Micro Econ

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is

$315

Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's total cost of going to college is

$42,600.

What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600? Shoes. Socks. 800. 0 600 400 400. 700 200. 900 0. 1000

300

Corn (in bushels) Wheat (in bushels) 2000. 0 1600 700 1200 1300 800 1800 400 2200 0 2500

400 bushels of wheat

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Adam Smith

Both Dave and Caroline produce sweaters and socks. If Dave's opportunity cost of 1 sweater is 3 socks and Caroline's opportunity cost of 1 sweater is 5 socks, then

Dave has a comparative advantage in the production of sweaters.

T/F Economics is the study of how society allocates its unlimited resources.

False

T/F The invisible hand ensures that economic prosperity is distributed equally

False

DeShawn has spent $600 purchasing and repairing an old fishing boat, which he expects to sell for $900 once the repairs are complete. DeShawn discovers that, in addition to the $600 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $900 to potential buyers. He can sell the boat as it is now for $400. What should he do?

He should complete the repairs and sell the boat for $900.

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

People respond to incentives.

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.

She should replace the carpeting but not replace the roof.

After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal cost of going to Ft. Lauderdale decreases

T/F A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost.

True

T/F Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.

True

T/F The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour.​

True

If the United States decides to trade with Yemen, we know that

Yemen and the United States can both benefit.

A society allocates its scarce resources to various uses. These scarce resources include water. all of the above are correct. machines. land.

all of the above are correct.

Economic models are built with

assumptions.

Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should

be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Table 2-5 shows one set of production possibilities. Based on the values in the table, the production possibilities frontier is Corn (in bushels) Wheat (in bushels) 2000 0 1600 700 1200 1300 800 1800 400 2200 0 2500

bowed outward indicating increasing opportunity costs

Economic models

can be useful, even if they are not particularly realistic.

Goods produced abroad and sold domestically are called

imports

Economists build economic models by

making assumptions.

A rational decision maker takes an action only if the

marginal benefit is greater than the marginal cost.

Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for his camera or a new tripod. Both the flash and tripod cost $230, so he can only buy one. This illustrates the principle that

people face trade-offs.

The phrase "no such thing as a free lunch" means

people must face tradeoffs

The "invisible hand" directs economic activity through

prices.

The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

the available production technology.

Jane decides to spend four hours working overtime rather than going to a family gathering. She earns $12.50 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone to the family gathering

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

the nation is not using all available resources or is using inferior technology or both