Micro-Economics Test 1 Study Guide

Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's cost of going to college is

$42,600

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?

9 percent per year (the highest amount possible)

In the United States, incomes have historically grown

About 2 percent per year

In the circular-flow diagram, firms produce

Both (a) and (b) are correct. -goods and services using factors of production. -output using input

The income of a typical worker in a country is most closely linked to which of the following?

Productivity

Refer to Figure 2-4. Unemployment could cause this economy to produce at which point(s)?

T (inside)

Which of the following is not an example of the opportunity cost of going to school?

The money a student spends on rent for his apartment while attending school.

Trade

allows specialization, which reduces costs.

Economic models

are usually composed of diagrams and equations.

Normative statements are

claims about how the world should be.

Refer to Figure 2-2. If the owners of land, labor, and capital are represented by Box B of this circular-flow diagram, then

firms are represented by Box A.

Refer to Figure 2-2. If households are buyers in the markets represented by Box C of this circular-flow diagram, then

firms are sellers in the markets represented by Box C.

Economic models

incorporate simplifying assumptions that often contradict reality, but also help economists better understand reality.

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

increased by 6.25 percent between 1998 and 2008

In a particular country in 2000, the average worker needed to work 40 hours to produce 55 units of output. In that same country in 2008, the average worker needed to work 30 hours to produce 45 units of output. In that country, the productivity of the average worker

increased by about 9 percent between 2000 and 2008

Another term for factors of production is

inputs

The business cycle is

irregular fluctuations in economic activity.

Refer to Figure 2-9, Panel (a). Production at point K is

possible but inefficient

Market power refers to

power of a single person or small group to influence market prices.

The production possibilities frontier illustrates

the trade-off between efficiency and equality. the combination of output that an economy should produce. the combination of output that each member of society should consume. Correct Response None of the above is correct.