Micro Exam 1

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve

If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters.

FALSE

Policies based on positive economic ideas tend to decrease economic efficiency and reduce equity.

FALSE

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied

FALSE

The government makes all economic decisions in a market economy

FALSE

What is a market failure?

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost

GRAPHS

3, 8, 12, 14, 15, 16, 17, 18, 19, 23, 26, 34, 40,

Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each. What is the opportunity cost of buying a goldfish?

5 angelfish

Chips and salsa are complements. If the price of salsa decreases, the demand for chips will increase

TRUE

If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other.

TRUE

When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society

TRUE

The distribution of income primarily determines which of the fundamental economic questions?

Who will receive the goods and services produced?

A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in

a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?

an increase in consumer income

Which of the following would cause an increase in the supply of peanut butter?

an increase in the number of firms that produce peanut butter

Markets promote

competition and voluntary exchange

If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost

further reduction will make society worse off

The production possibilities frontier model shows that

if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

Voluntary exchange ___ economic efficiency because neither the buyer nor the seller would agree to a trade unless ___

increases; they both benefit

An advantage of imposing a tax on the producer that generates pollution is that

it forces the polluting producer to internalize the external cost of the pollution

If the production possibilities frontier is ___, then opportunity costs are constant as more of one good is produced

linear

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?

marginal revenue

All of the following is counted as capital in economics except

money

In economics, the term "free rider" refers to

one who waits for others to produce a good and then enjoys its benefits without paying for it.

The cost borne by a producer in the production of a good or service is called

private cost

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ___, meaning they make the best decisions given their knowledge of the costs and benefits

rationally

When the price of a good falls, consumers buy a larger quantity because of the ___ effect and the ___ effect

substitution; income

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources

A positive externality causes

the marginal social benefit to exceed the marginal private cost of the last unit produced

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if

the price of the good changes

What is a social cost of production?

the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product

One difference between the demand for a private good and that for a public good is that

with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.

An externality refers to economic events outside a market

FALSE

Crude oil is not an example of a factor of production, but when crude oil is processed into gasoline, it is a factor of production

FALSE

All else equal, as the price of a product falls, the quantity supplied increases.

FALSE

What would happen in the market for laser eye surgery if insurance companies started to cover a portion of the price of voluntary procedures?

Demand will increase, but this will not shift the supply curve.

) Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?

The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right