microeconomics: ch. 1 HW

The cost of purchasing one apple is $1, but you can get two for $1.75. The second apple is $0.75. What is the marginal cost of the second apple?

$0.75

Mary buys cell-phone services from a company that charges $40 per month. For that $40 she is allowed 700 minutes of free calls and then pays 10 cents per each additional minute. Mary has used 700 minutes this month so far. What is her marginal cost of making a 10 minute phone call?

$1

According to the economic decision rule, you should do something if its:

-marginal cost is less than marginal benefit. -marginal benefit is greater than marginal cost.

There are two types of policy analysis:

1. Objective policy analysis keeps value judgments separate from the analysis. 2. Subjective policy analysis reflects the analyst's views of how things should be.

What 3 categories is economics divided into?

1. Positive economics 2. Normative economics 3. The art of economics

The 3 central coordination problems any economy must solve are:

1. What, and how much, to produce 2. how to produce it 3. For whom to produce it

Kelsey purchased one chocolate bar already and gained 4 units of happiness. An additional chocolate bar would give her 3 units of happiness. What is the marginal benefit of the second chocolate bar?

3 units of happiness

What can be best defined as a policy rule that suggests that a particular course of action is preferable?

A precept

Which of the following is a normative statement?

Because a recession raises unemployment, the government should extend unemployment insurance.

Chuck offers $122,000 for a house. The seller turns down the offer but says she will sell the house for $129,000. However, Chuck refuses to pay the higher price. If both Chuck and the seller are rational, then marginal analysis implies that the marginal benefit of the house to

Chuck must be less than $129,000.

Which of the following is an example of normative economics?

Determine who should get what

What can be defined as achieving a goal as cheaply as possible?

Efficiency

True or false: Precepts are the foundation for theorems.

False

What type of questions does positive economics ask?

How does the market for hog bellies work?

Opportunity cost focuses on two aspects of the costs of a choice that may be forgotten:

Implicit costs and illusionary sunk costs

__________________ should be included in opportunity costs but _____________________ should not be included.

Implicit costs; illusionary sunk costs

__________ is the additional benefit above what you've already derived?

Marginal benefit

What can be defined as the additional cost to you over and above the costs you have already incurred?

Marginal cost

What can be defined as the study of individual choice, and how that choice is influenced by economic forces?

Microeconomics

Andrew had spent $500 on repairing his old car which is no longer in a usable condition. He is considering buying a new car for $1,000. Should the fact that he just spent $500 repairing his old car play a role in his decision?

No, the cost is a sunk cost.

What can be defined as the benefit that you might have gained from choosing the next-best alternative?

Opportunity cost

What can be defined as the study of what is, and how the economy works?

Positive economics

Why does scarcity exist?

Scarcity exists because individuals want more than can be produced.

What can be defined as costs that have already been incurred and cannot be recovered?

Sunk Costs

What term refers to the price mechanism, the rise and fall of prices that guides our actions in a market?

The invisible hand

Macroeconomics

The study of the economy as a whole

_________ are too abstract to apply in specific cases and are often embodied in economic models and principles.

Theories

______________________________________ are continually tested to see of the predictions of the model match the data.

Theories, models, and principles

What type of questions does art of economics ask?

To achieve the goals that society wants to achieve, how would you go about it, given the way that the economy works?

True or false: Economists often rely on theorems to help determine precepts.

True

What type of questions does normative economics ask?

What should tax policy be designated to achieve?

What is economic principle?

a commonly held insight stated as a law or general assumption.

what is an economic model?

a framework that places the generalized insights of the theory in a more specific contextual setting.

Inflation is..

a macroeconomic issue.

according to the invisible hand theorem.....

a market economy, through the price mechanism, will allocate resources efficiently.

The statement: "Given certain conditions, the market achieves efficient results." is an example of a(n) _____.

a positive statement

Using the impartial spectator tool,

a rich person might support a wealth tax that reduced his wealth.

What can be defined a proposition, that is logically true, based on the assumptions in a model?

a theorem

A policy maker using the impartial spectator tool puts herself in the place of....

a third-person judge and looks at the situation from a variety of perspectives.

Efficiency:

achieving a goal as cheaply as possible.

A market force is....

an economic force that is given relatively free rein by society to work through the market.

The impartial spectator tool is not..

an important scientific tool

Economic policies

are actions (or inaction) taken by the government to influence economic actions.

Value judgments in economics..

are an essential part of the art of economics.

Economic Institutions

are laws, common practices, and organizations in a society that affect the economy.

Economic reasoning is..

based on the premise that everything has a cost.

The opportunity cost of getting a job is the...

benefit you would have obtained from engaging in the activity you had to give up to take the job.

The marginal benefit of attending a play is worth $50 to June. The marginal cost of attending a play is $40. Assuming June uses economic reasoning, she will

choose to attend a play.

The degree of scarcity is _________________.

constantly changing

Implicit costs are______________________________________.

costs associated with a decision that often are not included in normal accounting costs.

sunk costs

costs that have already been incurred and cannot be recovered.

Illusionary sunk costs are ________________________________.

costs that show up in financial accounts that are already spent.

Among other things, positive economics seeks to

determine how economic policies affect output and employment.

Normative economics seeks to:

determine how income should be distributed.

Economic institutions ___________ significantly among nations.

differ

Which of the following is most likely to be studied in microeconomics? 1. inflation 2. economic growth 3. unemployment 4. distribution of income

distribution of income

An action taken by a government to influence the course of economic events is a(n) _______.

economic policy

When a(n) ______ force operates through the market, it becomes a(n) ______ force.

economic; market

The invisible hand theorem is a theory that primarily relates to ______.

efficiency

Price has a tendency to _______ when quantity supplied is greater than quantity demanded.

fall

Economists are primarily concerned with:

how human beings coordinate their wants and desires given a society's decision-making mechanisms, social customs, and political realities.

Economics is the study of...

how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society. - the study of how to get people to do things they are not wild about doing and not to do things they are wild about doing.

Sunk costs should always be______?

ignored

Adam Smith argued that a reasonable way to address normative questions objectively was to use the

impartial spectator tool.

The economy is the institutional structure through which..

individuals in a society coordinate their wants and desires.

Microeconomics

is the study of individual choice, and how that choice is influenced by economic forces.

What is the art of economics?

is using the knowledge of positive economics to achieve the goals determined in normative economics.

If production is efficient, then

it is not possible to produce the same quantity of output at a lower cost.

The study of the relationship between the price level and aggregate output is a topic in _________________.

macroeconomics

If the _______________ of doing something exceed the _______________, do it.

marginal benefits; marginal costs - MB > MC --> do it

To make optimal decisions, decision makers compare

marginal cost and marginal benefit.

The invisible hand theorem argues that...

markets allocate resources efficiently through the price mechanism

Costs relevant to decisions are often different from the ________________.

measured costs

Normative economics is

more subjective than positive economics.

Economic analysis that involves value judgments is called ______.

normative analysis

What can be defined as the study of what the goals of the economy should be?

normative economics

a third-person judge and looks at the situation from a variety of perspectives.

normative economics

In deciding whether to go to a lecture in the middle of the semester you should....

not include tuition as part of the cost of that decision.

A student who has paid non-refundable tuition of about $45 per lecture estimates the marginal benefit of each lecture to be $60. She should attend the class if the....

opportunity cost of attending class is $50.

What are policy precepts?

policy rules that conclude that a particular course of action is preferable

Which of the following are forces that control economic reality? private political economic social

political economic social

Individuals are prohibited from practicing medicine without a license. This is an example of

political forces

"Determining that reducing the price of prescription drugs in the United States may reduce the quantity of these drugs available," is an example of _________.

positive economics

Empirically determining that increased government spending will lead to higher GDP is an example of ______.

positive economics

The art of economics is the application of knowledge learned in _________________ economics to achieve the goals determined in _____________ economics.

positive; normative

"Because the invisible hand allocates resources efficiently, economies ought to minimize government interference." This is an example of a(n) _______.

precept

Economists often use models to come to policy rules that favor some courses of action over others. That policy conclusion is an example of an economic _______.

precept

The invisible hand theory argues that:

prices rise when quantity supplied is less than quantity demanded.

If there is a shortage, _______________. If there is a surplus, ______________.

prices rise; prices fall

Economic theorems are....

propositions that are logically true and based on the assumptions in a model.

What is a theorem?

propositions that are logically true based on the assumptions of the model

An economist assumes that a rational decision maker will

pursue an action as long as the marginal benefit exceeds the marginal cost.

Price has a tendency to ________ when the quantity demanded is greater than the quantity supplied.

rise

________ and ________________ influence market forces and work together against the invisible hand.

social and political forces

The invisible hand theorem tells us

that markets are efficient under certain circumstances.

Marginal benefit is...

the additional benefit above what has already derived.

Marginal cost..

the additional cost over and above costs already incurred - example. A car is bought for $10,000. A new sunroof is $400 and a new stereo is $200. What is the marginal cost? $600

Debating the best economics policy to address climate change is an example of ______.

the art of economics

Opportunity Cost is..........

the benefit that you might have gained from choosing the next-best alternative.

Scarcity means...

the goods available are too few to satisfy individuals desires

Economic forces:

the necessary reactions to scarcity.

The invisible hand is.......

the price mechanism that guides our actions in a market. The invisible hand is an example of a market force.

What is positive economics?

the study of what is and how the economy works.

What is normative economics?

the study of what the goals of the economy should be.

Models lead to _____________________ and arrive at ___________________________.

theorems ; policy precepts

TANSTAAFLE

there ain't no such thing as a free lunch

True or false: Economic forces are always at play while market forces are not.

true

Mary has 4 T-shirts. The fourth T-shirt increased the pleasure she received from T-shirts by $14. The marginal benefit of owning another T-shirt this month to Mary is $12. If the $13 price of T-shirts reflects their marginal cost to Mary and she is rational, then Mary

will not buy any more T-shirts this month.

If you choose not to answer this question, an economist is likely to infer that..

your opportunity cost of answering the question is too high.

Economic reasoning or "thinking like an economist" involves things such as :

• Analyzing issues and comparing costs and benefits of a decision • Abstracting from the unimportant elements of a question and focusing on the important ones

Macroeconomics studies such things as:

• Inflation • Unemployment • Economic growth

Microeconomics studies things such as:

• The pricing of firms • Household decisions on what to buy • How markets allocate resources among alternative ends

What happens in society can be seen as a reaction to ___________, and interaction of __________________ and _________________________.

•Economic forces •Social forces •Political forces