Microeconomics Test 1

Points that lie outside the production possibilities curve are ______, and points that lie inside the production possibilities curve are ______.

unattainable; attainable

An implication of scarcity is that:

people must make trade-offs

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is:

following the Cost-Benefit Principle

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______.

that choices must be made; how to make good choices

The economic surplus of an action is:

the difference between the benefit and the cost of taking an action

Dean should play golf instead of preparing for tomorrow's exam in economics if:

the economic surplus from playing golf is greater than the economic surplus from studying

Any combination of goods that can be produced with currently available resources is an:

attainable point

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else's car is $3.50. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it?

$2.50

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35

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 all of the meals, your average cost for a meal is:

$4

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. The benefit to Matt of buying his books at the university bookstore instead of online is:

$5

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day. Assume that Tom and Susan specialize according to their comparative advantage to produce coffee beans and nuts. a.) Suppose that Susan and Tom could buy or sell coffee beans and nuts in the world market at a price of $2 per pound for coffee beans and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative advantage, how much could they earn by selling all they produce (Tom's earnings plus Susan's earnings)? ______ per day (1) b.) At the prices just described, what is the maximum amount of coffee beans Susan and Tom could buy each day in the world market with the income they earned? The maximum amount of nuts? Maximum amount of coffee that could be bought each day: _______ pounds (2) Maximum amount of nuts that could be bought each day: _______ pounds (3) Correct pounds.Using the world market and the prices described above, would it be possible for Susan and Tom to consume 40 pounds of nuts and 8 pounds of coffee beans each day? (Yes or No) (4)

1. $96 2. 48 pounds 3. 48pounds 4. yes

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day. a.) Together, what is the maximum number of pounds of coffee beans the two can pick in a day? What is the maximum number of pounds of nuts the two can gather in a day? Maximum amount of coffee beans: _____ pounds per day (1) Maximum amount of nuts: ______ pounds per day (2) b.) Now suppose Susan and Tom were gathering the maximum number of pounds of nuts when they decided that they would like to begin picking 8 pounds of coffee beans per day. Who would pick the coffee beans?_______ (3) How many pounds of nuts would they still be able to gather? ______ pounds of nuts per day. (4) c.) Would it be possible for Susan and Tom in total to gather 26 pounds of nuts and pick 20 pounds of coffee beans each day? (yes or No) ________ (5) If so, how much of each good should each person pick? Tom: _____ pounds of coffee beans; _____ pounds of Nuts (6) Susan: ______ pounds of coffee beans; ______ pounds of Nuts d.) The combination of 30 pounds of coffee beans and 12 pounds of nuts per day is_________ (7)

1. 36 pounds 2. 36 pounds 3. Susan 4. 32 pounds 5. Yes 6. Coffee Nuts: Tom 0 pounds 24 pounds Susan 20 pounds 2 pounds 7. attainable and efficient

Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes. What is each man's opportunity cost of washing a car? Ted's opportunity cost of washing one car is ____ wax jobs. Tom's opportunity cost of washing one car is ____ wax jobs. Who has a comparative advantage in washing cars?____

3 2 Tom

Why do many premium-priced refrigerators have lights not only in the refrigerator compartments but also in the freezer compartments? A.) Because willingness-to-pay for additional convenience is higher for high-income consumers than for low-income consumers. B.) Because high-income consumers eat frozen foods more frequently than low-income consumers do. C.) Because most low-income consumers cannot afford ice cream. D.) Because lights in both compartments of premium-priced refrigerators are required by federal regulations.

A.) Because willingness-to-pay for additional convenience is higher for high-income consumers than for low-income consumers.

If a nation can produce a more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers.

Absolute

If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Which of the following statements is correct?

Ana has the comparative advantage in fudge, but Leo has the absolute advantage in fudge

You and your friend Joe have identical tastes. At 2 p.m., you go to the Ticketmaster outlet and buy a $30 nonrefundable ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Joe plans to attend the same game, but because he cannot get to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game cost only $25 because they carry no Ticketmaster surcharge. (Many people nonetheless pay the higher price at Ticketmaster, to be sure of getting good seats.) At 4 p.m., an unexpected snowstorm begins, making the prospect of the drive to Syracuse much less attractive than before (but ensuring the availability of good seats.) If both you and Joe are rational, is one of you more likely to attend the game than the other? A.) Joe is more likely to go to the game. B.) You are more likely to go to the game. C.) Both of you would make the same decision.

B.) You are more likely to go to the game.

Why do moderately priced refrigerators have a light in the refrigerator compartment but not in the freezer compartment? A.) Because most people use the freezer compartment only during daylight hours. B.) Because light bulbs cannot withstand freezing temperatures. C.) Because the refrigerator door is opened more frequently than the freezer door. D.) Because having a light in freezer compartment would cause some frozen foods to melt.

C.) Because the refrigerator door is opened more frequently than the freezer door.

Which of the following statements is true?

Comparative advantage does not require absolute advantage

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 has the comparative and absolute advantage in sandwiches.

The Scarcity Principle applies to:

Everyone

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?

Forest has to make trade-offs

If Jane can produce 3 pairs of shoes per hour, while Bob can produce 2, then ______ has a(n) ______ advantage in producing shoes.

Jane; absolute

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in pieS

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has:

a higher opportunity cost of taking the day off work

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

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

In general, individuals and nations should specialize in producing those goods for which they have a(n):

comparative advantage

The marginal benefit of an activity is the:

extra benefit associated with an extra unit of the activity

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

A rational person:

makes choices based on added benefits and added costs

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

marginal cost

On a graph of a production possibilities curve, an inefficient point is:

necessarily an attainable point

Positive economic principles are those that:

predict how people will behave

A graph that 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 possibilities curve

The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

specialization by pitchers, infielders, and outfielders has made it harder for batters to hit

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes; bigger

The Scarcity Principle states that:

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