Micro Economics Test 1
Consider Miray's decision to go to college. If she goes to college, she will spend $24,000 on tuition, $12,000 on room and board, and $1,900 on books. If she does not go to college, she will earn $16,000 working in a store and spend $8,000 on room and board. Miray's cost of going to college is
$45,900
If the demand for a good falls when income falls, then the good is called
A normal good
You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be
A normal good
Which of these activities will most likely impose an external cost?
A postal worker smokes a cigarette in a crowded break room.
If a decrease in income increases the demand for a good, then the good is
An inferior good
Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the
Market Supply Curve
The term used to describe a situation in which markets do not allocate resources efficiently is
Market failure
Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?
New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy
In a market economy, economic activity is guided by
Self interest and prices
Which of the following would shift the supply of umbrellas to the left?
The number of firms making umbrellas decreases
Which of the following events could cause an increase in the supply of ceiling fans?
The number of sellers of ceiling fans increases
Which of the following is not a determinant of the demand for a particular good?
The prices of the inputs used to produce the good
The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that
The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that
Which of the following is not a characteristic of a perfectly competitive market?
There is no free entry or exit
Suppose the cost of flying a 350-seat plane for an airline is $350,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is
This cannot be determined from the information given.
Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics?
Trade can make everyone better off.
Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see
a decrease in the demand for energy drinks.
A group of buyers and sellers of a particular good or service is called
a market
Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of
a market failure caused by an externality.
When we move along a given demand curve,
all nonprice determinants of demand are held constant.
If muffins and bagels are substitutes, a higher price for bagels would result in
an increase in the demand for muffins.
If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,
an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
If the demand for a product increases, then we would expect equilibrium price
and equilibrium quantity both to increase.
Equilibrium quantity must decrease when
both demand and supply decrease.
Making rational decisions at the margin means that people
compare the marginal costs and marginal benefits of each decision.
Your professor loves her work, teaching math. She has been offered other positions in the corporate world that would increase her income by 15 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal
cost of teaching increased.
Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would
decrease
Two goods are substitutes when a decrease in the price of one good
decreases the demand for the other good
Equilibrium price must decrease when
demand does not change and supply increases.
If the number of buyers in a market decreases, then
demand will decrease
At the equilibrium price, the quantity of the good that buyers are willing and able to buy
exactly equals the quantity that sellers are willing and able to sell
Laws that enforce chemical hazard control are examples of government intervention that is intended to reduce
externalities
The law of demand states that, other things equal, when the price of a good
falls, the quantity demanded of the good rises
. Bo buys and sells real estate. Two weeks ago, he paid $400,000 for a house on Cypress Street, intending to spend $50,000 on repairs and then sell the house for $500,000. Last week, the city government announced a plan to build a new landfill on Cypress Street just down the street from the house Bo purchased. As a result of the city's announced plan, Bo is weighing two alternatives: He can go ahead with the $50,000 in repairs and then sell the house for $390,000, or he can forgo the repairs and sell the house as it is for $350,000. He should
forgo the repairs and sell the house as it is for $350,000.
The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by
government actions that distort prices
If an externality is present in a market, economic efficiency may be enhanced by
government intervention.
The basic principles of economics suggest that
government should become involved in markets when those markets fail to produce efficient or fair outcomes.
The "invisible hand" refers to
how the decisions of households and firms lead to desirable market outcomes.
Two goods are complements when a decrease in the price of one good
increases the demand for the other good.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.
Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires
is unaffected, and the supply of tires could increase, decrease, or stay the same
Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay
more than $40; because the marginal benefit will exceed the marginal cost.
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
people face tradeoffs
The adage, "There ain't no such thing as a free lunch," means
people face tradeoffs
The ability of an individual to own and exercise control over scarce resources is called
property rights
Efficiency
refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.
The overriding reason why households and societies face many decisions is that
resources are scarce
If Christopher expects to earn a higher income next month, he may choose to
save less now and spend more of his current income on goods and services.
Resources are
scarce for households and scarce for economies
What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services people wish to have?
scarcity
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost
The quantity supplied of a good is the amount that
sellers are willing and able to sell.
Efficiency means that
society is getting the most it can from its scarce resources.
Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
substitute goods
A improvement in production technology will shift the
supply curve to the right
If the number of sellers in a market increases, then the
supply in that market will increase
Oakley bakes muffins that he sells at the local farmer's market. If he purchases a new convection oven that reduces the costs of baking muffins, the
supply of Oakley's muffins will increase
Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the
supply of bicycles will shift to the left
You have driven 850 miles on a vacation and then you notice that you are only 50 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include
the cost of driving the next 50 miles, but not the cost of driving the first 850 miles.
Alana decides to spend 2 hours working overtime rather than going shopping with her friends. She earns $11 per hour for overtime work. Her opportunity cost of working is
the enjoyment she would have received had she gone shopping
When the quantity demanded has increased at every price, it might be because
the price of a complementary good has decreased.
When computing the opportunity cost of attending a professional football game as a spectator, you should include
the price you pay for the ticket and the value of your time.
If something happens to alter the quantity supplied at any given price, then
the supply curve shifts.
The marginal benefit Joseph gets from purchasing a fourth pair of shoes is
the total benefit he gets from purchasing four pairs of shoes minus the total benefit he gets from purchasing three pairs of shoes.
Nevaeh decides to spend four hours playing video games rather than attending her classes. Her opportunity cost of playing video games is
the value of the knowledge she would have received had she attended her classes.
If the supply of a product increases, then we would expect equilibrium price
to decrease and equilibrium quantity to increase
Economics is the study of how society manages its
unlimited wants and limited resources
The opportunity cost of an item is
what you give up to get that item.
The quantity demanded of a good is the amount that buyers are
willing and able to purchase
