Micro Midterm 1
what is meant by comparative statics? explain with an example
A change in an outcome, such as consumption, that results from a change in a factor, such as a price ice cream consumption increases (outcome) when temperatures rise (factor)
how does a natural experiment differ from a randomized one?
A natural experiment uses existing variation, while a randomized experiment generates variation.
if income elasticity of demand is positive
the good is a normal good
if income elasticity of demand is negative
the good is inferior
two properties of good economic questios
they address topics that are important to individual economic agents and/or to society, and they can be answered
when only demand increases what happens to the equilibrium price and quantity
they both increase
how do economists distinguish between models that work and those that don't
they test their models against real-world data
calculate price elasticity of demand
(q2-q1)/(q2+q1/2) / (p2-p1)/(p2+p1/2)
three steps of optimizing using total value:
1. translate all costs (including opportunity costs) and benefits into common units like dollars per month 2. calculate the total new benefit of each alternative (Benefit-cost) 3. pick the alternative with the highest net benefit
An economist makes an assumption that each additional year of education causes future wages to rise by 10 percent. In this model, if a person with 12 years of education makes $22 comma 500 per year, then a person with 4-year college degree would earn $_______per year.
1.1*1.1*1.1*1.1=1.46 if a high school grad makes $22,500 a year, a person with a 4 yr degree would earn 32850 (22500*1.46)
All of the following statements about means and medians are true, except A. the median is more skewed by extreme values. B. a median uses a mean with even number observations. C. the mean is another term for average. D. a mean sample would gain more accuracy with more observations.
A
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve? A. All variables that can affect the demand for the good are held constant. B. All variables in the model are set to equal values. C. everything else in the economy is held constant, including the price of the good. D. All of the above.
A
which of the following would be considered a scarce resource for producers A. low-skill labor B. Land C. Machinery D. All of the above
D
true or false: it is more important for a model to be accurate than usable
FALSE it is more important for a model to be simple and useful that it is for the model to be precisely accurate even if a model is based on assumptions that are known to be false, like the flatness of the eart, the model may still help us to make good predictions and good plans for the future
when optimizing for total value, oppurtunity cost much be ___ total cost.
added to
when a cost benefit analysis is done
all relevant options must be considered
when performing cost-benefit analysis....
always calculate marginal benefit and marginal cost first (from the total columns), then compare the two
empirical analysis
analysis that uses data, evidence-based analysis
A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ___________. A. an inequality between these ratios implies that she has insufficient income to achieve maximum satisfaction. B. the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off. C. any shift in consumption toward either good will violate her budget constraint. D. her preferences become distorted and therefore invalid when the marginal benefits per dollar are unequal.
b
You are trying to decide how to spend $40 you earned last night. You could buy a new shirt or go out to dinner and a movie with a friend. You could also go to the movie, not have popcorn, and buy a less expensive shirt. Taken together these things form your
budget constraint
economists mostly use optimization in differences, as opposed to optimization in levels because
comparing the different features of alternatives is intuitive
price takers exist throughout _____ markets
competitive
if the government sets a minimum wage for seasonal workers, then the supply curve for sparkling wine would
decrease higher wages for grape pickers makes an input for wine more expensive
testing models against real-world data is known as
empiricism
when prices rise what happens to consumer surplus
it decreases
willingness to accept is the same as the
marginal cost of production
a group of economic agents who are trading a good or service would define a
market
a competitive market will...
move towards equilibrium quantity because both producers and consumers act in their own best interest
for two goods that are complements, the cross-price elasticity of demand will be
negative
should argument by anecdote be taken seriously?
no
does the scientific method reveal the true model of the world
not necessarily, but it does help in identifying models that are useful in understanding the world
median
numerical value seperating the higher half of your data from the lower hald
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in
only the price of the good
cost-benefit analysis fall under which consideration of microeconomics
optimization
selecting the best feasible option is called
optimization
optimization in levels or differences? John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie.
optimization in differences, since he is calculating the change in net benefits between alternatives NOTE: optimization in differences calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternative. In this case he is determining the net benefits between spidernman and batman and choosing the best alternative
free riding occurs when...
people's private benefits are out of sync with the public interest
cross price elasticity calculation
percentage change in qd of good A/ percentage change in price of good B
optimization
picking the most feasible option, explains most choices that people make
hypotheses
predictions (typically generated by a model) that can be tested with data
the three necessary parts of the buyer's problem
preferences, prices and disposable income
Nadia consumes two goods, food and clothing. The price of food is $6, the price of clothing is $11, and her income is $ 5 comma 000. Nadia always spends 50 percent of her income on food regardless of the price of food, the price of clothing, or her income. What is her price elasticity of demand for food? what is her cross-price elasticity of demand for food with respect to the price of clothing?
price elasticity: exactly 1, unit-elastic cross price elasticity: exactly 0
calculating opportunity cost of good y from buying one unit of good X
price of good x/price of good y
the competitive equilibrium price equates
quantity supplied to quantity demanded
how would the equilibrium price in a market be affected if three were a large increase in demand and a small increase in supply
the equilibrium price increases
Scarcity
situation of having unlimited wants in a world of limited resources. in order to obtain something that is not an abundant supply, we must make choices to what can be given up
why does a demand curve with a constant slope not have a constant elasticity
slope is based on absolute change and elasticity is based on percentage change
Principle of Optimization at the Margin
states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off
which is more susceptible to the free rider problem: fishing in a public lake or street lights?
street lights, because people who dont pay taxes can still use street lights, while fishing in public lakes can charge for a fishing license so that everyone who goes there pays their share
what is meant by randomization in the context of an economic experiment
subjects are assigned by chance, rather than by choice, to a group
the law of supply states that supplies ____ as price increases. Therefore, a supply curve has a ____slope
supplies increase as price increases. a supply curve has a positive
willingness to pay
the highest price that a buyer is willing to pay for an extra unit of a good
three primary reasons for elasticity differences
1. closeness of substitutes 2. budget share spent on the good 3. available time to adjust
All of the following are examples of empiricism except: A. analyzing theories about optimization. B. determining causation. C. analyzing theories about equilibrium. D. predicting human behavior.
d. predicting human behavior
suppose you have a flashlight that takes three batteries to power it. if you buy the batteries one at a time, for which purchase will diminishing benefits set it a. when you buy the first battery b. when you buy the second battery c. when you buy the third battery d .when you buy the fourth battery
d. when you buy the fourth battery because it's still of benefit to you, but at the moment you only need 3
when demand is elastic, a rise in the price of a commodity results in a ____ in the total expenditure on the commodity
decrease
If widespread unemployment leads to a drop in incomes, then the demand for the Toyota Rav4 SUV would _____
decrease (shift left)
which of the following is not an item studied under microeconomics? A. individual preferences B. prices of individual goods. C. Cigarette taxes D. the inflation rate
D. the inflation rate is for the economy as a whole
Are all markets perfectly competitive?
No, there are other market types where firms have considerable power to control the price.
when demand is unitary elastic, what is the effect of a change in price of a commodity
a fall or rise in the price of a commodity does not change the total expenditure
causation occurs when there is_______
a logical cause-an-effect relationship
the price elasticity of demand shows the percentage change in the quantity demanded of a good due to ___________change in the good's price
a percentage change in the good's price
if a curve shifts and drive prices down, then there will be....
a surplus at the original price until the price adjusts to clear the market
for a consumer with a given level of income, the combinations of goods for the budget set will be a) higher or b) lower than for the budget constraint
a) higher
economics is all about making choices. the reason we have to choose one thing over another is
because economic resources are scarce
Since the inputs used to produce goods are scarce, the total amount produced of most goods is __ the amount that consumers would like to buy. To allocate the goods produced to the people who value them the most we use___
below the price mechanism
In equilibrium, no agent would...
benefit by changing his or her behavior, given the choices of others
an experiment would be conducted to determine ____ among the chosen variables subjects should be assighned ___ to either a test or control groups in order to get the most unbiased comparison
causation randomly -randomly assigned subjects allow identical treatment of both the test and control groups, which in turn allows the single dimension that is intentionally varied to be studied most effectively
Assume every semester after finals you fly back to your hometown using a $300 ticket you buy online. You have 40,000 frequent flier miles. You could exchange your miles for a round-trip ticket to Bermuda over spring break. If you choose to exchange your airline miles for a free trip to Bermuda over spring break, then your trip _________.
cost $300, since your next best alternative usage for the miles was to use them to fly home at the end of the semester
if people expect the price of suvs to decrease in the future, then the demand for the toyota rav4 SUV would
decrease, they will save their purchase for later buyer's expectations of the future affect demand in the present future demand will go up when price drops, but current demand will go down since people want to wait for the lower price
an individual's willingness to pay measured over different quantities of the same good define the
demand curve
normative statement
describes what ought to be done and is not varifiable by data
Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by ___________.
dividing the difference in the prices of similar homes between districts by the differences in test scores between districts
the concept of diminishing marginal benefits means that
each additional unit consumes is worth less to you than the previous one as you consume for of a good, your overall benefit increases at a diminishing rate, however it is still going up
for a trade to take place, a buyers willingness to pay must be...
either higher than the sellers willingness to accept OR equal to the seller's willingness to accept
the principle of economics supported by the scientific method i s
empiricism
principles of economics
equilibrium, optimization, empiricism
optimization in differences
examines changes in befits and changes in costs
optimization in levels
examines levels of benefits and costs
market demand is derived by
fixing the price and adding up the quantities that each buyer demands.
marginal analysis is a cost-benefit calculation that
focuses on the differences between one feasible alternative and the next feasible alternative
trade-offs
for a given budget, if you increase the amount of one type of good that you buy, you must decrease the amount of the other good that you buy
if cross price elasticity is negative
goods are complements
negative correlation
implies that two variables tend to move in opposite directions
positive correlation
implies that two variables tend to move in the same direction
The law of supply
in most cases, the quantity supplied of a good rises when the price of the good rises.
an argument against evidence-based economics would be...
it is only an approximation, often based on averages all economic models begin with assumptions and are simplified descriptions of reality. a model is often only an approximation and not exactly accruate. however, models can make predictions that can be tested with data
given that burgers and fries are complementary goods, if the price of fries decreases the demand for both goods will rise. is this an accurate statement?
it is somewhat inaccurate. the decrease in the price of fries will increase the quantity demanded (not the demand) for fries. it will, however, as the statement claims, increase the demand for burgers
if the retail price of the good increases, what happens to the demand curve?
it will decrease because the opportunity cost of buying a good or service increases
what is the difference between marginal values and average values
marginal values show the additional benefit or cost from consuming an additional unit of a good, while averaging values are the benefit or cost per unit of a good
correlation
means that two variables tend to change at the same time
a decrease in the price of one good causes the budget constraint to..... what is the effect on the slope? does it increase or decrease?
the budget constraint pivots outward. the slope changed, because the oppurtunity cost changes when the price changes HOWEVER whether the slope increases or decreases depends on which good's price decreases so it simply just changes
optimization is the process that describes
the choices that people make selecting the best feasable option
comparative statics
the comparison of economic outcomes before and after some economic variable is changed
opportunity cost
the value of the best alternative use of a resource
consumer surplus is
the value or total benefits one receives from a good in excess of the price paid for it
if a curve shifts and drives the prices up then...
there will be a shortage
When faced with the option of buying one pair of boots for $60 or three sets of sandals for $20 each, Janet chose the pair of boots. The opportunity cost for the boots was:
three pairs of sandals 60(prince of good x)/20(price of good 7)=3 units of good y as oppurtunity cost
Optimization in levels examines ___________, while optimization in differences analyzes ____________.
total net benefits of alternatives; the change in net benefits
a budget constraint implies that a consumer faces ________
trade-offs
you can compare the opportunity cost of all activities once you....
translate all the missed activities into dollar amounts
slope of a typical supply curve
upward
cost-benefit analysis
used to identify the alternative that has the greatest net benefit, which is the sum of the benefits of choosing an alternative minus the sum of the costs of choosing that alternative weighing the pros and cons of a decision
empiricism is a principle in economics that
uses data to test economic models
when are anecdotes appropriate
when contradicting a blanket statement
are positive statements varifiable by looking at data?
yes
do natural experiements use historical analysis?
yes
can correlation arise when causation is not present
yes, due to ommitted variables people with Hispanic origins are most inclined to be diabetic, but not because they are Hispanic. it could be correlated because of ommitted vairables like diet
does the principle of optimization imply that people always make the best choice
yes, it is a good approximation for the decisions people make
slope of the budget constraint
-px/py
when optimizing, if the marginal benefit a buyer gained from the last dollar spent on a burger was $2, and the price of a side of fries was $6, the marginal benefit gained from the last dollar spent on a side of fries is
6
When optimizing, the marginal benefit a buyer gained from the last dollar spent on a sweater was $7.5, and the price of a pair of jeans was $98. The marginal benefit gained from the last dollar spent on a pair of jeans is
7.5 when optimizing the marginal benefit gained from the last dollar spent on each good is equal
Which of the following is not true about economic models? A. They are not useful, since they do not include all variables. B. They can be highly complex and based on lengthy mathematical analysis. C. A model is only an approximation. D. Models are not perfect replicas of reality.
A
If Jay's Fruit Stand is able to charge considerably higher prices than other fruit stands with the same produce, it is likely that A. Jay's is a price taker. B. there are a lot of fruit stands in close proximity to Jay's. C. there are no fruit stands in close proximity to Jay's. Your answer is correct.D. Jay's accepts the market prices.
C
all of the following would fall under the study of microeconomics except: a. an international trade dispute b. a factory polluting a lake used for fishing c. a labor union strike d. the stock market's response to an interest rate increase
D. Microeconomics is the study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation of resources, and the well-being of other agents. In general, microeconomists are called on when we want to understand a small piece of the overall economy. Macroeconomists design government policies that improve overall, or open double quoteaggregate,close double quote economic performance, such as market reactions to changes in interest rates.
marginal benefit (utility) per dollar spent
Mbx/px=MBy/Py
how does microeconomics differ from macroeconomics
Microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole.
positive statement
When someone makes an objective statement that describes what has happened or predicts what will happen
Which of the following best describes why consumers are price takers? A. If consumers don't pay the price asked, the store will just sell the product to someone else. B. Consumers don't know what it costs to make most products. C. Many individuals lack the skills to negotiate prices. D. Individual transactions are too small to have much impact on the market price.
d.
Which of the following is the best example of causation (versus correlation)? A. Oil prices go up and gasoline prices go up. B. Ice cream sales and the number of drownings. C. Women's skirts get shorter and the stock market goes up. D. The groundhog sees its shadow and winter lasts longer.
a
the concept of diminishing marginal benefits either a)holds true or b)doesn't exist for goods that you like a lot? Which one
a
which of the following would an economist use when conducting empirical analysis a. data b. theories c. causes d. policies
a
All of the following are properties of the most exciting economic questions, except good questions A. cannot be answered. B. address topics that are important to individual economic agents. C. can be answered. D. address topics that are important to society.
a good economic questions share two properties, they address topics that are important to the individual economic agents and/or to society, and they can be answered
marginal analysis (always or never) picks out (the same or different) optimum as minimization of total costs. pick the correct options in parenthesis
always, the same
natural experiment
an empirical study in which some natural process-out of the control of the experimenter-has assigned subjects to control and test groups in a random or nearly random way. the process of randomization involved the assignment of subjects by chance, rather than by choice, to a test group or control group
scientific method
an ongoing process that economists and other scientists use to 1) develop models of the world and 2) test those models with data to evaluate how well they do.
Which of the following is not an important property of an economic model? A. It predicts what would happen on average. B. It predicts actual results over half the time. C. It makes predictions that can be tested with data. D. It is based on a theoretical construct.
b
There is a proverb "anything worth doing is worth doing well" do you think an economist would agree with this proverb?
no because the marginal cost of extra effort may be greater than the marginal benefit
A rightward shift in demand will cause an increase in price. The increase in price will cause a rightward shift of the supply curve, which will lead to an offsetting decrease in price. Therefore, it is impossible to tell what effect an increase in demand will have on price. Do you agree with your friend?
no, because an increase in price will not cause a shift of the supply curve. an increase in the price simply causes a movement from one point on the supply curve to a new, higher point on that same supply curve a shift in the supply curve only occurs when factor's other than a good's own price are changed. this is true since a shift in the supply curve shows a change in the quantity supplied at a given price.
A simple economic model predicts that a fall in the price of bus ticket means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell? Is the model incorrect? how would you test this model?
no, because it predicts the outcome of increased bus ridership on average you should run a natural experiment by analyzing bus ridership and price changes
one reason free riders exist could be that
private benefit outweighs private cost
which type of experiment is likely to yield more accurate results, a natural or randomized experiment?
randomized, because a natural experiment may not be completely randomized
how would a decrease in demand affect the equilibrium price in a market
the equilibrium price decreases
how would the equilibrium price in a market be affected if there were a large decrease in demand and a small decrease in supply
the equilibrium price decreases
when supply increases, after demand increases, what happens to the equilibirum quantity and price
the equilibrium quantity increases but the equilibrium price is lowered
if income elasticity of demand is greater than 1
the good is a luxury good
how does the sample size affect the validity of an empirical argument
the larger the sample size the better
willingness to accept
the lowest price that a seller is willing to recieve to sell an extra unit of a good
factors that cause the supply curve to shift
1. Prices of inputs used to produce the good 2. Technology used to produce the good 3. Number and scale of sellers 4. Sellers' beliefs about the future
Which of the following statements, confirmed by empirical research, would you be most likely to trust? A. sales circulars with coupons generate increased sales B. using orange and black during a campaign increases candy sales C. heart-themed advertising campaigns are among the most effective D. using pictures of Pilgrims sells more turkeys
A While a heart-shaped theme might be effective, the underlying reason could be due Valentine's day. Orange and black could be attributed to Halloween, during which candy sales are at their highest. Pilgrims are often pictured in ads at Thanksgiving, when turkey sales are at their highest. The most likely true statement is that sales circulars with coupons generate increased sales.
Which of the following statements would imply positive correlation? A. Countries with higher tax rates have more government services. B. Countries with higher tax rates have lower productivity. C. Countries with lower tax rates have superior government services. D. Countries with lower tax rates have higher productivity.
A positive correlation implies that two vairables (taxes and government services) tend to move in the same direction while negative correlation implies that two variables tend to move in opposite directions
Which of the following is least likely to be a question or study of economic concern? A. What are the benefits to Tampa Bay of hosting the Super Bowl? B. Is anything really free? C. What is the motivation of the Red Cross? D. How connected is productivity and wage?
C true cost and value whether on a micro or macro level is the main focus of economics. the more subjective, open ended questions are left to philosophers (motivation)
Which of the following criteria would most likely influence an optimizing buyer's purchasing decisions? A. highest marginal benefit B. highest marginal benefit per dollar spent C. lowest price D. lowest opportunity cost
b. an optimizing buyer makes decisions at the margin, if the marginal benefits are not equal, thn the buyer would do better-be happier-by shifting consumption towards the good that has the higher marginal benefit per dollar spent
all of the following are principles of economics except: a. categorization b. equilibrium c. optimization d. empiricism
a Economists emphasize three key principles. The first principle is that most choices are tied together by the concept of optimization, or picking the best feasible option. The second principle of economics holds that economic systems tend to be in equilibrium. The third principle of economics is an emphasis on empiricismevidence-based analysis.
how does a consumer's budget set differ from his budget constraint
a budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income
price-taker
a buyer or seller who accepts the market price; buyers can't bargain for a lower price, and sellers can't bargain for a higher price
Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then A. supply would shift rightwards, equilibrium price would increase, and equilibrium quantity would decrease. B. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease. C. supply would shift leftwards, equilibrium price would decrease, and equilibrium quantity would decrease. D. supply would shift rightwards, equilibrium price would decrease, and equilibrium quantity would increase.
b
Holding all else equal, if the price of a digital camera rises, then we can expect A. an increase in the demand for digital cameras. B. a decrease in the quantity demanded of digital cameras. C. a decrease in the demand for digital cameras. D. an increase in the quantity demanded of digital cameras.
b
Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand for lobsters further to the right in August than in any other month. Given this information, we know that _________ is/are higher in August than in other months. A. only demand. B. both supply and demand. C. neither supply nor demand. D. only supply.
b
all of the following are reasons for elasticity differences, except: A. closeness of substitutes. B. market demand. C. budget share spent on the good. D. available time to adjust.
b
if oil reserves are becoming more expensive to find and extract over time, what does this imply for the price of oil in the future? A. The supply of oil will increase, which will lead to lower prices in the future. B. The supply of oil will decrease, which will lead to higher prices in the future. C. The demand for oil will increase, which will lead to lower prices in the future. D. The demand for oil will decrease, which will lead to higher prices in the future.
b
which of the following is not an item studied under macro economics a. aggregate issues b. the well-being of agents c. the money supply d. the unemployment rate
b
Which of the following would not be considered a cause for concern with economic experiments? A. There is no historical, natural experiment to draw from. B. The subjects are often randomized. C. They can be very costly depending on the experiment's goals. D. Conclusions can take a long time to evaluate.
b randomization is not a cause for concern with economic experiments because it adds value the other statements are all true and therefore should be a concern, they are costly, lengthy and can have no accurate background info
which of the following statements regarding marginal analysis is true a. if total cost is falling, marginal cost could be zero b. if total cost is rising, marginal cost could be falling c. if total cost is falling, marginal cost must be positive d. if total cost is rising, marginal cost must be rising
b. marginal analysis looks at the rate of change in total costs. marginal cost can only be zero if there was no change when comparing options
which of the following would be considered an oppurtunity cost of spending time to go to the movies with your friends? a. the cost of a new shirt b. the amount of money you would have made had tou worked insstead c. the cost of the movie ticket d. the cost of renting a dvd
b. the resource in this case is the time you spent going to the movies, the alternative wouldbe the amount of money you would have saved had you not spent time at the movies, as well as the amount of money you would have made had you spent your time working
why are consumers price takers
because each buyer is only a small part of the market, an individual purchase will not have an affect on the market as a whole. consumers can buy as much of any food they want at the fixed price if they have sufficient money to pay for it.
why are consumers in a competitive market considered to be price takers
because each tends to buy only a tiny fraction of the total amount of a produced good
Give an example of a pair of variables that have negative correlation. A. The color of a person's shirt and the number of meals sold at Chinese restaurants. B. The quantity of fertilizers used and crop yield. C. The number of winter coats sold and the temperature outside. D. The number of physicists and the speed of sound.
c
What does it mean to say that we are running out of "cheap oil"? A. That there are declining reserves of low-quality oil, but there is still plenty of high-quality oil remaining. B. That we will soon deplete all the world's oil reserves, which will cause the price of oil to increase significantly. C. That oil reserves are becoming more expensive to find and extract over time. D. That world demand for oil is declining, which will raise the price of oil in the future.
c
which of the following is true regarding the concept of causation a. for any two events that occur, economicsts state that the first must have caused the second, since it came first b. it states that if event A causes event B, then event B cannot have a causal effect on even a c. it describes how one event can bring about change in another d. it statest hat if event a causes event b then even b must also cause event a
c
All of the following would cause a shift in the supply curve for orange juice, except A. a freeze over all of Florida for three nights in a row. B. tax credits for citrus farmers. C. a new medical discovery about the benefits of citrus. D. new machinery that speeds up the picking process.
c. new information about a product would cause the demand curve to shift...NOT the supply curve
which change causes a movement along the demand curve a. tastes and preferences b. number and scale of buyers c. price of the good itself d. buyer's beliefs about the future
c. the only reason for a movement along the demand curve is a change in the price of the good itself
if the price of a good in an equilibrium market is $112, all of the following statements are true except: a. consumers feel that they are getting their money's worth at that price b. production costs are less that 112 c. producers know that if they colluded, they could increase the price d. retail outlets successfully sell what they stock at that price
c. bc in an equilibrium market everyone is simultaneously optimizing, so nobody would benefit by changing his or her own behavior
optimization using marginal analysis
calculates the change in total value when a person switches from one feasible option to another, and then uses these marginal comparisons to choose the option with the highest total value.
optimization using total value
calculates the total value of each feasible option and then picks the option with the highest total value. best bang for your buck
Consider a good that you do not like at all, perhaps turnips. Given the market price for turnips, what would be your consumer surplus? A. Zero, unless someone actually pays you to eat them. B. Zero, since not liking turnips at all implies an unwillingness to pay anything. C. Some positive, but it will be a very small number. D. Both A and B are possible.
d
Which would be the correct sequence of events in the speedboat industry if waterway access was improved and, at the same time, a lighter polymer became available that increased production efficiency? A. Supply would shift left, demand would shift right, equilibrium price would decrease, and equilibrium quantity would increase. B. Supply would shift right, demand would shift left, equilibrium price would increase, and equilibrium quantity would be indeterminable. C. Supply would shift left, demand would shift left, equilibrium price would be indeterminable, and equilibrium quantity would decrease. D. Supply would shift right, demand would shift right, equilibrium price would be indeterminable, and equilibrium quantity would increase.
d
which of the following is subject to the free-rider problem? a. public libraries b. a neighborhood watch c. national security d. all of the above
d
according to the buyer's problem, if you were to purchase a $700 samsung smart phone from amazon, we could conclude all of the following, except: a. you believed that smart phone would bring satisfaction b. you wanted a smartphone c you prefer that smart phone to anything else costing 700 d. youd prefer a laptop for the 700
d bc when you buy something you choose what you think will give you the most satisfaction
when demand is inelastic, a rise in the price of a commodity results in a ____ in the total expenditure on the commodity
increase
if new irrigation technology improves the average yield of a vineyard then the supply curve for sparkling wine would _______
increase (shift right)
if opportunity cost were to suddenly increase, the total cost would
increase and net benefit would decrease
examples of areas addressed in the study of economics
inflation rates the benefits associated with a decision pollution reduction policies financial markets money the costs associated with a decision
in the market for backpacks, suppose Green's price elasticity of demand is .3, Smith's price elasticity is 1.3, and the price elasticity of all the other consumers is greater than .3 but less than 1.3 could the market price elasticity be less than .3 or greater than 1.3
no, it must lie between .3 adn 1.3
if a good is considered to be a luxury good, does it mean that the law of demand does not hold
no, it only means that its income elasticity of demand is greater than 1.0, so the law of demand still holds
do all consumers in a competitive market enjoy the same amount of consumer surplus
no, since considerable variation exists among consumers in terms of tastes and incomes
Does the shape of the market demand curve differ from the shape of an individual demand curve?
no, they both tend to be downward-sloping curves
if the income elasticity of demand for a good is positive, the good is
normal
optimization in levels or differences? Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam.
optimization in differences, since she is calculating the change in net benefits between alternatives. If she changed behavior, the $ benefit would change. In the flying to Honolulu example, she is not changing her behavior, she is flying either way, so she is just comparing alternatives w/o switching behavior
optimization in levels or differences? Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200.
optimization in levels, since she is COMPARING the net benefits between alternatives (benefit of choosing NOT switching. switching would be differences)
optimization in levels or differences? Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90.
optimization in levels, since she is comparing the net benefits between alternatives
budget constraint
the bundles of goods or activities that a consumer can choose given her limited budget
how is the mean calculated from a series of observations
the mean is the sum values of the observations divided by the number of observations
the concept of diminishing marginal benefits states that
the more you consume of a good, your willingness to pay for an additional unit declines
calculating income elasticity of demand
the percent change in quantity demanded divided by the percent change in income
if you increase the market price of soda to 2.5 when the current equilibrium price is 1.50...
the quantity demanded is less than the quantity supplied of soda, therefore there is an excess supply of soda
budget set
the set of all combinations of the two goods that are exactly affordable at current income and prices.
if cross price elasticity is positive
the two goods are substitutes
causation occurs
when one thing directly affects another
excess supply
when the market price is above the equilibrium price, quantity supplied is greater than quantity demanded.
calculating consumer surplus:
willingness to pay-the price actually paid for a good
The cause, or the independent variable should be plotted on ____ and the effect, or dependent variable should be plotted on the
x, y
Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this information, for which of these activities would you be able to compare opportunity costs?
you can compare all the activities after you translate all the missed activities into dollar amounts
suppose you had to find the effect of seatbelt rules on road accident fatalities. would you choose to run a randomized experiment or would it make sense to use natural experiments here?
Ideally, to explore the effects of seatbelt rules on road accident fatalities, you should run a randomized experiment because seatbelt rules may be influenced by road accident fatalities. That is, states may pass seatbelt rules based on an unusually high level of road accident fatalities. If so, then seatbelt rules would not be randomized. Of course, it may not be possible to randomize seatbelt rules, since such an experiment would potentially have adverse effects on people's lives. In this case, it may only be possible to examine the effects of seatbelt rules using a natural experiment.
