Macroeconomics- Test 1

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

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 is her marginal benefit if she sells the quilt "as is" now?

$100

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 is the marginal cost of completing the task?

$200

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

One reason some manufacturing companies began moving production to China in the early 2000s was due to lower wages that could be paid to Chinese workers. Moving manufacturing to China to take advantage of lower wages so goods could be produced at a lower cost than if produced in the United States exemplifies which key economic idea?

People respond to economic incentives.

Explain how abundant resources such as water can be considered "scarce."

Scarcity refers to the limited nature of a resource. Even resources that are plentiful, like water, are not unlimited. In addition, some areas of the world do not have access to vast supplies of water, or must deal with temporary shortages due to drought. In all cases, scarcity is a real concern that must be answered by economics.

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.

A dangerous habit among those who own cell phones is driving while talking or texting. Although a great deal has been done to inform drivers of the risks of doing multiple tasks while driving, this informational campaign has been ineffective in the face of increased ownership of cell phones. If you were a policymaker, what types of negative incentives would you suggest to discourage individuals from driving, talking, and texting at the same time?

Some possible answers would include making it illegal to drive and do other things at the same time, and the negative incentive would be avoiding a traffic ticket and fine. Another negative incentive might be setting up cameras to take pictures of people driving and talking on the phone at the same time and making the pictures public. Another negative incentive might be making mandatory the installation in cars of equipment that interferes with a cell phone signal, so that using the phone in the car becomes inconvenient.

Economics professors are well aware of the importance of incentives. Which of the following situations shows the use of a positive incentive?

Students can choose to get a higher grade by doing extra credit work.

Public buildings in the United States are required to be accessible to the disabled and, as a result, almost all have an elevator. What would be an example of a positive direct incentive for those who can to use stairs?

Using the stairs will give them some exercise and make them healthier.

equity

a condition in which people receive from a relationship in proportion to what they give to it

production possibilities frontier

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

Ceteris Paribus

a latin term meaning everything else being equal

factor market

a market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability

Scarcity

a situation in which unlimited wants exceed the limited resources available to fulfill those wants

absolute adavantage

ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources

What does the term "marginal" mean in economics?

an additional or extra

mixed economy

an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources

centrally planned economy

an economy in which the government decides how economic resources will be allocated

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

positive analysis

analysis concerned with what is

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

voluntary exchange

both the buyer and the seller of a product are made better off by the transaction

normative analysis

concerned with what ought to be

Comparative advantage emerges because of the presence of

differing opportunity costs.

exogenous factors

external factors that can cause endogenous factors to happen - can't be controlled

if we move down and to the right along a ppf, the opportunity cost of this movement can be measured in terms of

how much of the y-axis good we give up

What are the 5 foundations of economics?

incentives, trade-offs, opportunity cost, marginal thinking, and the principle that trade creates value.

The cost incurred from the production of an additional unit of a product

is a marginal cost to the firm.

factors of production

labor, capital, natural resources, and other inputs used to make goods and services

An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?

marginal revenue

The basic goal of economics is to

match limited resources to people's limited wants and needs.

productive efficiency

occurs when a good or service is produced at the lowest possible cost

allocative efficiency

occurs when production is in accordance with consumer preferences

With regard to the PPF, an efficient point is a point that is

on the ppf

what can be said about scarcity?

scarcity forces us to make decisions

Economic model

simplified version of reality used to analyze real-world economic situations

endogenous factors

something i want to explain

economic variable

something measurable that can have different values, such as the incomes of doctors

economic growth

the ability of the economy to increase the production of goods and services

compartive advantage

the ability to produce a good or service at a lower opportunity cost than other producers

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service (ex. gaining the benefit of the satisfaction of watching another hour of tv rather than studying)

marginal cost

the cost of producing one more unit of a good (what you give up) (ex. the cost of enjoying an extra hour of tv is the reduction on your test grade because you studied less)

The opportunity cost of working rather than going to school is

the higher wages that come with additional education.

opportunity cost

the highest valued alternative that must be given up to engage in an activity

trade-offs

the idea that, because of scarcity, producing more of one good or service means producing less of another good or service

Macroeconomics is the study of

the operation of the economy as a whole.

microeconomics

the study of how households and firms make decisions and how they interact in markets

Economics

the study of the choices people make to attain their goals, given their scarce resources

macroeconomics

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

Rational decision making under conditions of scarcity requires individuals to

understand that trade-offs are necessary.

Indirect incentives create ________ consequences.

unintended

what is the opportunity cost of producing capital goods instead of consumer goods?

we give up consumption today

Why is the PPF downward sloping?

we must give up one good to increase production of another

As a new firm in the apple-picking business, Nicolette has considered adding an economist to her management team. This economist would be unable to help her managerial team determine

why people eat apples.