate an expected grade of 70 on Biology. Your goal is to maximize your average grade on the two quizzes. Use the idea of optimization in differences to decide how much time you would spend studying for each quiz if you had a total of 1, 2, or 3 hours to prepare for each exam
If you had 1 hour, you should study chemistry if you had 2 hours, then you should study 1 hour(s) for chemistry and 1 hour(s) for biology If you had 3 hours, then you should study 2 hour(s) for chemistry and 1 hour(s) for biology
refer to the optimization analysis used to make a decision about the choice of an apartment. Suppose the government in a certain country wants to reduce urban sprawl. (Urban sprawl refers to the development of residential and commercial areas in the suburbs around the periphery of a city. One of the main problems with urban sprawl is that it leads to increased traffic congestion and air pollution as commuters travel to the city every day.) What measures could it take to ensure that people choose to live closer to the central business district
Increase property taxes on houses in the surburbs
Suppose you have to give up a job that pay you $40,000 a year to attend business school. How would this affect your calculation of whether to attend business school?
It will increase the indirect cost of your time, making you less likely to attend business school
Suppose 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 every day. 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
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 calculating the change in net benefits between alternatives
What does it mean to say that we are running out of "cheap oil"?
The oil reserves are becoming more expensive to find and extract over time
Which of the following is not one of the major factors that shifts the demand curve when it changes
The price of the good itself
What does this imply for the price of oil in the future?
The supply of oil will decrease, which will lead to higher prices in the future.
The concept of diminishing marginal benefits means that The concept of diminishing marginal benefits holds true for goods that you like a lot
each additional unit consumed is worth less to you than the previous one
Market demanded is derived by
fixing the price and adding up the quantities that each buyer demands
If new irrigation technology improves the average yield of a vineyard, then the supply curve for sparkling wine would
increase (shift right)
optimum
is the best feasible choice. in other words, the optimum is the optimal choice
Behavioral economics
jointly analyzes the economic and psychological factors that explain human behavior
Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient
Auctioning the rooms to the highest bidders
Suppose you are accepted at all of the three business schools to which you applied. Consider all the factors that could matter when it comes to choosing a business school. How would you go about making an optimal decision about which school to attend?
By comparing the net benefits from attending the three schools