microeconomics: ch. 1 HW
The cost of purchasing one apple is $1, but you can get two for $1.75. The second apple is $0.75. What is the marginal cost of the second apple?
$0.75
Mary buys cell-phone services from a company that charges $40 per month. For that $40 she is allowed 700 minutes of free calls and then pays 10 cents per each additional minute. Mary has used 700 minutes this month so far. What is her marginal cost of making a 10 minute phone call?
$1
According to the economic decision rule, you should do something if its:
-marginal cost is less than marginal benefit. -marginal benefit is greater than marginal cost.
There are two types of policy analysis:
1. Objective policy analysis keeps value judgments separate from the analysis. 2. Subjective policy analysis reflects the analyst's views of how things should be.
What 3 categories is economics divided into?
1. Positive economics 2. Normative economics 3. The art of economics
The 3 central coordination problems any economy must solve are:
1. What, and how much, to produce 2. how to produce it 3. For whom to produce it
Kelsey purchased one chocolate bar already and gained 4 units of happiness. An additional chocolate bar would give her 3 units of happiness. What is the marginal benefit of the second chocolate bar?
3 units of happiness
What can be best defined as a policy rule that suggests that a particular course of action is preferable?
A precept
Which of the following is a normative statement?
Because a recession raises unemployment, the government should extend unemployment insurance.
Chuck offers $122,000 for a house. The seller turns down the offer but says she will sell the house for $129,000. However, Chuck refuses to pay the higher price. If both Chuck and the seller are rational, then marginal analysis implies that the marginal benefit of the house to
Chuck must be less than $129,000.
Which of the following is an example of normative economics?
Determine who should get what
What can be defined as achieving a goal as cheaply as possible?
Efficiency
True or false: Precepts are the foundation for theorems.
False
What type of questions does positive economics ask?
How does the market for hog bellies work?
Opportunity cost focuses on two aspects of the costs of a choice that may be forgotten:
Implicit costs and illusionary sunk costs
__________________ should be included in opportunity costs but _____________________ should not be included.
Implicit costs; illusionary sunk costs
__________ is the additional benefit above what you've already derived?
Marginal benefit
What can be defined as the additional cost to you over and above the costs you have already incurred?
Marginal cost
What can be defined as the study of individual choice, and how that choice is influenced by economic forces?
Microeconomics
Andrew had spent $500 on repairing his old car which is no longer in a usable condition. He is considering buying a new car for $1,000. Should the fact that he just spent $500 repairing his old car play a role in his decision?
No, the cost is a sunk cost.
What can be defined as the benefit that you might have gained from choosing the next-best alternative?
Opportunity cost
What can be defined as the study of what is, and how the economy works?
Positive economics
Why does scarcity exist?
Scarcity exists because individuals want more than can be produced.
What can be defined as costs that have already been incurred and cannot be recovered?
Sunk Costs
What term refers to the price mechanism, the rise and fall of prices that guides our actions in a market?
The invisible hand
Macroeconomics
The study of the economy as a whole
_________ are too abstract to apply in specific cases and are often embodied in economic models and principles.
Theories
______________________________________ are continually tested to see of the predictions of the model match the data.
Theories, models, and principles
What type of questions does art of economics ask?
To achieve the goals that society wants to achieve, how would you go about it, given the way that the economy works?
True or false: Economists often rely on theorems to help determine precepts.
True
What type of questions does normative economics ask?
What should tax policy be designated to achieve?
What is economic principle?
a commonly held insight stated as a law or general assumption.
what is an economic model?
a framework that places the generalized insights of the theory in a more specific contextual setting.
Inflation is..
a macroeconomic issue.
according to the invisible hand theorem.....
a market economy, through the price mechanism, will allocate resources efficiently.
The statement: "Given certain conditions, the market achieves efficient results." is an example of a(n) _____.
a positive statement
Using the impartial spectator tool,
a rich person might support a wealth tax that reduced his wealth.
What can be defined a proposition, that is logically true, based on the assumptions in a model?
a theorem
A policy maker using the impartial spectator tool puts herself in the place of....
a third-person judge and looks at the situation from a variety of perspectives.
Efficiency:
achieving a goal as cheaply as possible.
A market force is....
an economic force that is given relatively free rein by society to work through the market.
The impartial spectator tool is not..
an important scientific tool
Economic policies
are actions (or inaction) taken by the government to influence economic actions.
Value judgments in economics..
are an essential part of the art of economics.
Economic Institutions
are laws, common practices, and organizations in a society that affect the economy.
Economic reasoning is..
based on the premise that everything has a cost.
The opportunity cost of getting a job is the...
benefit you would have obtained from engaging in the activity you had to give up to take the job.
The marginal benefit of attending a play is worth $50 to June. The marginal cost of attending a play is $40. Assuming June uses economic reasoning, she will
choose to attend a play.
The degree of scarcity is _________________.
constantly changing
Implicit costs are______________________________________.
costs associated with a decision that often are not included in normal accounting costs.
sunk costs
costs that have already been incurred and cannot be recovered.
Illusionary sunk costs are ________________________________.
costs that show up in financial accounts that are already spent.
Among other things, positive economics seeks to
determine how economic policies affect output and employment.
Normative economics seeks to:
determine how income should be distributed.
Economic institutions ___________ significantly among nations.
differ
Which of the following is most likely to be studied in microeconomics? 1. inflation 2. economic growth 3. unemployment 4. distribution of income
distribution of income
An action taken by a government to influence the course of economic events is a(n) _______.
economic policy
When a(n) ______ force operates through the market, it becomes a(n) ______ force.
economic; market
The invisible hand theorem is a theory that primarily relates to ______.
efficiency
Price has a tendency to _______ when quantity supplied is greater than quantity demanded.
fall
Economists are primarily concerned with:
how human beings coordinate their wants and desires given a society's decision-making mechanisms, social customs, and political realities.
Economics is the study of...
how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society. - the study of how to get people to do things they are not wild about doing and not to do things they are wild about doing.
Sunk costs should always be______?
ignored
Adam Smith argued that a reasonable way to address normative questions objectively was to use the
impartial spectator tool.
The economy is the institutional structure through which..
individuals in a society coordinate their wants and desires.
Microeconomics
is the study of individual choice, and how that choice is influenced by economic forces.
What is the art of economics?
is using the knowledge of positive economics to achieve the goals determined in normative economics.
If production is efficient, then
it is not possible to produce the same quantity of output at a lower cost.
The study of the relationship between the price level and aggregate output is a topic in _________________.
macroeconomics
If the _______________ of doing something exceed the _______________, do it.
marginal benefits; marginal costs - MB > MC --> do it
To make optimal decisions, decision makers compare
marginal cost and marginal benefit.
The invisible hand theorem argues that...
markets allocate resources efficiently through the price mechanism
Costs relevant to decisions are often different from the ________________.
measured costs
Normative economics is
more subjective than positive economics.
Economic analysis that involves value judgments is called ______.
normative analysis
What can be defined as the study of what the goals of the economy should be?
normative economics
a third-person judge and looks at the situation from a variety of perspectives.
normative economics
In deciding whether to go to a lecture in the middle of the semester you should....
not include tuition as part of the cost of that decision.
A student who has paid non-refundable tuition of about $45 per lecture estimates the marginal benefit of each lecture to be $60. She should attend the class if the....
opportunity cost of attending class is $50.
What are policy precepts?
policy rules that conclude that a particular course of action is preferable
Which of the following are forces that control economic reality? private political economic social
political economic social
Individuals are prohibited from practicing medicine without a license. This is an example of
political forces
"Determining that reducing the price of prescription drugs in the United States may reduce the quantity of these drugs available," is an example of _________.
positive economics
Empirically determining that increased government spending will lead to higher GDP is an example of ______.
positive economics
The art of economics is the application of knowledge learned in _________________ economics to achieve the goals determined in _____________ economics.
positive; normative
"Because the invisible hand allocates resources efficiently, economies ought to minimize government interference." This is an example of a(n) _______.
precept
Economists often use models to come to policy rules that favor some courses of action over others. That policy conclusion is an example of an economic _______.
precept
The invisible hand theory argues that:
prices rise when quantity supplied is less than quantity demanded.
If there is a shortage, _______________. If there is a surplus, ______________.
prices rise; prices fall
Economic theorems are....
propositions that are logically true and based on the assumptions in a model.
What is a theorem?
propositions that are logically true based on the assumptions of the model
An economist assumes that a rational decision maker will
pursue an action as long as the marginal benefit exceeds the marginal cost.
Price has a tendency to ________ when the quantity demanded is greater than the quantity supplied.
rise
________ and ________________ influence market forces and work together against the invisible hand.
social and political forces
The invisible hand theorem tells us
that markets are efficient under certain circumstances.
Marginal benefit is...
the additional benefit above what has already derived.
Marginal cost..
the additional cost over and above costs already incurred - example. A car is bought for $10,000. A new sunroof is $400 and a new stereo is $200. What is the marginal cost? $600
Debating the best economics policy to address climate change is an example of ______.
the art of economics
Opportunity Cost is..........
the benefit that you might have gained from choosing the next-best alternative.
Scarcity means...
the goods available are too few to satisfy individuals desires
Economic forces:
the necessary reactions to scarcity.
The invisible hand is.......
the price mechanism that guides our actions in a market. The invisible hand is an example of a market force.
What is positive economics?
the study of what is and how the economy works.
What is normative economics?
the study of what the goals of the economy should be.
Models lead to _____________________ and arrive at ___________________________.
theorems ; policy precepts
TANSTAAFLE
there ain't no such thing as a free lunch
True or false: Economic forces are always at play while market forces are not.
true
Mary has 4 T-shirts. The fourth T-shirt increased the pleasure she received from T-shirts by $14. The marginal benefit of owning another T-shirt this month to Mary is $12. If the $13 price of T-shirts reflects their marginal cost to Mary and she is rational, then Mary
will not buy any more T-shirts this month.
If you choose not to answer this question, an economist is likely to infer that..
your opportunity cost of answering the question is too high.
Economic reasoning or "thinking like an economist" involves things such as :
• Analyzing issues and comparing costs and benefits of a decision • Abstracting from the unimportant elements of a question and focusing on the important ones
Macroeconomics studies such things as:
• Inflation • Unemployment • Economic growth
Microeconomics studies things such as:
• The pricing of firms • Household decisions on what to buy • How markets allocate resources among alternative ends
What happens in society can be seen as a reaction to ___________, and interaction of __________________ and _________________________.
•Economic forces •Social forces •Political forces