Micro economics chapter 1

Sue-Ling is deciding how to spend her next semester. She really wants to study abroad, which will cost an additional $2,500 more than her regular college tuition. If she studies abroad, she will get to take a course in Art History that she is really wants to take, but she will have to forgo the course in Programming at her home university that she would take if she did not study abroad. The opportunity cost for Sue-Ling to study abroad is:

$2,500 and the Programming course.

Abby received requests from three families to babysit a toddler on Friday night. She can only babysit for one of the three families. The Fleming family offered her $30 for the night, the Wang family offered her $40 for the night, and the Patel family offered her $60 for the night. If Abby chooses to babysit for the Patel family, her opportunity cost of this decision is:

$40 The Wang family, she can only watch one toddler on friday

Lisa is choosing between three alternatives: a) working at her job that pays 60 dollars; b) writing a term paper which she values at 40 dollars; or c) going out with a friend, which she values at 80 dollars. The opportunity cost of writing the term paper is:

80 dollars. The highest alternative opportunity cost is going out with a friend that is valued at $80.

Given that people usually exploit opportunities to make themselves better off, which of the following policies is MOST likely to reduce road congestion in Los Angeles (the worst traffic city in America)?

a toll road that requires each car to pay a congestion fee to enter the city center

For each of the following scenarios identify the correct term. Suppose you are a freshman in college and you have not declared a major. One reason you enrolled at your respective college was the school's vibrant social life. At the same time, you want to balance your academic life because you know that your grades will matter for graduate school or job applications. You decide to forgo partying for two hours to study for an upcoming economics exam. a. To make that decision you weighed your You start a part-time job as a package handler at a large delivery company. After training, you start your first shift and your supervisor tells you to unload packages from a single truck. Unfortunately, he tells 5 other people to do the same which causes most of you to stand around and wait for your co-workers to get out of the way. There are several other trucks already on the dock waiting to be unloaded. b. Which of the following terms best describes what your supervisor has failed at? Your economics professor is attempting to recruit more students to major in economics. She presents data showing that economics majors develop skills valuable in private industry, government, and research. She also argues that they earn a relatively higher income than other majors. c. Your professor is presenting you with ____________ to major in economics. You are assigned a final group project for your economics course. One member of your group is really good at finding resources for the project, one is really good at proofreading and editing, and you are really good at making a presentation. d. Based on this, you know that via _____________you can complete the project more efficiently than if you all did each part together..

a) Opportunity Cost b) Efficiency c) Incentives d) Specialization

Product prices change incentives to purchase goods and services. If Byron is choosing between apples and oranges in a local grocery store, a decrease in the price of oranges _____ the incentive to buy apples and _____ the incentive to buy oranges.

decreases; increases

A clothing store benefits from a new automobile factory in town because:

more people will be working and earning and spending some of their incomes on clothing

If a market is in equilibrium:

no individual will be better off doing something different.

Suppose you and your roommate have the following agreement when it comes to cleaning your apartment: each person washes her or his own dishes after each meal. The principle of trade you just learned tells you that it would be more efficient if:

one of you wash all the dishes while the other does a different chore.

Aminah has a calculus exam tomorrow. However, a free lecture by one of her favorite authors is taking place this evening. Aminah decides to attend the lecture instead of studying for her exam. Aminah's opportunity cost of attending the lecture is:

the transportation and time cost of getting to the lecture itself plus the reduction in her calculus exam grade as a result of not studying tonight.

Tyrone has three options on how to spend his Saturday afternoon: to go out with friends, watch a movie, or wash his car. Tyrone's opportunity cost of washing his car would be:

the value of going out with friends OR watching a movie. (or because you can't do both at the sametime)

The price of gasoline is $2.50 per gallon at the closest gas station but is only $2.30 per gallon at a gas station two miles away. By driving to the farther gas station, the opportunity cost is:

the value of one's time and expenses to go to the farther gas station. The highest opportunity cost is the value of the time it takes to drive to a farther gas station and the expenses of gas going to go to the farther gas station.

Suppose one parent picks up their child from day care, while the other parent stays home to make dinner. This is an example of the principle that:

there are gains from trade.

Inflation results from _____ spending in the economy.

too much

Because of scarcity:

we face tradeoffs in nearly every choice we make.

A decrease in efficiency means that an economy has:

made more people worse off without making others better off.

Suppose everyone in a small town decided to save more and spend less. How will this affect an economy? (In macroeconomics, this is called the paradox of thrift.)

It will decrease the overall level of income, since one person's spending is someone else's income.

Determine which economic principle is illustrated by each scenario.

Market Efficiency- The owner of a snow cone trailer realizes that the demand for snow cones is low during the winter, and thus, closes shop until the temperature warms back up near summertime. Government Intervention- The local river has so much pollution that three-eyed fish are forming. The government responds by regulating the amount of chemicals that can be dumped into the river. Specialization- At a high end restaurant, the restaurant owner has one chef at a meat station, one chef at a vegetable station and one chef, who has an artistic eye, plate the food they are given. The result is increased speed, as more customers get serviced during an evening. Equilibrium- During the summer, a bumper crop of oranges in Florida causes a surplus in the supply of oranges nationwide. As a result, prices fall to compensate for the surplus and civilians enjoy the fruits of the farmers labor.

You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers, making it easy for engineering graduates to find employment, while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. Which economic principle does this illustrate?

Markets tend to move towards equilibrium as individuals respond to incentives. In this case, "equilibrium" means the point at which no individual can change his behavior and become better off. Given their affinity for music and engineering, students consider the costs and benefits associated with choosing each major. The market presents students with incentives, such as the likelihood of employment upon graduation, and students then respond to those incentives. Note that the principle described is that markets tend to move towards equilibrium. In general, while the concept of equilibrium is regularly used in economic analysis, incentives are constantly changing, so that actually achieving equilibrium is unlikely.

When the Chicago city manager receives complaints that the municipal courts are not fully accessible to individuals with disabilities, she responds that the $1 million improvement needed to address the problem will not happen because "that money could be spent building lavatory space for people with disabilities." Which economic principle does this statement BEST represent?

The true cost of something is its opportunity cost.

The $15 Kelly's Big Burger gift card that your friend gave you for your birthday expires today. You can either use the gift card to buy yourself dinner at Kelly's Big Burger, or you can stay home and eat a delicious home-cooked meal. What is the opportunity cost of eating the home-cooked meal?

The value of the ingredients that go into the home-cooked meal, and the value of a $15 meal at Kelly's Big Burger .

Some apartments in many large cities are subject to rent controls that restrict the maximum rent that can be legally collected from the tenants to an affordable level below the prevailing market rent. These rent controls are an attempt by the city governments to improve _____ in the rental markets.

equity

The goal of a progressive income tax system that requires people with higher incomes to pay a higher tax rate is:

equity.

As incomes fall, spending ____, and as incomes rise, spending _____.

falls; rises

Which is NOT an example of a resource?

firms Resources are land, labor, machinery, human capital.

In a market economy, individuals' economic lives are said to be

interrelated with many other individuals and firms.

Excess availability of empty parking spots near the stadium during a popular college football game indicates that the parking market _____ in an equilibrium and _____ to restore the equilibrium.

is not; the parking fees need to be lowered

Economics is the

study of the consumption, production, and distribution of goods and services.

Sabrina has gone out to lunch three times this week. She has some extra money, so she decides to go out to lunch a fourth time. Which economic principle does this statement BEST represent?

"How much" is a decision at the margin.

You decide whether to eat one more slice of cheesecake based on how hungry you feel. Which economic principle does this statement BEST represent?

"How much" is a decision at the margin.

Instead of attending class, one could have worked an extra hour at the café for $10 or watched a neighbor's child for $15. The opportunity cost of attending class is:

$15. The highest opportunity cost would be watched a neighbor's child for $15.

Determine if government intervention in the following scenarios will improve society's well-being.

A local energy company releases pollutants the regional water reservoir . The coastal town of Willowby could prevent many shipwrecks by buldinding a lighthouse. However, no individual resident is willing to pay for the ligthhouse becouse they could never recope the cost from ships benefiting fro the lighthouse.

Which statement describes the equity-efficiency trade‑off?

Actions intended to make economic outcomes fairer may cause efficiency to decrease. Policies or actions that attempt to improve fairness (equity) in a market often result in a loss of efficiency. This is referred to as the equity-efficiency trade‑off. For example, the government could pay for everyone to attend college. However, this would need to be financed with higher taxes, the payment of which is likely to make some people worse off. Although this system is arguably more equitable (fair), it would also be less efficient.

Which of the following demonstrates a scenario with no opportunity cost? a) It's Friday night and you have no obligations the next day, so you stay up late talking and hanging out with your friends. b) The chemistry club is giving out free pizza for lunch to all who come to their table to get it. c) Naomi, age 8, is at a bookstore and chooses to buy a book about a young wizard instead of buying a math textbook that she would probably never open. d) Chez Moi and Chez Nous, two premiere French restaurants with three Michelin stars, both offer you a full-time sous chef job at the same salary. You are ecstatic because you know it is a win-win scenario and chooses to work for Chez Nous. e) All of these situations listed above have an opportunity cost

All of these scenarios have an opportunity cost.

Which of the following words best describes what economics is about?

Choices

Determine if government intervention in the following scenarios will not improve society's well-being.

Consumers are beginning to dwmand more smrtphones than trditional cell phones A manufacturing copany in Texas is watching fro producing coast to t-shirts in anticipation of warmer weather.

Which of the following is a decision that follows the net marginal benefit principle?

Deciding whether to spend one more hour studying for an exam. Net Marginal Benefit: Rational people will take an action if the marginal benefit outweigh the marginal cost of that action.

What is the main problem addressed with scarcity?

Determining how to address unlimited wants with limited resources.

Kanye, Juliana, Jaco, and Danny are trying to form a band. They each have some basic skills on most instruments, so their current plan is for each of them to rotate among vocals, guitar, bass, and drums. After a year of practice and rehearsals the band still sounds awful. Kanye cannot keep a steady beat when on bass or drums, Jaco sounds terrible on everything except the bass, nobody except Juliana can remember all the chords on guitar, and even Danny's own mother thinks his singing sounds like a dying cow. At their current rate, they expect it will be several years before they are good enough to land their first paid performance. None of them have enough money saved up to last that long. They all know you are taking economics and ask your advice. What would you say to them?

Have each member specialize in the role that they are best in to take advantage of benefits from specialization.

Which of the following would be most closely related to microeconomics?

How rising wages affect the choice of working instead of going to school.

Which of the following statements describes efficiency?

II and III II. A situation in which we cannot produce more of one good without producing less of another good. III. A situation in which we produce the goods and services that people value most highly.

Specialization in production was the starting point for Adam Smith in:

The Wealth of Nations.

Which is NOT an example of a behavior exhibited in a market economy?

The president of the European country of Semolina decrees that pasta must be consumed at all meals in an effort to help domestic pasta makers.

Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago? In which field do researchers focus on investigating the phenomena described?

There has been economic growth in our society. Economics

When the economy experiences shortfalls or excesses of spending, government policies can be used to address the imbalances. Which statement does NOT address such imbalances, realized during the coronavirus pandemic?

There is fear of recession and uncertainty about the future in a post COVID-19 reality.

A downward fluctuation in the economy like this is known as The correct term is a key component of

a recession. macroeconomics.

When four roommates agree to specialize in the chores they are most efficient at, this can lead to:

a situation in which less time is spent on chores by every roommate. Through trading and dividing the chores, the 4 roommates don't have to spend as much time completing them.

If an economy is efficient:

all opportunities to make people better off without making other people worse off have been exploited.

Buildings are a part of an economic resource called:

capital.

A trade-off involves weighing

costs and benefits.

For which of the following decisions is marginal analysis least beneficial? 1. deciding which college to attend 2. deciding how fast to go on the freeway 3. deciding between watching another episode of your favorite TV series and going to bed 4. deciding whether to take a lunch break or knock on another door as a door-to-door salesperson 5. deciding whether to do more sit-ups at the gym

deciding which college to attend because marginal analysis is a series of decisions based on Economic Profit not just two separate things

According to the principle that one person's spending is another person's income, a decrease in wealth based on stock market values can:

decrease spending on goods and services, and thereby lower incomes.

According to the principle that one person's spending is another person's income, a decrease in consumer confidence can _____ spending on goods and services, and therefore _____ incomes.

decrease; lower

An economy has achieved _____ if it has not passed up any opportunities to make some people better off without making others worse off.

efficiency

If Isabella drives to a Kansas City, 120 miles from Manhattan, Kansas (home of Kansas State University) to do her back-to-school shopping, this will:

hurt Isabella's community because Isabella's spending will be income for people in the large city.

If the productive capacity of the economy is less than the amount that people want to spend on goods and services, the result is:

inflation.

The seaport town of New Monopoly has become extremely popular with shipping companies due to its superior location. The port has become so congested that ships must wait hours every day just to dock. This is an example of:The mayor of New Monopoly realizes that the congestion at the port costs the shipping companies and his town money. Which decision would NOT move him towards a command economy?

market failure. The mayor decides to let individual firms and consumers find a solution for the excessive wait time.

Which of the following is a microeconomic topic?

reasons why a consumer buys more cheese

Which of the following topics would be studied in macroeconomics?

recessions

Please select the economic term that is best described by each statement below. There are limited resources to satisfy all of society's wants. Comparing the benefits and costs of engaging in an activity.

scarcity trade-off

You see a large group of stranded passengers standing next to a disabled bus, and you have only three seats in your car. You have to decide which three passengers to rescue because of:

scarcity.

One of the potential causes of a recession is a(n):

shortfall of spending.

Consider a situation where two gas stations located across the street from each other are charging different prices. The Exxon gas station is charging 50 cents more per gallon of each type of gasoline than the Shell gas station. The equilibrium can be restored if:

the Exxon gas station reduces its prices.

Suppose you have a choice between studying one more hour for your history exam or studying one more hour for your psychology exam. Your decision on what to study should be based on:

the additional benefits of studying for each class.

Daniel has decided to open his own bakery using locally sourced ingredients and supplies. He provides income and jobs to local suppliers. He also provides his community with a place to buy delicious baked goods.

the invisible hand. The invisible hand is a term coined by Adam Smith that describes how people acting in their own interest often make choices that benefit society as well.

A sushi chef prepares a California roll for a customer. Which of the following factors is physical capital?

the knife use to cut the sushi

When the price of a good changes in a market,

the market will move toward a new equilibrium.

During economic downturns the number of Americans without jobs increases. According to the principle that one person's spending is another person's income:

the reduction in spending by the unemployed workers will further lower incomes.

An economy is

the system society uses to coordinate productive activities.

You can spend $300 on either a pair of new Air Jordan sneakers or a new skateboard. If you choose to buy the Air Jordans, the opportunity cost is:

your enjoyment of the new skateboard.