ECON WRIT 1
positive economics
-describes what people actually do -descriptive -descriptions of what people actually do are objective statements -describing what is happening or predicting what will happen
normative economics
-recommends what people ought to do -advisory -advises individuals and society on their choices -depends on subjective judgments - depends in part on personal feelings, tastes or opinions
marginal cost
the extra cost generated by moving from one feasible alternative to the next
pareto efficient
if no individual can be made better off without making someone worse off
How does a natural experiment differ from a randomized one? A. natural experiment uses existing variation, while a randomized experiment generates variation. B.A natural experiment generates variation, while a randomized experiment uses existing variation. C.Natural experiments are not influenced by omitted variables; randomized experiments contain omitted variables. D.A natural experiment is expensive, while a randomized experiment is cheap.
A
How does a consumer's budget set differ from his budget constraint? A. budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income. B.A budget constraint refers to all of the possible bundles of goods and services a consumer can purchase, while a budget set is limited to the bundles he can purchase using all of his income. C.A budget set is simply the collection of the many budget constraints a consumer faces at different points in time. D.There is no difference at all—the terms "set" and "constraint" are interchangeable.
A
Which of the following is the best example of causation (versus correlation)? A.Oil prices go up and gasoline prices go up. Your answer is correct. B.Ice cream sales and the number of drownings. C.Women's skirts get shorter and the stock market goes up. D.The groundhog sees its shadow and winter lasts longer.
A
Market demand is derived by __________. A.fixing the price and adding up the quantities that each buyer demands. B.adding up both the prices each buyer pays and the quantities that each buyer demands. C.fixing the quantity and adding up the prices that each buyer pays. D.dividing each buyer's demand by the total number of consumers in the market. Does the shape of the market demand curve differ from the shape of an individual demand curve? A.Yes, individual demand curves tend to be downward-sloping, while market demand curves are upward-sloping. B.Yes, individual demand curves tend to be upward-sloping, while market demand curves are horizontal. C.No, they both tend to be upward-sloping curves. D.No, they both tend to be downward-sloping curves.
A/D
An indifference curve is the set of bundles that ___________. A.a consumer can purchase using all of his income. B.provide an equal level of satisfaction for the consumer. C.a consumer can purchase with his income. D.a consumer most prefers. Can two indifference curves intersect? Explain your answer. A.Yes, intersecting indifference curves simply imply that a consumer changes her mind from time to time. B.Yes, intersecting indifference curves simply imply that a consumer has difficulty choosing between some bundles. C. No, intersecting indifference curves would imply that a consumer is indifferent between bundles that yield different total benefits. D.No, intersecting indifference curves violate the Law of Demand.
B/C
A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ___________. A.any shift in consumption toward either good will violate her budget constraint. B.her preferences become distorted and therefore invalid when the marginal benefits per dollar are unequal. C.the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off. D.an inequality between these ratios implies that she has insufficient income to achieve maximum satisfaction.
C
Given this information, for which of these activities would you be able to compare opportunity costs? A. You can only compare activities 1 and 3, since they both relate to an amount of time that is lost. B. You can compare all the activities after you translate all the missed activities into dollar amounts. This is the correct answer. C. You can only compare activities 1 and 2, since they can both be easily stated in terms of dollars forgone. D. You cannot compare any of these opportunity costs, since they each are measured in different units.
D. You cannot compare any of these opportunity costs, since they each are measured in different units. *****
Which of the following examples do you provide as a normative question? A.What is the rate of change of disability enrollment? B.How many people are on food stamps? C.How much does welfare drive up the deficit? D.Should welfare be repealed? Which of the following do you provide as a positive question? A.Will our high national debt lead to a breakdown of family values? B.Is passing on a high national debt to our children an immoral act? C.Who is the most to blame for the national debt? D.How much is the national debt?
D/D
Some studies have found that people who owned guns were more likely to be killed with a gun. On this evidence alone, do you think there is conclusive evidence in favor of stricter gun control laws? ....., because it is possible that the studies may be confusing ..... with .......
No/correlation/causation
inferior good
a good is inferior of the quantity demanded is inversely related to income; when income rises, consumers buy less of an inferior good
normal good
a good is normal if the quantity demanded is directly related to income, when income rises, consumers buy more of a normal good
diminishing marginal benefit:
as you consume more of a good, your willingness to pay for an additional unit declines
randomization
assignment of subjects by chance rather than by choice to a treatment or a control group
opportunity cost
best alternative activity
In equilibrium, everyone ___________. A. benefits by changing his or her own behavior. B. maximizes his or her benefits, so that opportunity costs and trade-offs are eliminated. C. simultaneously optimizes, so that nobody benefits by changing his or her own behavior. Your answer is correct. D. faces a trade-off, such that the individual must give up one thing to get something else.
c
Which of the following is true regarding the concept of causation? A. It states that if event A causes event B, then event B must also cause event A. B. For any two events that occur, economists state that the first must have caused the second, since it came first. C. It describes how one event can bring about change in another. D. It states that if event A causes event B, then event B cannot have a causal effect on event A.
c
three things that influence price elasticity
closeness of substitutes, budget share spent on the good, available time to adjust
perfectly elastic
demand is highly responsive to price changes, the smallest increase in price causes consumers to stop consuming the good altogether, horizontal line
opportunity cost of buy one unit of good x is ..... units of good y....is found by
dividing the highest number of units of good y by the highest number of good x
unit elastic demand
goods that have a price elasticity of demand = to one, curved line
elastic demand
goods that have elastic demand greater than 1
inelastic demand
goods with a price elasticity of demand less than 1
controlled experiment
has a test group and a control group
price elasticity of demand
measures the percentage change in quantity demanded of a good resulting from a percentage change in the good's price -% change in quantity demanded/% change in price
elasticity
measures the sensitivity of one economic variable to a change in another
The statement that the United States is too aggressive in increasing the money supplyis too aggressive in increasing the money supply is a ..... statement since it describes what people . The statement that the United States has an average annual inflation rate of 2.1 percenthas an average annual inflation rate of 2.1 percent is a ... statement since it describes what people The ethical implications of a hotly debated government policy would best be considered a
normative/ought to do positive/actually do normative question, since it deals with a subjective issue based on personal preferences.
causation
occurs when one thing directly affects another, the path from cause to affect
3 principles of economics
optimization, equilibrium, empiricism
Law of supply
quantity supplied and price are positively related
perfectly competitive market
sellers all sell an identical good or service, and any individual buyer or any individual seller isn't powerful enough on their own to affect the market price -implies that all buyers and sellers are price takers, they accept the market price and can't bargain for a better price
omitted variable
something that has been left out of a study that if included would explain why two variables are correlated
5 factors causing demand curve to shift
tastes and preferences, income and wealth, availability and prices of related goods, number and scale of buyers, buyers' beliefs about the future -shift left = decrease, shift right = increase, movement along the curve = when the price shifts and demand hasn't
Marginal cost
the change in total cost associated with producing one more unit of output -change in total cost/change in output
the triangle in between the demand line and equilibrium line is
the consumer surplus
consumer surplus
the difference between the willingness to pay and the price paid for the good
income elasticity of demand
the percentage change in quantity demanded of a good due to a percentage change in the consumer's income -% change in quantity demanded/% change in income
perfectly inelastic
the quantity demanded is completely unaffected by price, vertical line
economics
the study of how agents allocate scare resources and how these choices affect society
social surplus
the sum of consumer surplus and producer surplus
the triangle in between the supply curve and the equilibrium line is
the supply surplus
correlation
there is a mutual relationship between two things, as one thing changes, the other changes as well, a connection
The concept of diminishing marginal benefits means that __________. A.each additional unit consumed is worth less to you than the previous one. B.as you consume more of a good, your willingness to pay for that good increases faster than the benefit you receive. C.the more of a good that you consume, the lower is your overall benefit from that good. D.each additional unit consumed is worth more to you than the previous one, but the additional benefit grows at a diminishing rate. The concept of diminishing marginal benefits .... for goods that you like a lot.
A/holds true
Give an example of a pair of variables that have negative correlation. A.The quantity of fertilizers used and crop yield. B.The number of physicists and the speed of sound. C.The number of winter coats sold and the temperature outside. D.The color of a person's shirt and the number of meals sold at Chinese restaurants.
C
Which of the following is not an example of causation? A. Talking on the phone while driving B. Smoking cigarettes will lead to lung cancer C. Driving without car insurance will lead to getting into an accident D. All of the above are examples of causation.
C
total cost equation
TC = VC + FC
ATC equation
TC/TO
AFC equation
TFC/TO
AVC equation
TVC/TO
Which of the following is not an item studied under microeconomics The money supply`. *** Prices of individual goodsPrices of individual goods. Firm profitsFirm profits. The well minus being of agentsThe well−being of agents.
The money supply`. ***
Which of the following statements would not be considered a positive statement?
The vending machine outside the classroom needs a better selection of foodThe vending machine outside the classroom needs a better selection of food.
cross price elasticity of demand
a measurement of the percentage change in quantity demanded of a good due to a percentage change in another good's price -% change in quantity demanded of good x/% change in price of good y
The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is
a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data.
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
producer surplus
computed by taking the difference between the market price and the marginal cost
4 variables causing supply curve to shift
prices of inputs to produce the good, technology used to produce the good, number and scale of sellers, seller's beliefs about the future
Law of demand
the quantity rises when the price falls -prices of gasoline and quantity demanded are negatively related
