ECON micro exam 1

The scarcity principle captures the notion that although we have boundless needs and wants, the resources available to us are limited, so

Having more of one good thing usually means having less of another

Suppose that each police officer hired by the city of Gotham generates an average benefit to the community of $500 per week, and the average salary of police officers is $600 per week. Should the City of Gotham hire more or fewer police officers?

It is impossible to say

The price elasticity of supply will tend to be higher when

Time horizon is longer It's easy to find find or produce substitute inputs

Total expenditure equal

Total revenue, P X Q

If the equation M = 20 + 12H is graphed with M on the vertical axis and H on the horizontal axis, then the vertical intercept and slope will be?

Vertical intercept = 20 Slope = 12

If demand is perfectly inelastic with respect to price, then the price of demand is

Zero

When assessing the costs and benefits associated with taking an action, it is generally considered best to consider costs and benefits

as absolute dollar amounts rather than proportions

In the textbook, opportunity cost includes

both explicit and implicit costs

Learning more about economic models

can help us make better decisions even if most people don't consciously don't use economic models to make decisions

A quantity that is fixed in value is known as

constant

You're trying to decide whether to go for a run. If you don't go for a run, you'll either watch TV or do your homework. Your opportunity cost of going on a run is

either the value you place on watching TV or the value you place on doing your homework, whichever is larger

The scarcity principle applies to

everyone

Failure to achieve economic efficiency entails that

everyone in the economy could be made better off total economic surplus has not been maximized

When making decisions, people sometimes make mistakes because they

fail to consider implicit costs

If the price elasticity of supply for dishwashers is 0.2, then if the price of dishwashers increases by 8% then the % change in quantity

goes up by 1.6 percent1

Changes in price and changes in total expenditure move in opposite direction when the price elasticity of demand is

greater than one

When there is excess supply in a market,

incentive for suppliers to lower their price exists

Along a supply curve, if the price of butter increases, the quantity of butter supplied will

increase

If the demand of economy class airline ticket is elastic with respect to its price, then if the price of economy class airline tickets decreases, then total expenditure will

increase

Economics

is the study of how people make choices under conditions of scarcity and of the results of those choices for society as whole

Average benefit

is the total benefit of carrying out n units of an activity divided by n

Given that most people spend a relatively small share of their budget on pencils, we would expect the elasticity of demand for pencils to be relatively

low

normative economic principle

one that says how people should behave

A maximum allowable price, specified by law

price ceiling

The percentage change in the quantity demanded that results in a one percent change in its price is the

price elasticity of demand

The slope of a straight line is often calculated as the

rise / run

A change in demand is represented by a

shift in the entire demand curve

When deciding whether to take an action, sunk costs

should be ignored

The Cost-Benefit Principle

shows how a person should behave

Incentive principle

states that a person is more likely to take an action if its benefits rises, and less likely to take if its cost rises

The marginal cost of carrying out an activity is

the increase in total costs that results from carrying out one additional unit of activity

The income elasticity of demand for potatoes is

the percentage by which the quantity of potatoes demanded changes in response to a one percent change in the income

The cross-price elasticity of demand is

the percentage change in quantity demanded of one good in response to a one percent change in the price of another good

The elasticity of supply is

the percentage change in quantity supplied in response to a 1 percent change in price

The average cost of carrying out an activity is

the total cost of undertaking n units of an activity divided by n

If supply is perfectly inelastic with respect to price, then the price elasticity of supply is

zero

Which of the following will lead to an increase in the demand for a good?

Decrease in price of complements increase in price of substitutes increase in income of buyers increased preference by buyers increase in population of potential buyers expectation of higher prices in the future

A mathematical expression that describes the relationship between two or more variables is called an

Equation

What will happen to the equilibrium price and quantity of beef if the price of cattle feed decreases?

Equilibrium price will decrease and equilibrium quantity will increase.

In order to use your local pool, you have to pay $15 per year, plus an additional $2 every time you go. If N is the number of times you use the pool each year, and F is the total dollar amount you pay to use the pool each year, then which of the following equations best describes this situation?

F = 15 + 2N

If a store has a 10 percent off everything sale, then the store's total revenue will fall

If the demand for store's products is inelastic with respect to its price

An Arizona student claims to have spotted a UFO over the desert outside of Tucson. How will this claim affect the supply (not the quantity supplied) of binoculars in Tucson stores?

Supply will not change. The demand for binoculars is likely to increase, leading to an increase in price and quantity supplied (but no change in supply).

Suppose the price of butter, a complement to bread, increases. At the same time, suppose the price of flour, a key ingredient to the production of bread, falls. How will both of these factors (the increase in the price of butter and the decrease in the price of flour) affect the equilibrium price and quantity of bread?

The equilibrium price of bread will decrease and the equilibrium quantity of bread could either increase or decrease

How will an increase in the birth rate affect the equilibrium price of land? (Assume the supply of land is fixed.)

The equilibrium price of land will INCREASE because DEMAND for land shifts to the RIGHT

For Buzz, the benefit of drinking an additional cup of coffee is $3. If a cup of coffee costs $1.50, and if Buzz has to use $1 worth of his time to go buy the coffee, should Buzz drink another cup of coffee?

Yes, because the benefit of drinking another cup of coffee is greater than the cost

Sunk cost

a cost that is beyond recovery at the moment the decision must be made

A change in quantity supplied is represented by

a movement along the supply curve

Variable

a quantity that is free to take on different values

A change in supply is represented by

a shift in the entire supply curve

dependent variable

a variable that is determined by the value taken by another variable in the equation

Rational

an individual is someone with well-defined goals who tries to fulfill those goals as best as he or she can

Economists view scarcity as

an unavoidable fact of life

In the graph of a straight line, the vertical intercept is the value taken by the

dependent variable when the independent variable is equal to zero

The fact that people do not always consciously weigh costs and benefits when making decisions

doesn't mean that economic models aren't useful for predicting behavior

If the price of lawnmowers goes up by 9 percent and quantity of lawnmowers demanded drop by 5 percent, then the total expenditure on lawnmower will

increase

Cost-Benefit Principle

states that an individual (or a firm or a society) should only take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs

If the demand for tea increases when the price of coffee goes up, then this suggests that coffee and tea are,

substitutes

A schedule or graph showing the quantity of good that sellers wish to sell at each price is known as

supply curve

Indicate how you think each of the following would shift demand in the indicated market: a. The incomes of buyers in the market for used Ford Fusions decreases. b. Buyers in the market for pizza read a study linking pepperoni consumption to weight gain. c. Buyers in the market for gas-powered cars learn of a decrease in the price of electric cars (a substitute for gas-powered cars). d. Buyers in the market for electric cars learn of a decrease in the price of electric cars.

a. The demand curve would shift to the right b. The demand curve would shift to the left c. The demand curve would shift to the left d. The demand curve would remain unchanged

What will happen to the equilibrium price and quantity of beef, if the price of chicken feed increases? (Assume that chicken and beef are substitutes.)

Both will increase

How will a new law mandating an increase in required levels of automobile insurance affect the equilibrium price and equilibrium quantity in the market for new automobiles?

Equilibrium price will fall; equilibrium quantity will fall.

When a good has many close substitutes, its price elasticity of demand tends to be relatively

High

Suppose wildfires in California destroy a number of major wineries. At the same time, suppose consumers' incomes fall. If wine is a normal good, then how will both of these factors (the destruction of the wineries and the decrease in consumers' incomes) affect the equilibrium price and quantity of wine?

The equilibrium price of wine will either increase or decrease, and the equilibrium quantity of the wine will decrease

independent variable

a variable that determines the value of another variable in an equation

State whether the following pairs of goods are complements, substitutes, or both. a. Washing machines and dryers b. Tennis rackets and tennis balls c. Birthday cake and birthday candles d. Cloth diapers and disposable diapers

a. Complements b. Complements c. Complements d. substitutes

State whether the following pairs of goods are complements or substitutes. a. Handball courts and squash courts b. Handballs and handball courts c. Coffee and cream d. Bathing suits and towels

a. Substitutes b. Complements c. Complements d. Complements

How would each of the following affect the U.S. market supply curve for corn? a. A new and improved crop rotation technique was discovered b. The price of fertilizer falls c. The government offers tax break to farmers d. A tornado sweeps through Iowa e. More fuel efficient tractors are developed f. The price of farm equipment falls g. The government requires farmers to pay higher wages to farm workers

a. The supply curve would shift to the right b. The supply curve would shift to the right c. The supply curve would shift to the right d. The supply curve would shift to the left e. The supply curve for corn would shift to the right f. The supply curve would shift to the right g. The supply curve would shift to the left

Indicate how you think each of the following would shift demand in the indicated market: a. The income of buyers in the market for Adirondack vacations increase. b. Buyers in the market for pizza read a study linking pepperoni consumption to heart disease. c. Buyers in the market for gas-powered cars learn of an increase in the price of electric cars (a substitute for gas-powered cars). d. Buyers in the market for electric cars learn of an increase in the price of electric cars.

a. The demand curve would shift to the right b. The demand curve would shift to the left c. The demand curve would shift to the right d. The demand curve would remain unchanged

Which of the following will lead to an increase in the supply for a good?

Development in technology Decrease in price of input products improvement in weather increase in number of suppliers expectations of lower prices in the future

State whether the following pairs of goods are complements or substitutes. a. Tennis courts and squash courts b. Racquetball racquets and racquetball courts c. Ice cream and fudge sauce d. Shampoo and conditioner

a. Substitutes b. complements c. Complements d. Complements

If the quantity of spaghetti decreases by 4 percent in response to 12 percent increase in the price of pasta sauce, then the cross price elasticity of demand for spaghetti with respect to the price of pasta sauce will be

-0.33 -4/12

If the income elasticity of demand for pasta is -1, then a 10 percent decrease income will lead to a ______ in the quantity of pasta demanded

10 percent increase -1.0 * 10

Suppose the current issue of The New York Times reports an outbreak of mad cow disease in Nebraska, as well as the discovery of a new breed of chicken that gains more weight than existing breeds that consume the same amount of food. How will these developments affect the equilibrium price and quantity of chickens sold in the United States?

Equilibrium quantity will increase, but the effect on equilibrium price is unknown.

The incentive principle is

a positive economic principle

If the owners of local clothing boutique increase the price of their merchandise, then their total revenue

could fall since fewer people may be willing to shop there

If you graph the equation Y = a + bX with Y on the vertical axis and X on the horizontal axis, a(n) ______ will lead to a decrease in the slope.

decrease in b

A schedule or graph showing the quantity of a good that buyers wish to buy at each price is known as

demand curve

The benefit of taking an action minus its cost is known as

economic surplus

If the cross-price elasticity of demand for motorcycles with respect to price of cars is 0.05, then if the price of cars increases by 10 percent, then, the quantity of motorcycles demanded will

increase by 0.5 0.05 * 10

The marginal benefit of carrying out an activity is the

increase in total benefit that results from carrying out one additional unit of activity

In the graph, a(n) ________ will lead to a parallel shift upward

increase in vertical intercept

If the income elasticity of demand for lottery ticket is negative, then lottery tickets are

inferior

The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual market is known as

microeconomics

When the price elasticity of demand is less than 1, changes in price and changes in total expenditure

move in the same direction

A change in quantity demanded is represented by a

movement along the demand curve

Economists believe that people

never have enough time, money or energy to do everything or have everything they want

Positive economic principle

one that predicts how people will behave

Opportunity cost

value of what must be forgone in order to undertake an activity

Given that there are only so many operations the world's top brain surgeon can perform every year, the price elasticity of supply for his or her services is likely to be

very low

If a 5 percent increase income leads to a 2.5 percentage decrease in the quantity of oatmeal demanded, then the absolute value of the income elasticity of demand for oatmeal is

0.5 ( -2.5 / 5 ) = |0.5|

The introduction to rent controls could lead to which of the following?

A decrease in the quantity of apartments available for rent Lower rent for those who live in rent-controlled apartments

In which of the following situations is the market equilibrium likely to be economically inefficient?

A market in which the production of the good entails a significant cost to others

Seller's reservation price is equal to

the smallest dollar amount for which a seller would be willing to sell to an additional unit, generally equal to the marginal cost of producing another unit of the good