Microeconomics123 (Exam 1 study)

A marginal change is a___________.

Samll, incremental adjustment

The short-run tradeoff between inflation and unemployment implies that, in the short run, an increase in the quantity of money will be accompanied by _________ in unemployment rate.

decreases

Macroeconomics is the study of _________.

economy-wide phenomena.

The property of society getting the most it can from its scare resources is called _______.

efficiency

Production Possibilities for Footville Shoes 800 600 400 200 0 Socks 0 400 700 900 1000 Refer to Table 2-3. What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600?

300 stocks

he following table contains some production possibilities for an economy for a given year: Tennis Rackets 100 200 300 Tennis Balls 8000 6500 ? Refer to Table 2-2. If the production possibilities frontier is bowed outward, then "?" could be

4500

The ability of an individual to own and exercise control over scare resources is called _______.

Property rights

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of ________.

A market failure caused by an externality

The price of diamonds is high, in part because the majority of the world's diamonds are controlled by a single firm. This is an example of ______.

A market failure caused by market power

Inflation is defined as ____________.

An increase in the overall level of prices in the economy

Which of the following is the primary cause of inflation?

An increase in the quantity of money

To say that government intervenes in the economy to promote efficiency is to say that government is attempting to _________.

Enlarge the economic pie

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce __________.

Externalities

To improve living standard, policymakers should ______.

Formulate policies designed to increase productivity

The term "market failure" _____.

Refers to the failure of a market to produce an efficient allocation of resources

The term productivity ______.

Refers to the quantity of goods and services produced form each unit of labor input

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay _________.

More than $40, as the average benefit will exceed the marginal cost

the following are an example of scarcity.

Only some people can afford to buy a BMW automobile. Eve4ry individual in society cannot attain the highest standard of living to which he or she might aspire. Each member of a household cannot get everything he or she wants.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a stanby passenger is willing to pay $300, the airline should ______.

Sell the ticket because the marginal benefit exceed the marginal cost

Trade allows __________, which _______ costs.

Specialization; reduces

A rational decision maker takes an action if and only if ______.

The marginal benefit of the action exceeds the marginal cost

Production Possibilities for Footville Shoes 800 600 400 200 0 Socks 0 400 700 900 1000 Refer to Table 2-3. Which of the following statements is correct

The opportunity cost of an additional 200 shoes increases as more shoes are produced.

Ramona decides to spend two hours taking a nap rather than attending her class. Her opportunity cost of napping is __________.

The value of the knowledge she would have received had she attended class

Thousands of people develop lung cancer form second-hand exposure to cigarette smoke. This is an example of

a market failure caused by an externality

Economic models _________.

are usually composed of diagrams and equations.

The production possibilities frontier is a graph that shows the various combinations of output that an economy _______.

can produce.

When the government redistributes income form the wealthy to poor,

equality is improved, but efficiency is not

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

In a market economy, _________.

households decide which firms to work for and what to buy with their incomes

Microeconomics is the study of _______.

how individual households and firms make decisions.

An economy's production of two goods is efficient if_____________.

it is impossible to produce more of one good without producing less of the other.

Classify the statement below as positive or normative. The Federal Reserve should reduce the rate of money growth

normative

A production possibilities frontier can shift outward if ______. 3 different ways

opportunity cost, economic growth, and scarcity

The adage, 'There is no such thing as a free lunch' means

people face tradeoffs

Classify the statement below as positive or normative. Society faces a short-run trade-off between inflation and unemployment

positive

For economists, statements about the world are of two types:

positive statements and normative statements.

Unemployment would cause an economy to _________.

produce inside its production possibilities frontier.

Resources are

scare for households and scarce for economies

A model can be accurately described as a _______.

simplification of reality.

A marginal change is a

small, incremental adjustment

Efficiency means that

society is getting the maximum benefits from its scarce resources

A rational decision maker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

On a bowed production possibilities frontier, as you move down along the curve _______.

the available production technology does not change. the opportunity cost increases. more of one good must be given up to receive one unit of the other good.

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone to the park

One reason we need government, even in a market economy, is that __________.

the invisible hand is not perfect

A production possibilities frontier can shift outward if ______.

there is a technological improvement.