Economics Exam 1

When a market is in equilibrium...

There is neither excess demand nor excess supply.

Excess demand occurs...

When the price is below the equilibrium price.

What would not be studied in microeconomics?

Whether the federal budget should be balanced.

A price ceiling that is set above the equilibrium price...

Will have no effect on the market.

In a free market, if the price of a good is below the equilibrium price, then...

buyers, hoping to ensure they acquire the good, will bid the price higher.

If a country's economic decisions are made by an individual or small number of individuals, then it has a...

Centralized economy.

A movement along a demand curve from one price-quantity combination to another is called a...

Change in quantity demanded.

An implication of scarcity is that...

People must make trade offs.

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is...

$35 (cost of ticket and action)

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is...

5 (extra unit of the activity)

In a market in which the government has set a price ceiling below the equilibrium price...

A black market might develop.

The cost-benefit principle is...

A positive economic principle (how people do behave.)

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is...

An economic problem because Chris has only one hour and engaging in one activity means giving up the other (tradeoff).

When the price of a good changes, the amount of that good buyers wish to buy changes...

Because of both the substitution and the income effects.

The buyer's reservation price for a particular good or service is the...

Largest price the buyer would be willing to pay for it.

The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity.

Marginal benefit.

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

Marginal cost.

According to the Cost-Benefit Principle, you should spend an additional hour studying for an exam if, and only if...

The benefits of studying for an additional hour exceeds the costs of studying for an additional hour.

Microeconomics differs from macroeconomics in that microeconomics focuses on..

The choices made by individuals and the implications of those choices (focused).

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because...

The costs will be understated.

The opportunity costs of an activity includes the value of...

The next best alternative that must be foregone.

An increase in the quantity of tea demanded occurs if...

The price of the tea falls.

A seller's reservation price is generally equal to...

The sellers opportunity cost of producing an additional unit.

A sellers reservation price is generally equal to...

The sellers opportunity cost of producing an additional unit.

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that...

The wage for teachers in that district is lower than the equilibrium wage.

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

economic surplus; $3,000

The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping.

increases; upward

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes, bigger

Economics is the study of...

Choice in the face of limited resources.

If an increase in the price of good X leads to a decrease in the demand for good Y, then...

Good X and Y are complements.

The study of individual choice and its implications for the behavior of prices and quantities in individual markets is...

Microeconomics.

The demand curve illustrates the fact that consumers tend to purchase...

More of a good as its price falls.

A good example of central planning at work in the U.S. is...

NYC's rent control program

An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of...

Normative economics.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her...

Reservation price.

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying....

The demand curve.

The economic surplus of an action is...

The difference between the benefit and the cost of taking an action.

When the supply curve shifts to the left and there is no change in demand...

The equilibrium price will rise.

What might cause a demand curve to shift to the right?

An increase in the price of a substitute.

To understand how the price of a good is determined in a free market, one must account for the interests of...

Buyers and sellers.

When the current price of a good is below the equilibrium price...

Buyers have an incentive to offer to pay sellers more than the current price.

All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity.

Decrease; decrease

A demand curve is ____ sloping because ____.

Downward; fewer people are willing to buy an item as its price rises.

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case...

Excess demand will lead the price of oranges to rise.

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium...

Excess supply will lead the price to fall.

If the price is above the equilibrium price, then there will be...

Excess supply.

The marginal benefit of an activity is the...

Extra benefit associated with an extra unit of activity.

What would not be studied in macroeconomics?

How a sharp increase in gasoline prices is likely to affect SUV sales.

Economics is defined as the study of...

How people make choices in the face of scarcity and the implication of those choices for society as a whole.

Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas...

Is likely to cause the price you pay for gas to increase.

The cost-benefit principal indicates that an action should be taken if and only if...

Its benefits exceeds its cost.

Buyers and sellers of a particular good make up the...

Market for the good.

Positive economic principles are those that...

Predict how people will behave.

If there is an excess supply of sport utility vehicles, then...

Quantity supplied is greater than quantity demanded.

Economists recognize that because people have limited resources...

They have to make trade-offs.

One thing that distinguishes normative economic principles from positive economics principles is that...

normative principles tell us how people should behave, and positive principles tell us how people will behave.