Econ Exam 1

According to economic theory, social interactions are the result of

calculated choices by individuals

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal cost of adding the shrub-trimming service to the standard package?

$10

In the economic way of thinking, "scarcity" is another way of saying

Sacrifice

Microeconomics

The study of individuals, firms, and government

What is the equation for Efficiency?

value of output / value of input

Trade- _________ exchange of property rights

voluntary

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal benefit if he sells the standard package?

$25

___________ specialize/have comparative advantage in information (where a buyer and seller exist) to reduce transaction costs

Middlemen

______________- subjective, fact based, dependent on tastes, beliefs, and preferences

Normative Economics

There are 20 of you in the classroom, I walk in with a bag of candy that has 20 pieces. Is candy scarce in the classroom?

Yes

A commodity is a _____ if less of it is preferred to more Ex. pollution, bad smells, homework, etc.

bad

What is the basic unit of economics? What does it have to be under?

- Economic agent - Scarcity

What does it mean if something is scarce?

- Not enough - Not enough to satisfy everyone's wants - Wants > Availability

Why do we specialize?

- Producers specialize so that they can expand their possibilities (wealth) by trading for something that is more costly to produce on their own - This is referred to as the "law of comparative advantage"

What does economic thinking look like? Think about the airplane example

- Scarcity/Trade Off: more armor- less maneuverability, less armor- more vulnerability - To "Think" is to look for the missing bullet holes

Approximately what percentage of the world population experiences scarcity?

100%

Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether she should extend her hours of operation. Thuy Anh figures that her sales revenue will depend on the number of extra hours the flower shop is open as shown in the table 1.2. She would have to hire a worker for those extra hours at a wage rate of $16 per hour.

4 hours

Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of extra hours the nail salon is open as shown in the table 1.1. She would have to hire a worker for those extra hours at a wage rate of $10 per hour.

5 hours

______________: The ability to produce a good or service at lower absolute or produce more using the same resources

Absolute Advantage

_______________: The ability to produce a good/service lower relative cost- lower opportunity cost

Comparative advantage

Explain the cost and benefit analysis for the Cobra example.

EAB of breeding snakes > EAC of breeding snacks → people breeding snakes

Explain the cost and benefit analysis for the seatbelt example.

EAB of risky driving > EAC of risky driving → people engage in more risky driving

__________- any group or individual that makes choices

Economic agent

____________ is the study of economic agents making choices under scarcity, and their consequences

Economics

_________ compares the ratio of the value of the output to the value of the input

Efficiency

Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do? Select an answer and submit

He should sell the machine now to make the most profit

You want to buy a $1,000 computer. If you drive 3 miles, you can buy it for $990

If I drive for book→ C ≤ $10 → you should drive for the computer

You want to buy a $20 book. If you drive 3 miles, you can buy it for $10.

If I drive for the book → C ≤ $10, It would not be better to make the drive

___________ efficiency → leads to lower production costs (production of values- whatever is valuable)

Increased

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?

No, his marginal benefit is less than his marginal cost

Is rising the minimum wage the best way to reduce inequality? This is an example of what kind of economics?

Normative

What is the effect of raising minimum wage on employment? This is an example of what kind of economics?

Positive

_______________ - objective, fact bases, independent of tastes, beliefs, and preferences

Positive Economics

_____________ is when there is cause and effect, but it goes in the opposite direction compared to what we thought Example: Gambling and healthier older people

Reverse causality

Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What should she do?

She should purchase the period fabric, complete the task and then sell the quilt

Macroeconomics

The study of the whole economy

The reason for importance of economics as a disciple- helps us understand ______________ consequences

UNINTENDED

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. Should Allison continue to offer the 3-color pinstripe application?

Yes, she still makes a profit by selling the 3-color application

Which of the following is motivated by an equity concern? a. Some states have transferred funds to food bank programs in order to increase benefits to lower-income families b. Following the implementation of subsides for energy conservation, household demand for rooftop solar panels increased quite significantly in California c. The United Network for Organ Sharing advocates a system of rationing scarce kidneys that would favor young patients over old in an effort to wring more life out of donated organs d. The United Stated offers patent protection to pharmaceutical manufactures to prevent other from duplicating their products

a

Consider the following statements:a. Consumers rent more kayaks from a vendor that rents kayaks at a lower price than other rival kayak vendors along Waikiki beach.b. Department stores take steps to increase security since they believe it is more costly to allow shoplifting than to install expensive security monitoring equipment.c. Farmers produce more cotton when its selling price falls. Which of the above statements demonstrates that economic agents respond to incentives?

a and b

What is the PPF?

a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology

In 2009 Al Gore won the Nobel Peace Prize and was awarded $1.4 million. He donated it to his Alliance for Climate Protection. From the economic point of view his charitable project suggests a. Gore himself no longer faced scarcity because he was in a position to give so much of his money away b. The Alliance at least temporarily overcame scarcity because they enjoyed free resources c. It was chosen over other uses of his money, and therefore even Gore has to economize d. It was a ploy to gain media attention after Vice Presidency

c

Property right... a. are essentially arbitrary. therefore, rearranging them will have few effects b. do not really exist in a capitalist society c. are a major part of the "rules of the game" which govern economic activity d. prevent people from cooperating in the most effective way e. are different from human rights

c

Which of the following is motivated by an efficiency concern? a. In December 2006, the Bush administration restarted a short-term housing assistance program for victims of Hurricane Katrina b. Each year, the University of Notre Dame conducts a lottery to parcel out the 30,000 seats available to contributors former athletes, and parents in the 80,000 seat stadium c. The United Network for Organ Sharing advocates a system of rationing scarce kidneys that would favor young patients over old in an effort to wring more life out of donated organs d. The federal government's housing choice voucher program assists very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market

c

Economics is the study of ______________ and its ______________.

choice; unintended consquences

Suppose a study finds most pot-smokers drank milk as young children. If we reach the conclusion that because most pot smokers "started" on milk, milk drinking "leads" to pot-smoking (at least among certain susceptible groups of milk users), we are most likely

confusing statistical correlation with causation

In the economic way of thinking, private property rights provide people with a. rules of the game b. dependable information c. incentives d. all of the above e. none of the above

d

Rich and poor people have which of the following in common? a. scarcity b. economizing behavior c. pursuing the plans and projects in which they were interested d. all of the above e. none of the above

d

Rich people who have more money than they know how to spend. a. no longer act under scarcity b. no longer need to economize c. no longer have to choose to advance one project over the other d. will still face scarcity of their time

d

Which among the following is an example of "economizing" behavior? a. a ski resort owner who is deciding whether or not to remain in operation during the season with abnormally low snowfall b. the board of directors of a major bank who are considering opening new branches in a neighboring state c. the planning committee of a conservative church parish, which is considering the reintroduction of the Post-Tridentine, Latin-language mass d. A family comparing the costs of a vacation in the mountains to the cost of a location at the beach e. all of the above

e

Which one of the following twentieth-century nations eliminated the problem of scarcity? a. socialist cuba b. socialist china c. fascist italy d. usa e. none of the above

e

Scarcity can be eliminated by: a. abolishing competition b. abolishing capitalism c. abolishing money d. all of the above e. none of the above

e. none of the above

Which of the following statements is true? a. capitalism has a tendency to eliminate scarcity b. competition could be eliminated if money were abolished c. competition is desirable and cooperation is undesirable d. greed must be present for a market transaction to be effective e. none of the above

e. none of the above

A core principle of the economic way of thinking assumes social phenomena

emerge from individuals' choices

A _________ can be acquired without sacrifice Ex. sunlight

free good

A commodity is a _______ if more of it is preferred to less Ex. eggs, milks, etc

good

You want to buy a $20 book. If you drive 3 miles, you can buy it for $10. You want to buy a $1,000 computer. If you drive 3 miles, you can buy it for $990. If you decide not to drive for the book, would you still drive for the computer.

if I don't drive for the book → C > $10 → Should not drive for the computer

If we ignore something that contributes to cause and effect, then that something is an ______________ Ex. Buttercup, X (names)→ Y (milk)

omitted variable

When Mother Teresa used her $190,000 Nobel Peace Prize to construct a leprosarium, she was

pursuing her self interest

The existence of scarcity in economics comes from

resources being limited in supply.

A __________ good requires sacrifice Ex. You find a bag of gold next to you (free good) then your sibling comes in and says you should sell it for $5,000 by holding on to it it is a scarce good

scarce

Social cooperation and exchange is motivated by _______

self interest

Voluntary exchange- involves exchange of __________ values goods. If the goods were equal in value than there would be no reason to trade

unequally

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. Should Lionel continue to offer the shrub-trimming service?

yes, her marginal benefit is greater than her marginal cost