Microeconomics Midterm Exam

A student will decide to attend class when

the marginal benefit of attending exceeds the marginal cost of attending.

Specify the typical shapes of marginal-benefit and marginal-cost curves

The marginal benefit curve is downward sloping. The marginal cost curve is upward sloping.

Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:

4 Pens

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 18 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 7 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

6 hours

Why is entrepreneurial ability distinct from labor even though both are considered as a category of economic resource?

Because entrepreneurial ability is not directly engaged in production.

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each.

Alternative Combinations Goods A B C D E F Candy bars 0 4 8 12 16 20 Bags of peanuts 10 8 6 4 2 0 What is the slope of the budget line? -0.5 What is the opportunity cost of one more candy bar? 0.5 bag(s) of peanuts What is the opportunity cost of one more bag of peanuts? 2 candy bar(s). Do these opportunity costs rise, fall, or remain constant as additional units are purchased? Remain constant c. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy? No d. Suppose that you had won $30 on your ticket, not $15. Is the slope of a new budget line flatter, steeper, or the same as in the diagram above? The same Has the number of available combinations increased or decreased? Increased

Which of the following is not a key element of the scientific method?

Designing data

If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?

Fewer

What are the two major ways in which an economy can grow and push out its production possibilities curve?

Increases in resource supplies and advances in technology.

What are the major functions of the entrepreneur?

Innovate, Take risks, Make decisions.

Why is money not considered to be a capital resource in economics?

Money is not considered a capital resource because money is not productive

With these curves, the optimal allocation of resources to a particular product will occur when

MB = MC

Which of the following best describes the concept of utility and economic behavior?

Satisfaction from consuming goods or services.

Suppose that, on the basis of a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires, but that it can get the robot from another country in exchange for 9,000 pizzas. Now consider the following statement: "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus 'move outside its production possibilities curve.'" Which of the following explains the relationship between the situation described and the statement?

Specialization and trade have the same effect as having more and better resources or discovering improved production techniques.

Which of the following represent a normative economic statement?

The government ought to lower taxes so people have more money.

Which of the following represents a positive economic statement?

The unemployment rate is 4.8 percent.

Potatoes cost Janice $0.50 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30. a. How many pounds of potatoes will she purchase? b. What if she only had $2.00 to spend?

a. 3 pound(s) of potatoes. b. 3 pound(s) of potatoes.

How (if at all) do each of the following events affect the location of a country's production possibilities curve? a. The quality of education increases: b. The number of unemployed workers increases: c. A new technique improves the efficiency of extracting copper from ore: d. A devastating earthquake destroys numerous production facilities:

a. Curve shifts outward b. No change c. Curve shifts outward d. Curve shifts inward

Suppose a city block was going to be used for a parking lot. The opportunity cost would be

greater in New York City because the alternative uses of the block are more valuable.

Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? a. Your budget increases from $100 to $150 while the prices stay the same: b. Your budget remains $100, the price of books remains $25, but the price of movie tickets rises to $20: c. Your budget remains $100, the price of movie tickets remains $10, but the price of a book falls to $15:

a. Increase b. Decrease c. Increase

Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in the United States was 8.1 percent in August 2012: b. A U.S. software firm discharged 15 workers last month and transferred the work to India: c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise: d. U.S. output, adjusted for inflation, decreased by 2.4 percent in 2009: e. Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point: f. The consumer price index rose by 3.8 percent from August 2011 to August 2012:

a. Macroeconomics b. Microeconomics c. Microeconomics d. Macroeconomics e. Microeconomics f. Macroeconomics

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. a. 3,000 units at which MC = $10 and MB = $13: b. 11 units at which MC = $4 and MB = $3: c. 43,277 units at which MC = $99 and MB = $99: d. 82 units at which MC < MB e. 5 units at which MB < MC:

a. More b. Fewer c. Current number d. More e. Fewer

Match each term with the correct definition. a. The next-best thing that must be forgone in order to produce one more unit of a given product: b. The pleasure, happiness, or satisfaction obtained from consuming a good or service: c. The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity: d. Making choices based on comparing marginal benefits with marginal costs:

a. Opportunity cost b. Utility c. Economics d. Marginal analysis

The scientific method is the technique used by economists to determine

economic principles.

Because economic resources are used to produce goods and services, they are called

factors of production or inputs

Economists classify resources as

labor, land, real capital, and entrepreneurs.

Economic resources are the

natural, human, and manufactured inputs used to produce goods and services.

Studies indicate that married men on average earn more income than unmarried men of the same age and education level. From this statement, we can conclude that

there is a correlation, but marriage is not necessarily the cause of higher income for married men.

In a market system scarce goods are allocated through the operation of

what must be sacrificed in using a resource for its next best use.