Microeconomics Chapters 1-4
Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is
$75.
Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. Refer to Figure 2-7. What is the opportunity cost of producing 1 pound of cashews in Indonesia?
2 2/3 bolts of cotton
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?
3/4 pound of meat
Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cotton in Indonesia?
3/8 pounds of cashews
Loose leaf TeaPrice per lb. (dollars) 8 6 5 4 3 Sunil's Quantity Demanded (lb) 4 7 9 12 15 Mia'sQuantity Demanded (lb) 0 2 3 5 8 Rest of MarketQuantity Demanded (lb) 30 40 51 64 90 MarketQuantity demanded (lb) Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be
63 lb.
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. Refer to Figure 2-2. Suppose Mendonca is currently producing 60 pounds of vegetables per period. How much meat is it also producing, assuming that resources are fully utilized?
75 pounds of meat
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.
Which of the following statements is true?
An increase in demand causes a change in equilibrium price; the change in price does not cause a further change in demand or supply.
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium, quantity demanded equals quantity supplied.
One Digital Camera Wheat (per pound) China 100 hours 4 hours South Korea 60 hours 3 hours Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. Refer to Table 2-3. If the two countries specialize and trade, who should export wheat?
China
Which of the following statements is true about competition in a market?
Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production.
Which of the following is correct about the economic decisions consumers, firms, and the government have to make?
Each faces the problem of scarcity which necessitates tradeoffs in making economic decisions.
Which of the following statements about economic resources is false?
Economic resources include financial capital and money.
Which of the following is a normative economic statement?
Fashion designers should be allowed to copyright designs to promote innovation.
George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-2. Which of the following statements is true?
George has an absolute advantage in both tasks.
Which of the following is a positive economic statement?
If the price of gasoline rises, a smaller quantity of it will be bought.
What is an economic model?
It is a simplified version of some aspect of economic life used to analyze an economic issue.
Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for almonds. Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?
Panel (a)
Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for women's clothing. Which panel best describes what happens in this market when the wages of seamstresses rise?
Panel (b)
Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?
Panel (d)
One Digital Camera Wheat (per pound) China 100 hours 4 hours South Korea 60 hours 3 hours Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. Refer to Table 2-3. Does either China or South Korea have an absolute advantage and if so, in what product?
South Korea has an absolute advantage in both products.
Which of the following best describes an assumption economists make about human behavior?
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.
The three fundamental questions that any economy must address are
What goods and services to produce; how will these goods and services be produced; and who receives them?
A movement along the demand curve for toothpaste would be caused by
a change in the price of toothpaste.
If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as
a decrease in quantity demanded.
Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?
a decrease in the price of corn
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
a decrease in the price of flour
If the price of grapefruit rises, the substitution effect due to the price change will cause
a decrease in the quantity demanded of grapefruit.
Holding everything else constant, an increase in the price of MP3 players will result in
a decrease in the quantity of MP3 players demanded.
The phrase "demand has increased" means that
a demand curve has shifted to the right.
The term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is
a normal good.
An example of a factor of production is
a worker hired by an auto manufacturer.
What does the term "marginal" mean in economics?
an additional or extra
Which of the following will not shift the demand curve for a good?
an increase in the price of the good
If a decrease in income leads to an increase in the demand for macaroni, then macaroni is
an inferior good.
At a product's equilibrium price
any buyer who is willing and able to pay the price will find a seller for the product.
The production possibilities frontier model assumes all of the following except
any level of the two products that the economy produces is currently possible.
If the marginal cost of producing a television is constant at $200, then a firm should produce this item
as long as the marginal benefit it receives is just equal to or greater than $200.
The law of demand implies, holding everything else constant, that
as the price of bagels increases, the quantity of bagels demanded will decrease.
Which of the following is part of an economic model?
assumptions
Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?
at least $60,000
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result
both the equilibrium price and quantity of MP3 players will increase.
You have an absolute advantage whenever you
can produce more of something than others with the same resources.
Which of the following generates productive efficiency?
competition among sellers
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called
consumer surplus.
One Digital Camera Wheat (per pound) China 100 hours 4 hours South Korea 60 hours 3 hours Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. Refer to Table 2-3. South Korea has a comparative advantage in the production of
digital cameras.
A worker is hired in a
factor market.
George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-2. What is George's opportunity cost of mowing a lawn?
half a garden cultivated
The basic economic problem of scarcity
has always existed and will continue to exist
Refer to Figure 2-1. Point A is
inefficient in that not all resources are being used.
The revenue received from the sale of an additional unit of a product
is a marginal benefit to the firm.
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied.
The area above the market supply curve and below the market price
is equal to the total amount of producer surplus in a market.
The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called
macroeconomics.
The slope of a production possibilities frontier
measures the opportunity cost of producing one more unit of a good.
The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called
microeconomics.
George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-2. What is Jack's opportunity cost of cultivating a garden?
one and a half lawns mowed
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except
produce a combination of goods that lies outside its own production possibilities frontier.
Marko's Polos Marginal Cost(Dollars) 1st shirt $7 2nd shirt 10 3rd shirt 15 4th shirt 20 Refer to Table 4-2. The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the market price of Marko's polo shirts is $18
producer surplus will equal $22.
Every society faces economic tradeoffs. This means
producing more of one good means less of another good can be produced.
When goods and services are produced at the lowest possible cost, ________ occurs.
productive efficiency
Households (PM)
purchase final goods and services in the product market.
The study of economics arises due to
scarcity
Households (FM)
sell resources in the factor market.
Scarcity
stems from the incompatibility between limited resources and unlimited wants.
Refer to Figure 2-1. Point B is
technically efficient.
Comparative advantage means
the ability to produce a good or service at a lower opportunity cost than any other producer.
Human capital refers to
the accumulated skills and training workers have.
Marginal cost is
the additional cost to a firm of producing one more unit of a good or service.
The total amount of producer surplus in a market is equal to
the area above the market supply curve and below the market price.
The substitution effect of a price change refers to
the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes.
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
The principle of opportunity cost is that
the economic cost of using a factor of production is the alternative use of that factor that is given up.
If a firm expects that the price of its product will be higher in the future than it is today
the firm has an incentive to decrease supply now and increase supply in the future.
Opportunity cost is defined as
the highest valued alternative that must be given up to engage in an activity.
Consider the following two factors: a. A study conducted by Forrester Research estimates that between 2000 and 2015, 3.3 million jobs in the United States will have been outsourced. b. Over this same period, the number of jobs expected to be created is more than 450 million and the number of jobs due to all causes is estimated at 430 million. These statements suggest that
the likelihood that the average person will lose her job due to outsourcing is very small compared to losing her job due to other causes
Which of the following is counted as "capital" in economics?
the machines workers have to work with
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product.
Consumer surplus in a market for a product would be equal to the area under the demand curve if
the market price was zero.
The production possibilities frontier shows
the maximum attainable combinations of two products that may be produced in a particular time period with available resources.
Willingness to pay measures
the maximum price that a buyer is willing to pay for a good.
Increasing marginal opportunity cost implies that
the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.
The income effect of a price change refers to the impact of a change in
the price of a good on a consumer's purchasing power.
Technology is defined as
the processes used to produce goods and services.
If in the market for apples the supply has decreased then
the supply curve for apples has shifted to the left.
Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline,
the supply curve shifted to the left resulting in an increase in the equilibrium price.
The demand for lobster is lower in the spring than in the summer. If the price of lobster is higher in spring than in summer then
the supply of lobster is greater in summer than in spring.
Each point on a demand curve shows
the willingness of consumers to purchase a product at different prices.
Refer to Figure 3-3. At a price of $5,
there would be a shortage of 4 units.
Refer to Figure 3-2. If the price is $25,
there would be a surplus of 300 units.
George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-2. What is George's opportunity cost of cultivating a garden?
two lawns mowed
George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-2. What is Jack's opportunity cost of mowing a lawn?
two-thirds of a garden cultivated
Refer to Figure 2-1. Point C is
unattainable with current resources.
Marginal analysis involves undertaking an activity
until its marginal benefits equal marginal costs.
The resource income earned by those who supply labor services is called
wages and salaries.
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued.
An increase in the equilibrium price for a product will result
when there is a decrease in supply and an increase in demand for the product.
Which of the following is not an example of an economic tradeoff that a firm has to make?
whether or not consumers will buy its products
Refer to Figure 2-5. If the economy is currently producing at point Y, what is the opportunity cost of moving to point W?
zero
