MICRO Final
Any model is based on making assumptions because A. we cannot analyze an economic issue unless we reduce its complexity. B. models have to be simplified to be useful. C. both a and b. D. neither a nor b.
both a and b
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ___________ economy in which the government decides how economic resources will be allocated. Or a society can have a ___________ economy in which the decisions of households and firms interacting in markets allocate economic resources.
central planned market
On the diagram to the right, a movement from A to C represents a
change in demand
On the diagram to the right, a movement from Upper B to Upper CB to C represents a
change in supply
The basis for trade is _______ advantage.
comparative
The difference between a change in supply and a change in the quantity supplied is that the latter is
displayed graphically as a movement along a supply curve while the former is shown as a shift in the supply curve.
_______ is the study of the choices people make to attain their goals, given their scarce resources.
economics
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _______ in this range.
elastic
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be minus−2.5 and the price elasticity of demand for all types of breakfast cereals to be minus−0.9. The demand for Post Raisin Bran cereal is ____ and the demand for all types of breakfast cereals is ____ Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal
elastic inelastic has more substitutes available
In economic terminology, the inputs used to make goods and servicesmake goods and services are referred to as
factors of production
In economic terminology, the inputs used to make goods and services are referred to as
factors of production.
If the market price 'Pmkt' is aboveabove the price 'P0', then quantity supplied is ______ quantity demanded and the market is in a _______
greater than surplus
In the United States, who receives the goods and services produced depends largely on
how income is distributed
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
Consider the market for iPhonesiPhones. Suppose household income increasesincreases. Use the line drawing tool to show how this affects the demand for iPhonesiPhones by drawing a new demand curve. Assume iPhonesiPhones are a normal good. Properly label this line. Carefully follow the instructions above, and only draw the required objects. According to the graph, when income increasesincreases, the demand for iPhonesiPhones Instead, consider an inferior good. If income increasesincreases, then the demand for an inferior good
increases decreases
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs.
The price of organic apples fallsfalls and apple growers find that their revenue decreasesdecreases. Is the demand for organic apples elastic or inelastic? The demand for organic apples is
inelastic
Indicate whether each of the following is primarily a microeconomic issue or a macroeconomic issue. a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a ____ issue b. The effect of higher income taxes on the total amount of consumer spending. This is a _______ issue. c. The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a _______ issue. d. The reasons for low rates of profit in the airline industry. This is a _____ issue.
micro macro macro micro
Consider the demand for large homeslarge homes illustrated in the figure to the right. What demographic change would likely result in the demand curve for large homeslarge homes shifting to the rightright? The demand curve for large homeslarge homes would likely shift to the rightright if the
portion of the population that is elderly decreases
The diagram to the right illustrates a very important relationship in economics between two variables: the price of a good and the quantity demanded of that good. The two variables in this diagram are:
price (dollars per bushel) on the vertical axis and quantity (bushels per week) on the horizontal axis.
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
smaller
When the demand curve shifts to the right,
the equilibrium price and quantity will both increase.
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
The formula for the price elasticity of supply is If an increase of 11 percent in the price of frozen pizzas results in a 5 percent increase in the quantity of frozen pizzas supplied, the price elasticity of supply for frozen pizzas is Is the supply of pizzas elastic or inelastic? The supply of frozen pizzas is
the percentage change in quantity supplied divided by the percentage change in price. .45 inelastic
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the policies are consistent with economic incentives.
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Below are both a supply schedule and a supply curve. Which one is best suited to find the quantity supplied at a price of $4.50?
the supply curve
In the diagram to the right, point Upper G indicates an
unattainable result
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls.
A free market exists
when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.
Why are models based on assumptions?
Because models have to be simplified to be useful.
Market price is determined by
both supply and demand
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing
Consider the supply of crude oil on the world market. In August 2011, the price of oil was roughly $80 per barrel. Which of the following changes would increase the supply of oil? The oil supply curve would shift to the right if
future oil prices were expected to be lower.
Two key groups participate in markets. A ______ consists of all the individuals in a home. ______ are suppliers of goods and services. We can use a simple economic model call the ______ to see how participants in markets are linked.
household firms circular- flow diagram
Two key groups participate in markets. A _____ consists of all the individuals in a home. ______ are suppliers of goods and services We can use a simple economic model called the _______ to see how participants in markets are linked.
household firms circular flow diagram
In the circular-flow diagram showing how a market system works,
income flows to firms through product markets.
In the circular-flow diagram showing how a market system works,
income flows to households through factor markets
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
In a graph (not shown) of the banana market in the United States, the imposition of a tariff on banana imports would
shift supply leftward, increasing equilibrium price and decreasing equilibrium quantity.
The distinction between substitutes and complements is
substitute goods are used for the same purposes while complementary goods are used together.
Equity is
the fair distribution of economic benefits.
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?
In the diagram to the right, the curve labeled "S" is apparently _____, while the curve labeled "D" is apparently _____.
nonlinear; linear
The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource limitations, the extent to which security is enhanced will most likely be determined by
society's willingness to forego other goods and services, both public and private.
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000s of units per unit of time). Total revenue is $______
2000
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000s of units per unit of time). The area of the triangle shown on the diagram is $______
392000
You have exams in economics and chemistry coming up and 5 hours available for studying. The following table shows the trade-offs you face in allocating the time you will spend in studying each subject. If you are at point C, what is the opportunity cost of increasing your chemistry score by studying one additional hour for the chemistry exam? ______ fewer points on your economics exam.
4
Consider the market for gasoline, illustrated in the figure to the right. The equilibrium quantity of gasoline is ____ million gallons (enter a numeric response using a real number rounded to two decimal places) and the equilibrium price is ____ per gallon If instead the market price were $3.25, then there would be a _____ of ____ million gallons.
5 million $2.50 surplus 3 million
The pie chart to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is
60%
What do economists mean when they use the Latin expression ceteris paribus?
All else equal.
From the list below, select the variable that will cause the demand curve to shift:
Consumer income
_________ is the study of the choices people make to attain their goals, given their scarce resources.
Economics
What do economists mean by scarcity?
Economists mean that unlimited wants exceed limited resources.
In a market system, what determines how goods and services will be produced?
Firms determine how goods and services will be produced.
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
Your neighbor John has a barking dog. Which of the following statements is true?
It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward.
Identify whether each of the following statements describes a change in supply or a change in the quantity supplied. a. To take advantage of high prices for snow shovels during a very snowy winter, Alexander Shovels, Inc., decides to increase output. b. The success of Apple's iPod leads more firms to begin producing digital music players. c. In the six months following Hurricane Katrina, production of oil in the Gulf of Mexico declined by 25 percent.
a change in quantity supplied a change in supply a change in supply
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of the two products that may be produced with available resources and current technology
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Productive efficiency means that
a good or service is produced at the lowest possible cost.
The figure to the right illustrates the U.S. market for rugs made in a particular foreign country. Suppose the market price of rugs is $750 At a price of $750, there will be ________ of rugs. To reach an equilibrium, the price of the rugs in this market must ______
a shortage rise
A hypothesis in an economic model is . usually about a causal relationship. B. tested before it can be accepted (or not rejected). C. a statement that may be either correct or incorrect about an economic variable. D. all of the above.
all of the above
Suppose that France is currently producing 1 bottle of wine and 6 pounds of schnitzel and Germany is currently producing 3 bottles of wine and 8 pounds of schnitzel. Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 7 pounds of schnitzel. After specialization and trade, France gains by consuming the same amount of wine and ____ additional pound(s) of schnitzel (enter a numeric response using an integer) and Germany gains by consuming the same amount of wine and ____ additional pound(s) of schnitzel.
1 5
Below are four supply curve diagrams, each of which represents a change in supply LOADING... or a change in quantity supplied LOADING... . a. To take advantage of high prices for snow shovels during a snowy winter, Alexander Shovels, Inc., decides to increase output. ____ . b. The success of the Apple iPhone leads more firms to begin producing smartphones. ____ . c. In the six months following the Japanese earthquake and tsunami in 2011, production of automobiles in Japan declined by 20 percent. ____ .
4 3 1
Economists often are interested in percentage change from one period to the next. The percentage rate of change of gross domestic product (GDP) is an important macroeconomic variable. If in 2010 GDP was $11,150 billion dollars, and GDP increased to $11864 billion in 2011, what is the growth rate of the U.S. economy in 2011?
6.4%
The bar graph to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is _____
70%
In your economics class, you scored a 66 on the first quiz, a 88 on the second quiz, and an 78 on the third quiz. Your average quiz grade is ______. (Enter your response rounded to one decimal place.) On the fourth quiz, you scored an _____ Did the fourth quiz raise your average? _____
77.3 82 Yes
Your neighbor's consumption point after trade is illustrated by point
D
The diagram to the right represents a demand curve for apples. The original demand curve is D1. If a factor other than price which affects demand changes, causing demand to increase, the resultant demand curve is represented by
D2
Suppose that France and Germany both produce wine and schnitzel. The table below shows combinations of the goods that each country can produce in a day. Who has the comparative advantage in producing wine and who has the comparative advantage in producing schnitzel?
France has a comparative advantage producing wine and Germany has a comparative advantage producing schnitzel.
Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings (basket of six) at Buffalo Wild Wings. The movement from point Upper AA to Upper BB on Upper D 1D1 is caused by Indicate which of the following could cause a movement from point Upper AA to Upper CC. (Check all that apply.)
a decrease in the price of baskets of traditional wings a decline in vegetarianism a rise in the number of buyers
An unexpected frost in the orange groves of California would cause
a decrease in the supply of orange juice, increasing the equilibrium price.
Which of the following covers the study of topics such as inflation or unemployment?
Macroeconomics
Suppose the United Kingdom and Norway both produce oil and fish oil, which are sold for the same prices in both countries. The following table shows combinations of both goods that each country can produce in a day, measured in thousands of barrels, using the same amounts of capital and labor: Who has the comparative advantage in producing oil? Can these two countries gain from trading oil and fish oil?
Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal. These countries cannot gain from trade because neither has a comparative advantage producing either good.
As part of their budget tightening process, many states are cutting aid to colleges and universities, with students being asked to pick up a bigger part of the escalating tab of higher education. Which of the following would do the most to enable you to cope with those higher expenses without impairing your progress toward a degree?
Reducing your consumption of goods and services not essential to your education.
Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two goods that each country can produce in one day are presented in the table below. Which country has an absolute advantage in producing tacos? Which country has a comparative advantage in producing tacos? Suppose the United States is currently producing 100 tons of hamburgers and 30 tons of tacos and Mexico is currently producing 20 tons of hamburgers and 25 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of __________ additional ton(s) of hamburgers can be produced for the two countries combined (enter a numeric response using an integer) and a total of ________ additional ton(s) of tacos can be produced.
The United States Mexico 30 20
What is comparative advantage?
The ability to produce a good or service at a lower opportunity cost than other producers.
What is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources.
From the list below, select the variable that will cause the supply curve to shift:
The cost of raw materials
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy? Refer to the graph to the right. What is the opportunity cost of moving from point B to point C?
The country is operating on its production possibilities frontier. 20 sedans
If demand decreases and supply increases, which of the following will definitely occur?
The equilibrium price will decrease.
If demand and supply both increase, which of the following will definitely occur?
The equilibrium quantity will increase.
Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety. Similarly, using all its resources in the production of liquor chocolates, the firm can produce 8,000 bars per month. However, during a given month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating at a point inside its PPF?
The firm believes in maintaining a certain amount of excess capacity to meet unexpected changes in demand.
Suppose the equilibrium price and equilibrium quantity of gold both decreasedecrease. Which of the following would produce such a change?
The market demand curve for gold could have decreased
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
Suppose the economy whose PPF is shown on the right experiences economic growth. 1.) Use the 3-point curved line drawing tool to show how growth affects the trade-offs the country faces between producing ships and food. 2.) Use the point drawing tool to draw and label a point on the new PPF that shows the economy producing more of both goods. Label this point 'B'. Carefully follow the instructions above and only draw the required objects. Which of the following may have caused the shift you have drawn? (Check all that apply.)
a larger labor force advances in technology an increase in the capital stock
Economics is a social science because A. it considers human behaviorlong dash—particularly decision-making behavior. B. it is based on studying the actions of individuals. C. it applies the scientific method to the study of the interactions among individuals. D. all of the above.
all of the above
Economics is a social science because a. it applies the scientific method of the study of the interactions among individuals b. it considers human behavior- particularly decision-making behavior c. it is based on studying the actions of individuals d. all of the above
all of the above
What is the role of an entrepreneur? A. to bring together the factors of productionlong dash—labor, capital, and natural resources B. to operate a business that produces a good or service C. to take risks D. All of the above.
all of the above
When economists speak of a shortageshortage, they mean a situation in which A. some consumers aresome consumers are unable to makeunable to make a purchase ata purchase at the current price.the current price. B. the quantity demandeddemanded exceeds quantity suppliedsupplied. C. the market price is belowbelow the equilibrium price. D. all of the above. Your answer is correct.E. A and B only.
all of the above
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include A. an omitted variable. B. reverse causality. C. both a and b. D. none of the above.
both a and b
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include an omitted variable. B. reverse causality. C. both a and b. .D. none of the above.
both a and b
A market is a group of ______ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
A market is a group of ____________ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
______ decide(s) what goods and services will be produced.
consumers, firms, government
Refer to the diagram to the right: Use the line drawing tool to draw a demand curve shifting to the leftleft. Label this line 'D2'. Carefully follow the instructions above, and only draw the required objects With this shift, equilibrium price will _________ and equilibrium quantity will _________ .
decrease decrease
Use the line drawing tool to draw a supply line shifting to the rightright. Label this line 'S2'. Carefully follow the instructions above, and only draw the required object. With this shift, equilibrium price will ______ and equilibrium quantity will _____ .
decrease increase
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
A free market is a market with ________ government restrictions on how a good or service can be produced or sold and with ________ government restrictions on how a factor of production can be employed.
few;few
If country ABC can produce a unit of good 1 with fewer resourceswith fewer resources than can country XYZ, it is correct to say that country ABC
has an absolute advantage in producing good 1.
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Suppose the price of a substitutesubstitute to LCD televisions risesrises. What effect will this have on the market equilibrium for LCD TVs? The equilibrium price of LCD TVs will
increase and the equilibrium quantity will increase
Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or using more machines. For example,
many times in the past several decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to __________ while the latter ensures it of _______ . If a firm is productively and allocatively efficient, it earns _______ ; if it is not, it ______ .
minimize production costs ample revenues profit suffers a loss
A _______ economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
mixed
The diagram to the right illustrates a demand curve. As with all demand curves, this curve's slope is
negative
Which of the following is not scarce according to the economic definition?' a. gas b. tutorial workers c. time d. workers e. none of the above
none of the above
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
normative statement. The statement is concerned with what should be.
In economics, the term capital refers to
physical capital, such as machinery, that is used to produce other goods.
_____ is concerned with what is, and _____ is concerned with what ought to be. Economics is about _____ , which measures the costs and benefits of different courses of action.
positive analysis normative analysis positive analysis
__________ occurs when a good or service is produced at the lowest possible cost. __________ occurs when production is in accordance with consumer preferences.
productive efficiency allocative efficiency
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that: "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." Source: Quoted in Douglas A. Irwin, Peddling Protectionism: Smoot-Hawley and the Great Depression, Princeton, NJ: Princeton University Press, 2011, p. 22. This producer apparently assumed apples and bananas to be _______
substitutes
The equilibrium price and quantity of a product was $100 and 1,000 units per month in 2015 and is $150 and 800 units per month in 2016. 1.) Use the line drawing tool to draw new demand and supply curves illustrating the changes described above. Properly label the lines. 2.) Use the point drawing tool to plot the 2016 equilibrium. Properly label the point. Carefully follow the instructions above, and only draw the required objects From 2015 to 2016,
supply decreased more than demand increased.
In the diagram to the right, when the price is $71 per player, the amount of the ____ is _____ million players per month.
surplus 56
In the diagram to the right, when demand decreasesdecreases, ________ develops at the original price. Equilibrium price will ______ and equilibrium quantity will ______ as a new equilibrium is established.
surplus fall fall
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
What is the circular-flow diagram and what does it illustrate?
the circular-flow diagram shows how households and firms are linked through product and factor markets
Refer to the graph to the right. After the government imposes a price of $3.50 in this market, area A represents
the consumer surplus transferred to producers.
Macroeconomics examines:
the economy as a whole, such as how rapidly the economy grows.
Prepping for a next-day exam over the course of an evening (and possibly into the wee hours of test day) poses increasing costs since
the longer you choose to study will result in an increase in the number and value of foregone activities.
According to the law of demand,
there is an inverse relationship between price and quantity demanded.
Economics assumes people and firms:
use all available information to achieve their goals, respond to incentives, and make decisions by comparing marginal benefits with marginal costs.
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good.
Which of the following shows a positive nonlinearpositive nonlinear relationship? (assume values of x greater than 0x>0)
y= -8+ (square root) of x