micro exam 1 dr hill temple university

every society faces trade-offs because we live with scarcity. suppose a student athlete has the opportunity cost to earn $600,000 next year playing for a minor league baseball team, $900,000 next year playing for a Eurpoean pro football team, or $0 returning to college for another year. what is the opportunity cost of the student athlete returning to college next year?

$900,000 ( the highest amount they would be losing).

The economy of East Paragon has been experiencing deflation for the last few months, with prices of goods and services declining. Because firms are charging lower prices, they expected higher sales. However, consumption spending did not increase much, resulting in substantial losses for these firms. Which of the following, if true, explains why consumers did not increase consumption in spite of falling prices?

Most people were expecting prices to decline further

In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,

centrally planned economies have extensive government controls

macroeconomics is most likely to include the study of

economic growth

what is the study of the choices people make to attain their goals, givens scarce resources

economics

What role do they play in the working of a market system? Private property rights:

encourage a significant number of people to be willing to risk funds by investing them in business and encourage firms to spend money on research and development

scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost

which participants are of greatest importance in determining what goods and services are produced?

households

what does increasing marginal opp cost mean?

increasing the production of a good requires larger and larger decreases in the production of another good

which of the following steps should you follow when using a formula?

make sure that the number you calculate using the formula is economically reasonable, the formula is correct for the problem you are solving and you understand the economic concept when using the formula.

Whether carried out by an individual or a country, production beyond the ppf is

not physically possible

a ppf...

shows the max attainable combinations of two goods that may be produced with available resources

the principle of increasing marginal opp cost states that the more resources devoted to any activity, the ______ the payoff to devoting additional resources to that activity.

smaller

What is the circular flow diagram and what does it illustrate?

the circular flow diagram shows how households and firms are linked through product and factor markets

xylo inc. a manufacturer of domestic appliances, lowered the prices of it products, expecting an increase in demand and sales by at least 20%. However, it was observed that sales increased by only 8%. Which of the following, if true, can explain this outcome?

the government increased personal income tax rates earlier this year

the prevalence of Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that is is likely that living in a nursing home causes Alzheimer's. What is the flaw in the student's reasoning?

the student is drawing a false conclusion; he is making the error of reverse causality

true or false: the basis for trade is comparative advantage, not absolute advantage

true

Economists often are interested in percentage change from one period to the next. The percentage rate of change of GDP is an important macroeconomics variable. If in 2010 GDP was $11,150 billion, and GDP increased to $11,590 in 2011, what is the growth rate of the U.S. economy in 2011?

3.9%

Is the columnist arguing that Spain has an absolute advantage over China in producing textiles, a comparative, or both?

A comparative advantage in producing textiles

A columnist for Forbes argues that: "Even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles then that's what Spain should be doing." What does the columnist mean by writing that china is always better than Spain in producing textiles?

China can produce textiles at a lower cost in terms of resources than Spain can

In the 1950s, the economist Bela Balassa compared 28 manufacturing industries in the U.S and Britain. In every one of the 28 industries, Balassa found that the U.S. had an absolute advantage. In these circumstances, would there have been any gain to the U.s from importing any of these products from Britain?

Even with an absolute advantage, the U.S. would have benefitted from importing those products for which Britain had a comparative advantage.

Terbia is a closed economy, which has been growing at a very slow pace over the last decade. In order to boost economic growth, the government removed trade barriers earlier this year and increased its spending on the economy. These moves were expected to generate employment and increase economic growth. However, unemployment did not decline as much as expected. Which of the following, if true, can explain this outcome?

Imported varieties of many goods were cheaper than the domestically produced varieties.

The chapter mentions that in 1965, married women and men combined spent significantly more time on housework than they did in 2018. Does the decrease in the total number of hours of housework during that period mean that families are willing to live in messier homes today than they were in 1965?

No, because there are more labor saving devices so less time is required

The columnist notes that in fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is accurate, briefly explain how Spanish firms are able to export textiles in competition with chinese firms

Spain must be able to produce textiles at a lower opp cost than China

What are private property rights?

The rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.

During the 1928 presidential election​ campaign, Herbert​ Hoover, the Republican​ candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good​ policy? Explain.

This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage

Let V1 equal the value of a variable in period 1 and V2 equal the value of the same variable in period 2. What is the rate of growth between periods 1 and​ 2?

[(V2-V1)/V1]*100

In an opinion column in the wall street journal, economist Richard Mackenzie wrote: "If countries import foods that can be made more cheaply abroad than at homes, and produce goods that can be made more cheaply at home than abroad, then all trading nations will end up with more incomes and wealth than if they tried to produce everything themselves." So.. When countries specialize in producing goods in which they have _______ advantage and trade for goods in which other countries have __________ advantage, the incomes of all countries increase.

a comparative; a comparative

How can a country gain from specialization and trade?

a country can specialize in producing tha tfor which it has a comparative advantage and then trade for other needed goods and services

a ppf is

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

Imagine that the next time the Green Bay Packers plays the Chicago Bears at Lambeau Field in Green Bay, Wisconsin, Packers star QB Aaron Rodgers has a temporary lack of judgement and plans to sell Packers memorabilia during the game because he realizes that he can sell five times more PAckers products that anyone else. Likewise, imagine that you are a creative manager at work and that you tell your employees that during the next six months, you plan to clean the offices because you can clean five times beter than the cleaning staff. Both you and Aaron are making an error in judgement by assuming that specialization should be based upon __________

absolute advantage

the primary difference btw absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce an good or service at a lower opp cost.

When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include

an omitted variable and reverse causality

Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?

banks have no economic incentive to install the barriers

a market group of _______ of a good or service and the institution or arrangement by which they come together to trade

buyers and sellers

An economist remarks that "the cost of consuming a book is the combination of the retail price and the opp cost of the time spent reading." The cost of _______ a book is the price you pay to buy the book, but the cost of ________ a book would include the time spent reading the book

buying; consuming

With respect to consumption, individuals and countries....

can, through trade, consume beyond their ppf

the basis for trade is ....

comparative advantage

what is the basis for trade?

comparative advantage

________ decide(s) what goods and services will be produced.

consumers, firms and government

which of the following events would create economic growth, that is, shift the ppf outward? a. an increase in technology that affects the production of both goods b. an increase in the available labor c. an increase in the available natural resources d. all of the above

d. all of the above (increase in tech, labor, and natural resources)

which of the following is not scarce according to the economic definition? A. workers b. oil c. healthcare services d. time e. none of the above

e. none of the above

as part of their budget tightening process, many states are cutting aid to colleges and universities, with students being asked to pick up a bigger part of the escalating tab of higher education. Which of the following would do the most to enable you to cope with those higher expenses without impairing your progress toward a degree? A. taking fewer classes per semester or classes with lower associated expenses b. aggressively pursuing loans, grants and benefactors c. obtaining a part time job d. forming a student lobbying group to protest the budget cuts e. reducing your consumption of goods and services not essential to you education

e. reducing your consumption of goods and services not essential to your education

suppose, in an effort to prevent the populations from declining, Italy begins offering new mothers extended periods of paid family leave from work and consequently, the birthrate per woman increases. If so, then this could best be charazterized as an example of people responding to

economic incentives

consider the following statement: " the problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes," What is the most correct response to this statement?

economics assumes that consumers and firms are rational, not that they always make the right decisions.

George sells land he owns to​ McDonald's so it can build a new restaurant. This takes place in the ___ market. The household ___ the factor of production and the firm ___ the factor of production.

factor; supplies; demands

George works 20 hours per week at​ McDonald's. This takes place in the ______ market. The household ________ the labor and the firm __________ the labor.

factor; supplies; demands

Tesla increases employment at its Fremont plant. This takes place in the _______ market. The households _______ the labor and the firm ________ the labor.

factor; supply; demands

true of false: the relationship between two variables is linear whether it is represented by a straight line or by a curved line

false

true or false: If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other

false

what are the two main categories of participants in markets?

firms and households

centrally planned economies allocate resources based on decisions by ______, while market economies answer these questions through decisions make by _________

government; households and firms

If a country has a comparative advantage in the production of a good, then that country

has a lower opp cost in the production of that good

If country ABC can produce a unit of good 1 with fewer resources than can country XYZ, it is correct to say that country ABC...

has an absolute advantage in producing good 1

scarcity implies that every society and every individual face trade-offs because scarcity means that

human wants are greater than what available resources can produce

what is a free market?

is one where the government does not control the production of goods and services

Using the same amount of resources, suppose that Nicaragua can produce twice as much sugar as Columbia. Nevertheless, Columbia could still have the comparative advantage in producing sugar if...

it is even less efficient than Nicaragua in the production of goods other than sugar

which of the following covers the study of topics such as inflation or unemployment?

macro

examining how consumers react to changes in product prices is most likely an issue in

microeconomics

the relationship between two variables is positive when ______, and the relationship between two variables is negative when _________.

one variable increases and the other increases; one variable increases and the other decreases

What is an entrepreneur?

operate businesses that produce goods and services

when economists develop models designed to explain the choices people make, they generally assume that

people are rational

absolute advantage is the ability of an individual, a firm, or a country to

produce more of a good or service than competitors using the same amount of resources

the ppf will shift outward if

resources are used to produce capital goods

_________ is a problem that occurs when someone concludes that a change in variable X caused a change in variable Y when, in fact, it is a change in variable Y that caused a change in variable X.

reverse causality

Firms are likely to produce more of a good or service when its price ____________ and less of a good or service when its price _________.

rises; falls

one of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economists call ______

scarcity

a large corporation that runs nursing homes estimates that changes to medicare will result in lower payments by medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. assume the corp is considering expanidng the number of beds it offers at its nursing homes. Given the changes to medicare, if the marginal benefit of offering an additional bed is $3000 and the marginal cost is $2000 per bed, then the coporation should or should not offer additional beds?

should

the people of a previously quiet and peaceful country have come to recognize the need to expand and improve thier security forces after a wave of terroristic threats and acts. Considering their resource limitations, the extent to which security is enhanced will most likely be determined by

society's willingness to forego other goods and services, both public and private

One of the great benefits of trade is

that is makes it possible for society to become better off by increasing its consumption

what is comparative advantage?

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

what is absolute advantage?

the ability to produce more of a good or service than competitors using the same amount of resources

In colonial America, the population was spread thinly over a large are, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a result most of the free population lived on small farms where they not only grew their food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs fell? As transportation costs fell....

the farmers gained access to new markets and consumers. Using comparative advantage, the farmers specialized, producing those goods for which they had lower opp cost. As they traded for other goods, their incomes and living standards increased

opportunity cost is

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

what can you say about the idea that people are rational?

the idea assumes that consumers and firms use all available information as they act to achieve their goals

A freelance singer-songwriter is planning the restoration of a recently purchased civil war-era farmhouse. While he professes an enjoyment of, and talent in the construction trades, the theory of comparative advantage implies that

the income lost while away from music will likely exceed the savings realized by doing the work himself, thus, he should hire professionals to do the restoration work

Prepping for a next day exam over the course of an evening (and possibly into the wee hours of test day) poses increasing costs since

the longer you choose to study will result in an increase in the number and value of foregone activities

when the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,

the policies are consistent with economic incentives

what are the implications of this idea for the shape of the ppf?

the ppf will be bowed outward

Suppose we can divide all the goods produced by an economy in two types: consumption goods and capital goods. capital goods: machinery, equipment, computers, are goods used to produce other goods. Is it likely that the ppf in this situation would be a straight line or bowed out?

the ppf would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods

suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. What is the opp cost of spending more money to find a cure for heart disease?

the reduction in funding for research to cure other diseases

microeconomics is

the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

macroeconomics is

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

a number of political leaders have expressed concern about the nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that

the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value

Why do entrepreneurs play a key role in a market system?

they bring together factors of production

economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals

Why are independent courts important for a well-functioning economy? Independence is necessary for courts:

to make their decisions free of people with powerful political connections, intimidation by criminal gangs, influence from other parts of the government and based on the law

true or false: The relationship between two variables is linear when it is represented by a straight line and nonlinear when it is represented by a curved line

true

what do economists mean by scarcity?

unlimited wants exceed limited resources

scarcity

unlimited wants exceed the limited resources available

trade-offs force society to make choices, particularly when answering the following three fundamental questions:

what goods and services will be produced? how will the goods and services be produced? who will receive the goods and services produced?

the three economic questions that every society must answer are?

what goods will be produced? how will they be produced? and who will receive the goods?

how should policy makers determine the amount of money that should be allocated for research curing heart disease? they should base their decisions on...

whether the last dollar devoted to research on heart disease results in more benefit that the last dollar spent on research for curing other diseases

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good...

will have a comparative advantage if it has a lower opp cost of producing that good

we can show economic efficiency:

with points on the ppf

we can show economic inefficiency:

with points outside of the ppf

What would a negative nonlinear relationship look like?

y=90/x

In discussing dividing up household​ chores, Emily​ Oster, an economist at the University of​ Chicago, advises​ that: ​"No, you​ shouldn't always unload the dishwasher because​ you're better at​ it." ​Source: Emily​ Oster, "The Wrong Person Is Probably Doing the Dishes in Your​ Home," Slate​, November​ 21, 2012. Even if you are better at unloading the dishwasher than your​ spouse, you​ shouldn't always be the one to unload it because

you may be even better at some other household task and must consider the opp cost

You shouldn't neccassarily do what you are better than anyone else at doing unless...

your advantage in that activity is greater than advantages you possess in other activities