Microeconomics 1001 pt. 1

Cierra goes to a local coffee shop and orders a medium- sized latte. Her 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 Cierra gain when she purchase the latte? A. $2 B. $6 C. $4 D. $!

$4

Examples of perfect competition

1. many buyers and sells of the market 2. all items are identical

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs marcella requires to operate her business. Which is it? A. Physical space for the gallery B. Costs of purchasing art work to sell in the gallery C. Wages paid to the three part- time employees D. Shipping costs for works sold

A. Physical space for the gallery

A change from point E to Point D represents a(n): A. increase in demand B. decrease in demand C. Decrease in quantity demanded D. Increase in quantity demanded

A. increase in demand

Any given demand curve is based on the ceteris paribus assumption that_______________. A. Everything is variable B. All else is held equal C. No one knows which variable will change and which will remain constant D. What is true for the individual is not necessarily true for the whole

B. All else is held equal

A change from Point A to Point E represents a(n): A. Increase in demand B. Decrease in demand C. Decrease in quantity demanded D. Increase in quantity demanded

B. Decrease in demand

Economics

Based on human behavior (social science)

In general, when incomes rise, individuals are more likely to travel by air than by car when they take vacations. Which statement provides one possible explanation for this phenomenon: A. Air travel and travel by car are complementary goods B. Air travel and travel by car are both normal goods C. Air travel is an inferior good, and travel by car is a normal good D. Air travel is a normal good, and travel by car is an inferior good

D. Air travel is a normal good, and travel by car is an inferior good

Law of Demand

If the price of a good increases or decrease then the quality decreases, and increases (inverse relationship)

Decision rule

MB= MC

Decisional rule (key in economics)

MB= MC

Graph Labels

P (vertical) Q (horizontal)

MB is often Marginal Revenue (MR)

Price

Decision making needs or uses

Tradeoff

Suppliers are NOT

all powerful

Perfect Vs. Imperfect competition

another name for change of price

Social Science

are sciences that study human behavior

Most decisions are made

at the margin and not the total

All else equal

ceteris paribues

Good decision making is made by

comparing cost

All else equal

comparing literal identical goods, just different goods

what principle says that you should make choices based on the underlying costs and benefits of the choice you face, rather than how they are described, or framed. But sellers will often try to make this difficult.

cost- benefit principle

Scarcity

decisions must be made and they do involve consequences

Demand curve is always

downward sloping

Demand

is the buyer or consumer side of the market

Day to day is....

marginal

Cost- benefit principle

that costs and benefits are the incentives that shape decisions

Hard science

there questions and no answers, influenced by human behavior

Perfect competition =

they have no ability to choose the price for which their good is sold

The cost- benefit principle suggests that before you make any decision you should...

- Evaluate the full set of costs and benefits associated with that choice. - Pursue that choice, only if the benefits are at least large as the cost

The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to: A. A decline in college tuition B. An increase int he price for and construction of wood- frame homes C. An increase in the supply of lumberjacks D. an end to government regulations that limit harvesting in national forests

B. An increase in the price for and construction of wood- frame homes

Coke and Pepsi can be viewed as: A. opposites B. complements C. Substitutes D. Inferior goods

C. Substitutes

The demand curve for Adidas shoes has shifted to the right. What could have caused this? A. A fall in the price of Adidas shoes B. An increase in the price of Adidas shoes C. An increase in the supply of Adidas shoes D. An increase in the enthusiasm among consumers for Adidas as an exercise shoe

D. An increase in the enthusiasm among consumers for Adidas as an exercise shoe

A supply schedule shows how: A. Supply is derived B. Much of a good or service would be demanded at different prices C. Much of a good service would be supplied, given the demand D. Much of a good service would be supplied at different prices

D. Much of a good service would be supplied at different prices

If the price of jet fuel rises, the: A. supply of airline flights will increase B. Supply of jet fuel will decrease C. Supply of jet fuel will increase D. Quantity of jet fuel supplies will increase

D. Quantity of jet fuel supplies will increase

Factors that shift S

1. Input prices 2. Technology 3. Number of firms (in the market) 4. Substitutes (in production) 5. Compliment (in production) 6. Expectations 7. Regulation

4 core Principles

1. The benefit - cost principle 2. The opportunity cost principle (next best alternative) 3. The marginal principle 4. The interdependence principle

The rational rule for sellers says that a seller should sell one more unit of an item if the price is: A. Less than the marginal cost B. Greater than or equal to the marginal cost C. Less than the marginal benefit D. Greater than or equal to the marginal benefit

B. Greater than or equal to the marginal cost

Diminishing marginal product leads to: A. Decreased profitability for a seller B. increased supply of an item C. Rising marginal costs for a seller D. Lower opportunity costs of producing an item

C. Rising marginal costs for a seller

Josh is planning on studying late into the night for his economics exam. How many cups of coffee should he drink tonight? Josh should keep drinking coffee until A. The marginal benefit of drinking one more cup is greater than the marginal cost B. The marginal benefit of drinking one more cup is less than the marginal cost C. The marginal benefit of drinking one more cup equals the marginal cost D. He is full and has finished studying

C. The marginal benefit of drinking one more cup equals the marginal cost

A change from point A to point B represents a(n): A. Increase in demand B. Decrease in demand C. decrease in quantity demanded D. Increase in quantity demanded

C. decrease in quantity demanded

There is a difference between a "change in quantity demanded" vs a "change in demand"

Changes the good of itself

Andy views beer and pizza as complements to one another. IF the price of pizza decreases, economists would expect: A. Andy's demand for pizza to increase B. Andy's demand for pizza to decrease C. Andy's quantity of pizza demanded to decrease D. Andy's demanded for pizza to increase

D. Andy's demand for pizza to increase

The nature of demand indicates that as the price of a good increases: A. Suppliers wish to sell less of it B. More of it is produced C. More of it is desired D. Buyers desire to purchase less of it

D. Buyers desire to purchase less of it

The Cost - benefit principle states that ______ are the incentives that shape decisions. A. Framing Effects B. Incomes C. Opportunity costs D. Costs and benefits

D. Costs and Benefits

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 marginal principle B. The interdependence principle C. The cost- benefit principle D. The opportunity cost principle

D. The opportunity cost principle

When quantity demanded decreases in response to a change in price A. The demand curve shifts to the right B. The demand curve shifts to the left C. There is a movement right along the demand curve D. There is a movement left along the demand curve

D. There is a movement left along the demand curve

Willingness to pay is the

most you pay

If an increase in the price of good X causes a decrease in demand for good Y, we can conclude that: A. The price of good Y will increase B. goods X and Y are substitute goods C. goods X and Y are complement goods D. Not enough information given to determine the relationship between goods X and Y

C. goods X and Y are complement goods

A fixed cost is one: A. that is limited in supply B. That only has one use in production C. That cannot be used to produce more or less output in any period D. Whose quantity can not be hanged in the short run

D. Whose quantity can not be hanged in the short run

Dependencies between your own choices reflect the fact that A. Resources can be spread across varying markets B. Resources can be spread across time C. Society had unlimited resources D. You have limited resources

D. You have limited resources

Economics is the study of

Decision making, comparing tradeoff, Especially comapring the cost

In a market system when there is high demand they are sold by price. How is price determined?

Demand and supply determine price, and quantity

How is the economics surplus generated by a decision calculated? A. It is the sum benefits arising from a decision B. It is the total benefits minus total costs arising from a decision C. It is the sum of costs arising from a decision D. It is the sum of total opportunity costs arising from a decision

B. It is the total benefits minus total costs arising from a decision

An increase in supply could be caused by a(n): A. Increase in price B. Government- imposed price ceiling C. Decrease in resource prices D. Decrease in consumer incomes

C. Decrease in resource prices

Which of the following would reduce the supply of computers? A. A technological improvement that lowers that cost of producing the computers B. Higher wages rates for the workers that assemble the computers C. a reduction in the price of computer chips used to produce the computers D. A reduction in the price of computers

B. Higher wages rates for the workers that assemble the computers

Variable costs: A. Are incurred in building factories and assembly plants B. Are independent of the amount of output produced C. Don't change with quantity of output produced D. Change with quantity of output produced

D. Change with quantity of output produced