Principles of Microeconomics (Ch. 1,2,3,4,10)

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.

The _____ effect refers to the change in quantity demanded for a good that results from the effect of a change in the good's price on consumer's purchasing power.

Income.

In economics, choices must be made because we live in a world of

Scarcity.

The points outside the production possibilities frontier are

Unattainable.

Which of the following best describes scarcity?

Unlimited wants execeed the limited resources available.

Rent control is an example of

A price ceiling

If a demand curve shifts to the left, then

Demand has decreased.

An outward shift of a nation's production possibilities frontier represents

Economic growth.

T or F. Economists assume that the only reason people take the actions they do is in response to economic incentives.

False.

T or F. Market equilibrium occurs when supply equals demand.

False.

Economic surplus

Is equal to the sum of consumer surplus and producer surplus

The production possibilities frontier shows the _____ combinations of two products that may be produced in a particular time period with available resources.

Maximum attainable.

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

The federal government should spend more on AIDS research. This represents

Normative analysis.

The price of coffee at Starbucks is too high. This represents

Normative analysis.

What type of economic analysis is concerned with the way things ought to be?

Normative analysis.

A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents

Positive analysis.

Rising paper prices will increase textbook prices. This represents

Positive analysis.

Equity is

The fair distribution of economic benefits.

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?

If the price of a grapefruit rises, the substitution effect due to the price change will cause

A decrease in the quantity demanded of grapefruit.

Productive efficiency means that

A good or service is produced at the lowest possible cost.

If an increase in income leads to an increase in the demand for peanut butter, then the peanut butter is

A normal good.

The Great Depression of the 1930s with a large number of workers and factories unemployed would be presented in a production possibilities frontier graph by

A point inside the frontier.

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a give demand curve.

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

An inferior good.

A market is a group of _____ of a good or service and the institution or arrangement by which they come together to trade.

Buyers and sellers.

Societies organize their economics in two main ways to answer the three questions of what, how, and who. A society can have a _________ economy in which the government decides how economics resources will be allocated. Or a society can have a ______ economy in which the decisions of households and firms interacting in markets allocate economics resources.

Centrally planned; market.

The difference between the highest price a costumer is willing to pay for a good and the price the consumer actually pays is called

Consumer surplus.

Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extended periods of paid family leave from work and, consequently, the birthrate per woman increased. This could be best characterized as an example of people responding to

Economic incentives.

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

Economics assume that consumers and firms are rational, not that they always make the right decisions.

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

Every choice involves an opportunity cost.

Allocative efficiency means that

Every good or service is produced up to the point where marginal benefit is equal to marginal cost.

"I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course I decided not to drop it." Is this person's reasoning correct or incorrect?

Incorrect.

If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an increase in the price of the iPhone will

Increase the demand for the Galaxy.

A supply schedule

Is a table that shows the relationship between the price of a product and the quantity of the product supplied.

Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true?

It will have to give up production and consumption of some other good.

In a perfectly competitive market, there are _____ buyers and _____ sellers.

Many; many.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

Marginal benefit equals marginal cost.

The extra cost associated with undertaking an activity is called

Marginal cost.

The demand by all the consumers of a given good or service is the ______ for the good or service.

Market demand.

Efficiency means that goods are distributed in a way that __________, while equity means that goods are distributed in a way that _____.

Maximizes benefits to society; is fair.

If the best surgeon in town is also the best at cleaning swimming pools, then according to economic reasoning, this person should

Specialize in being a surgeon because its opportunity cost is lower.

The principle of opportunity cost is that

The economic cost of using a factor of production is the alternative use of that factor that is given up.

When the demand curve shifts to the right,

The equilibrium price and quantity will both increase.

Which of the following is a flow in the circular flow model?

The flow of revenue received by firms and the flow of payments to resource owners.

Opportunity cost is

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

Consumers are willing to purchase a product up to the point where

The marginal benefit of consuming the product is equal to the marginal cost of consuming it.

The demand curve shows

The willingness of consumers to buy a product at different prices.

Economists assume that people are rational in the sense that

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