Microeconomics Chapter 1-4
Equilibrium
When quantity supplied = quantity demanded
Input prices
A change in price of input changes the marginal cost
The _______ suggests, decisions about quantities are best made incrementally. A. interdependence principle B. opportunity cost principle C. marginal principle D. cost-benefit principle
C. marginal principle
Ceteris Paribus Assumption
"holding other factors constant"
Shifts in supply
1. price of input 2. technology/ productivity 3. Prices of related goods 4. Expectations for future prices
4 factors shifting the demand curve
(these are the factors that cause you to buy more or less of something at every price) 1. Income 2. Preferences 3. Prices of related goods 4. Expectations
economic surplus
- the difference between total benefit and total cost (T.B. - T.C) - measures how much a decision has improved your well-being
Which principle tells you that the true cost of something is the next best alternative you have to give up to get it? A. The cost-benefit principle B. The opportunity cost principle C. The marginal principle D. The interdependence principle
B. The opportunity cost principle
Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers? A. Mindy sets up a lemonade stand and calculates the cost of an additional cup of lemonade at 50 cents, and sells it for 25 cents B. Andy's Diner finds that the marginal cost of a fish and chips meal is $7 and lists the item for sale at $6.50 C. American Airlines determines the marginal cost of an extra passenger to be $75 and sells discount for $250. D. An auto-rickshaw driver in New Delhi, India, calculates a trip to have a marginal cost of 350 rupees and accepts a ride request for 315 rupees
C. American Airlines determines the marginal costs of an extra passenger to be $75 and sells a discount for $250.
A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate? A. The opportunity cost principle B. The marginal principle C. Diminishing marginal product D. The cost-benefit principle
C. Diminishing marginal product
Cost-benefit principle
Consider the cost and benefits (both financial and nonfinancial) of a choice when evaluating a decision
Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte? A. $2 B. $6 C. $1 D. $4
D. $4
In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. A. only the buyer B. neither the buyer nor the seller C. only the seller D. both the buyer and the seller
D. both the buyer and the seller
Why does the demand curves downward?
Downward slope can be explained by the law of demand - consumers will demand more of a good at lower prices than at higher prices. The lower the price the higher the quantity demanded
Expectation
If producers expect price to increase in the future this will decrease their supply today
Rational Rule
If something is worth doing, keep doing it until MB= MC
Productivity and technology
New technology lowers the MCs of production
Market supply
The total amount of an item that producers in a market are planning to sell at each price
Individual supply curve
a graph of the quantity that a business plans to sell at each price, holding other factors constant
Market supply curve
a graph plotting total quantity of an item supplied by the entire market at each price
Oligopoly
a market with only a handful of large sellers
market demand
a sum of all individual demand. so we add up the quantity demanded by 3 consumers for each price
A business manages to become more efficient. As a result of this improved efficiency, it will a. shift its supply curve to the right b. reduce the quantity that it supplies to the market c. shift its supply curve to the left d. automatically charge higher prices for its product
a. shift its supply curve to the right
If the price of jet fuel rises, the a. supply of airline flights decreases b. supply of jet fuel decreases c. supply of jet fuel increases d. quantity supplied of jet fuel falls
a. supply of airline flights decreases
If Tesla cars become less expensive, what will happen in the market for other electric cars? a. The quantity demanded of Teslas will fall b. The demanded for other electric cars will fall c. The demand for other electric cars will rise d. The quantity demanded of Teslas will not change
b. The demand for other electric cars will fall
The Law of Demand refers to a. the positive relationship between price and quantity supplied b. the inverse relationship between price and quantity demanded c. the inverse relationship between price and quantity demanded d. the positive relationship between price and quantity demanded
c. the inverse relationship between price and quantity demanded
The law of demand refers to a. The positive relationship between price and quantity supplied b. the inverse relationship between price and quantity supplied c. the inverse relationship between price and quantity demanded d. the positive relationship between price and quantity demanded
c. the inverse relationship between price and quantity demanded
sunk cost
cost that has already been incurred and can not be reversed
If a seller expects prices to rise in the future a. there will be no change in the seller's actions today b. the quantity supplied will increase today c. the supply will increase today d. it will stock up today and sell the goods when the price rises
d. it will stock up today and sell the goods when the price rises
Marginal principle
decisions that the principal suggests you evaluate whether the extra benefit from having one more of something exceeds the extra cost of that extra unit of something
marginal benefit (MB)
extra benefit you get from one more of something
Marginal cost (MC)
extra cost you get from one more of something
Shortage
occurs when the quantity demanded exceeds quantity supplied; when price is below its equilibrium
individual demand curve
plots demand schedule on a graph, showing the quantity of an item that someone plans to buy at each price
Production Possibilities Frontier (PPF)
shows different sets of outputs that are attainable you scarce resources - illustrates your alternative outputs
quantity supplied
the amount of a good that a seller is willing to sell at each price
quantity demanded
the amount you are willing to buy at EACH price
Willingness -to- pay (WTP)
the maximum amount that a buyer will pay for a good "What is the most you'd be willing to pay in order to obtain a particular benefit or to avoid a particular cost?"
Frontier curve
the most you can produce when using all available resources
opportunity-cost principle
the true cost of something is the next best alternative that you must give up in order to get it
Surplus
when the quantity supplied exceeds quantity demanded; occurs when the price is above the equilibrium
interdependence principle
your best choice depends on your choice, the choices soother people make, changes in other markets, and expectations about the future
An individual demand curve is a graph: A. that plots the quantity of an item that someone plans to buy, at one single price point B. that plots the quantity of an item that someone plans to buy, at each price C. that plots the quantity of an item that a seller plans to sell, at each price D. that plots the market price of a product at different points in time
B. that plots the quantity of an item that someone plans to buy, at each price
Law of Supply
Ceteris Paribus, the higher the price of a good, the higher the quantity supplied
The cost-benefit principle states that _____ are the incentives that shape decisions. A. opportunity cost B. framing effects C. costs and benefits D. incomes
C. costs and benefits
Prices of related outputs
1. Substitutes in production: allows a business to have alternative uses of its resources by manufacturing other products using the same inputs 2. Complements-in-production: "goods that are produced together" ("by product")
2 reasons that the market supply curve is upward-sloping
1. a higher price leads individual businesses to supply a larger quantity 2. a higher price means more business are supplying their goods/ services; a lower price means fewer businesses are doing so
Rational Rule for Buyers
1. follow the rational rule to maximize your economic surplus 2. your demand curve is also your MB curve
Shifts in demand
1. income: normal goods and inferior goods 2. Pref/taste 3. Price of related goods: substitutions and complements 4. Expectations
4 steps to estimating market demand
1. survey a sample of individual that represents the market by asking each person the quantity they will buy at each price 2. add up quantity demanded by survey respondents fro each price 3. scale up the quantity demanded by survey respondents so that they represent the whole market 4. plot the total quantity demanded by the market at each price
The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produced. Based on this information, which of the following statements is/are correct? (i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future (ii) The demand for gasoline will fall in the future (iii) The demand for electricity will rise in the future (iv) The demand for diesel will rise in the future. A. (i), (ii), and (iii) B. (i) and (ii) C. only (i) D. (ii) and (iv)
A. (i), (ii), and (iii)
When there is a shortage of highly skilled workers in a particular region: A. Highly skilled workers can negotiate higher salaries B. unemployment Riss among highly skilled workers C. there is a corresponding surplus of low-skilled workers in the region D. the incomes of highly skilled workers fall
A. Highly skilled workers can negotiate higher salaries
What is quantity supplied? A. It is the amount of an item that a seller is willing to sell at a particular price. B. It is the amount of an item that buyer is willing to buy at a particular price. C. It is a graph that plots the quantities of an item that a seller plans to sell at different prices. D. It is a graph that plots how much a seller produces at different points in time
A. It is the amount of an item that a seller is willing to sell at a particular price
How is the economic surplus generated by a decision calculated? A. It is the total benefit minus total costs arising from the decision B. It is the sum of costs arising from the decision C. It is the total benefit plus total costs arising from the decision D. It is the sum of benefits arising from the decision
A. It is the total benefits minus total costs arising from the decision
Which of the following is NOT a factor that can shift supply? A. The market price of a product B. The price of a substitute-in-production C. The price of a complement-in-production D. The expected future price of a product
A. The market price of a product
Quantity demanded is on the horizontal axis when you plot a demand curve and shows the: A. amount of a good that a person is willing to buy at each price B. amount where opportunity cost is equal to the marginal benefit C. amount of a good that a seller is willing to sell at a particular price D. amount of a good that a person actually buys at the market price
A. amount of a good that a person is willing to buy at each price
Graphically, shortages will always occur: A. at prices below the equilibrium price B. at the equilibrium price C. when the quantity supplied exceeds the quantity demanded D. at prices above the equilibrium price
A. at prices below the equilibrium price
The key to using the cost-benefit principle is to think about ______ aspects of a decision. A. both financial and non financial B. neither financial nor non financial C. only non financial D. only financial
A. both financial and non financial
Diminishing marginal benefit: A. is when buying an additional item yields a smaller marginal benefit than the pervious item B. is when consumers do not follow the rational rule C. is not important in determining a consumers purchase decision D. is when buying an additional item yields a larger marginal benefit than the pervious item.
A. is when buying an additional item yields a smaller marginal benefit then the pervious item
A rational buyer will: A. keep buying a product until marginal benefit equals price B. buy the product only when the marginal benefit of consuming the product is twice as much as the price of the product C. buy a product until the marginal benefit of consuming the product is less than the price of the product D. not consider costs versus benefit when purchasing a product
A. keep buying a product until marginal benefit equals price
Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is ______ than _______ per week. A. less; $150 B. greater; $75 C. less; $75 D. greater; $150
A. less; $150
When you calculate marginal cots, they should be? A. only variable costs B. the market price of the product C. both the variable and fixed costs D. only fixed costs
A. only variable costs
Paint and paintbrushes are complements. If the price of paint rises, we can expect: A. The demand for paintbrushes to decrease B. The quantity demanded of paintbrushes to remain unchanged C. The quantity demanded of paint to increase D. The demand for paintbrushes to increase
A. the demand for paintbrushes to decrease
According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is ______ the marginal cost of an additional item. A. less than B. greater than or less than C. equal to D. greater than
C. equal to
You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive? A. A new robot has been installed at the Mars chocolate company that reduces the time needed to produce M&Ms by half. B. The supply of cacao beans, used to produce chocolate, has fallen around the world C. A new study finds that the benefits of eating chocolate are not as great as perviously thought. D. Consumers are now purchasing fewer M&Ms compared to other types of chocolates
B. The supply of cacao beans, used to produce chocolate, has fallen around the world
A seller at a farmer's market wants $10 for a bag for 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of: A. perfect competition B. a market in action C. a shortage D. a centrally planned market
B. a market in action
Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal: A. cost of purchasing one more coffee is positive B. benefit of purchasing one more coffee equals the marginal cost C. benefit of purchasing one more coffee is less than the marginal cost D. benefit of purchasing one more coffee is positive
B. benefit of purchasing one more coffee equals the marginal cost
A shortage occurs when: A. when there is insufficient demand B. quantity demanded exceeds quantity supplied C. there is excess production D. quantity supplied exceeds quantity demanded
B. quantity demanded exceeds quantity supplied
Which of the following scenarios illustrates the law of demand? A. John likes to drink spring water. At $2 he buys four bottles of water, and at $1.50 he still buys four bottles of water B. A research company finds that the more expensive a particular brand of a designer handbag, the more that consumers are willing to purchase the brand C. Kathleen eats more steak when the price is low, and less when the price is high D. Francis does not care about the price of coffee at the coffee shop- he must buy two cappuccinos every day, regardless of the price
C. Kathleen eats more steak when the price is low, and less when the price is high
Variable costs are the costs that A. are incurred to build factories and assembly plants B. are independent of the amount of output produced C. vary with the quantity of output produced D. stay fixed with the quantity of output produced
C. Vary with the quantity of output produced
A normal good is: A. a good which is only purchased by high-income consumers B. a good for which higher income causes a decrease in demand C. a good for which higher income causes an increase in demand D. a good which is normally purchased by many consumers
C. a good for which higher income causes an increase in demand
As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will: A. fall, due to a fall in demand B. rise, due to a fall in supply C. fall, due to a rise in supply D. rise, due to a rise in demand
C. fall, due to a rise in supply
A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you: A. find the average quantity produced by the ten suppliers B. take the individual supply of one supplier C. multiply the individual supply of one of the suppliers by ten D. take one-tenth of the individual supply of each supplier and add it up
C. multiply the individual supply of one of the suppliers by ten
The opportunity costs of attending college include the: A. cost of room and board B. effort and hard work C. potential income that could be earned working D. cost of clothes to wear at school
C. potential income that could be earned working
Which of the following are correct about fixed costs? (i) They do not change with the level of production in the short run (ii) They include variable costs (iii) They are present even when the firm is producing zero units (iv) They are irrelevant to marginal costs A. (i), (ii), (iii), (iv) B. (ii) and (iv) C. (i), (ii), and (iv) D. (i), (iii), and (iv)
D. (i), (iii), and (iv)
You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase? A. There is a surplus of the item B. There is decreased demand for the item C. New sellers are offering the same product D. There is a shortage of the item
D. There is a shortage of the item
Why are supply curves typically upward-sloping? A. They slope upward because sellers prefer to sell more when prices are lower B. They slope upward because sellers demand more when prices are lower C. They slope upward due to law of demand D. They slope upward because higher prices lead individual business to supply a larger quantity and more business are willing to supply goods and services
D. They slope upward because higher prices lead individual business to supply a larger quantity and more business are willing to supply goods and services
An equilibrium price is: A. the price that occurs when there is a surplus B. the price that prevails when there is a shortage C. the price that prevails when quantity supplied is less than quantity demanded D. determined by the intersection of the demand and supply curve
D. determined by the intersection of the demand and supply curve
You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time you spent with your friend at $50. You should ______ to dinner with your friend because the benefit of doing so is ______ than the cost A. go; less B. not go; greater C. not go; less D. go; greater
D. go; greater
The Rational Rule of Sellers says that a seller should sell one more unit of an item if the price is: A. less than the marginal benefit B. greater than or equal to the marginal benefit C. less than the marginal cost D. greater than or equal to the marginal cost
D. greater than or equal to the marginal cost
The interdependence principle: A. implies that consumers depend on each other to make purchases decisions in the market B. refers to the marginal benefit of consuming additional units of an item C. is the same as the cost-benefit principle D. implies that buyers decisions are affected by many factors other than the price of an item
D. implies that buyers decisions are affected by many factors other than the price of an item
Decisions should reflect the ______ costs, rather than just the ______ costs. A. opportunity; non financial B. non financial; financial C. financial; marginal D. opportunity; financial
D. opportunity; financial
Graphically, the equilibrium quantity can be identified as the: A. maximum quantity that buyers are willing to sell B. maximum quantity that sellers are willing to sell C. quantity corresponding to the intersection of the demand curve and the price axis D. quantity corresponding to the intersection of the demand and supply curves
D. quantity corresponding to the intersection of the demand and supply curve
A downward-sloping demand curve implies: A. buyers are willing to buy less when prices are lower B. there is no relationship between price and quantity demanded C. there is a positive relationship between price and quantity demanded D. There is an inverse relationship between price and quantity demanded
D. there is an inverse relationship between price and quantity demanded
An equilibrium in a market occurs: A. at the halfway point on a demand curve B. when suppliers have sold all goods and services that they have produced C. at the halfway point on the price axis D. when the quantity supplied equals the quantity demanded
D. when the quantity supplied equals the quantity demanded
Suppose that you have a pumpkin stall at a farmers' market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario? A. You will take fewer pumpkins to the market to sell B. You will be able to sell only the highest-quantity pumpkins C. You will wind up with many unsold pumpkins D. You can charge a higher price per pumpkin
D. you can charge a higher price per pumpkin
diminishing marginal benefit (MB)
MB will eventually being to decrease as you take an action. Each additional item yields a smaller MB than the pervious item.
Perfect competition
Market in which all firms sell an identical good and there are many buyers and sellers, each of whom is small relative to the size of the entire market
demand schedule
a table that indicates the quantity of a good or service that you would be demanded at EACH price
supply scedule
a table that indicates the quantity of a good that would be supplied at each price
An individual supply curve is a. the marginal cost curve b. the same as the total market supply curve c. positively sloped because of technological advancement d. lower than the marginal cost of producing an item
a. the marginal cost curve
Peanut butter and peanut oil are complements- in-production. When the price of peanut butter rises, the a. quantity supplied of peanut butter will fall b. supply of peanut oil will rise c. supply of peanut oil will fall d. quantity supplied of peanut butter will remain unchanged
b. supply of peanut oil will rise
If Tesla cars become less expensive, what will happen in the market for other electric cars? a. the quantity demanded of Teslas will fall b. the demand for other electric cars will fall c. the demand for other electric cars will rise d. the quantity demanded of Teslas will not change
b. the demand for other electric cars will fall
A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market? a. the supply of flour will increase in the market b. the supply of flour will decrease in the market c. the supply of flour will remain unchanged in the market d. suppliers of flour will switch to supplying grain
b. the supply of flour will decrease in the market
The marginal benefit of consuming an item is a. The difference between what the consumer is willing to pay and the actual market price of the item b. The total benefit from buying several units of the item c. The additional benefit from buying one more unit of that item d. the additional number of consumers who buy a unit of an item
c. The additional benefit from buying one more unit of that item
Recent evidence suggests exercise promotes longevity and reverses aging. Based on this information, what might happen in the market for exercise-related goods and services? a. The demand for gyms will not change b. people will reduce their purchases of exercise equipment c. The demand for exercise machines and/or gyms will increase d. The demand for exercise equipment will not be affected
c. The demand for exercise machines and/or gyms will increase
Substitutes-in-production a. are always priced the same b. use substitute inputs in production c. allows a business to have alternatives uses of its resources by manufacturing other products using the same inputs d. allows a business to produce goods together
c. allows a business to have alternative uses of its resources by manufacturing other products using the same inputs
The relationship between price expectations and demand is a. negative; when future prices are expected to rise, current demand will fall b. negative; when future prices are expected to fall, current demand will rise c. positive, when future prices are expected to rise, current demand will rise d. positive, future prices are generally expected to rise
c. positive, when future prices are expected to rise, current demand will rise
The relationship between price expectations and demand is a. negative; when future prices are expected to rise, current demand will fall b. negative; when future prices are expected to fall, current demand will rise c. positive; when future prices are expected to rise, current demand will rise d. positive; future prices are generally expected to rise
c. positive; when future prices are expected to rise, current demand will rise
The marginal benefit of consuming an item is a. the difference between what the consumer is willing to pay and the actual market price of the item b. the total benefit from buying several units of the item c. the additional benefit from buying one more unit of that item d. the additional number of consumers who buy a unit of an item
c. the additional benefit from buying one more unit of that item
Recent evidence suggests exercise promotes longevity and reverses aging. Based on this information, what might happen in the market for exercise-related goods and services a. the demand for gyms will not change b. people will reduce their purchases of exercise equipment c. the demand for exercise machines and/or gyms will increase d. the demand for exercise equipment will not be affected
c. the demand for exercise machines and/or gyms will increase
Fixed cost
costs that do not vary when you change that quantity of output you produce
Variable costs
costs that vary with the quantity of output