Economics Midterm

An individual has an absolute advantage in producing pizzas if that individual

can produce more pizzas in a given amount of time than anyone else

Economics is best defined as the study of

choice in the face of limited resources

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next-day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. Given that driving to campus to buy the concert ticket was rational for Matt, Matt should

drive to campus to buy the books because the $5 he would save is more than he saved by driving to campus to buy the concert ticket

Pitfall 3

failing to think at the margin

In general, individuals and nations should specialize in producing goods ______ other individuals or nations.

for which they have a lower opportunity cost compared to

Ashley has a comparative advantage over her classmates in writing term papers if she

has a lower opportunity cost of writing term papers than her classmates

According to the Principle of Increasing Opportunity Cost, in expanding the production of any good, we should start by utilizing the resources that

have the lowest opportunity cost

The Scarcity Principle (No-Free lunch principle)

having more more of one good thing means having less of another

The cost-benefit principle indicates that an action should be taken if

if its extra benefit is greater than or equal to its extra cost

The Incentive Principle is an example of

a positive economic principle.

Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is:

an application of the cost-benefit principle

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tamika 6 minutes to make a sandwich and 12 minutes to make a smoothie. What is the opportunity cost to Dan of making a sandwich?

1/3 of a smoothie

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

Dan should specialize in sandwiches, and Tamika should specialize in smoothies

True or False: A sharp increase in gas prices likely affecting SUV sales would be studied in macroeconomics

False

Pitfall 2

Ignoring implicit costs

Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather more mangoes per house than Maryann and can also catch more fish per hour than can Maryann. This means...

Maryann should specialize in the activity for which she has a comparative advantage

Pitfall 1

Measuring costs and benefits as proportions

You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The cost to you of working is $2/hr. Should you go to the concert instead of working Saturday?

No, the benefit of going to the concert is less than the cost

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. If you do not use the frequent-flyer coupon to fly to Miami, should you go to Miami?

No, your benefit is less than your cost

During times of high unemployment, colleges often observe an increase in enrollment even if tuition remains unchanged. Why?

The opportunity cost of attending college is lower when unemployment is high

Suppose Xin and Zander work in a bakery making pies and cakes. Suppose it takes Xin 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Zander 2 hours to make a pie and 1.5 hours to make a cake. This means....

Zander has a comparative advantage in pies, and Xin has an absolute advantage in pies

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $40, and if she washes clothes, she will earn $25. She dislikes both tasks equally and they both take the same amount of time. Janie will choose ________ because _________

not to wash clothes; it generates a small economic surplus

Suppose Monique is willing to pay up to $17,250 for a used Ford pick-up truck. If she buys one for $12,250, her economic ________ would be ________.

surplus; $5,000

Microeconomics differs from macroeconomics in the microeconomics focuses on

the choices made by individuals and the implications of those choices

The opportunity cost of an activity includes the value of

the next-best alternative that must be forgone

The Scarcity Principle states that

with limited resources, having more of one thing means having less of another

If you have comparative advantage in a particular task, then

you give up less to accomplish that task than do others

For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is:

$0

A graph the illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a

production possibilites curve