Microeconomics Exam #1

long run price elasticities of supply are generally larger than short tun price elasticities of supply. as a result, the short run supply curves are generally flatter than the long run supply curves

false

rational spending rule gives us all the utility maximizing allocations a person can consume

false

shelly purchsaes a leather purse for $400. one can infer that her reservation price was exactly $400

false

the PPC illustrates the combination of output that an economy should produce

false

the budget constraint always gives us the utility maximizing allocations a person can comsume

false

the person who can produce the good with a smaller quantity of inputs is said to have a comparative advantage in producing the good

false

the tendency for marginal utility to decline as consumption increases below some point is called the law of demand

false

the willingness to pay is the minimum amount a buyer will pay for a good and measures how much the buyer values the good

false

total output in an economy increases when each person specializes because there is less competition for the same resources

false

trade can make everyone better off except in the case where one person is better at doing everything

false

utility is always an increasing function of quantity

false

with careful planning, we can usually get something that we like without having to give up something else

false

you can spend $10 for lunch and you would like to purchase two cheeseburgers. when you get to the restaurant, you find out the price of cheeseburger has increased form $5 to $6, so you decide to purchase just one cheeseburger. this is best described as a decrease in buyer's reservation price

false

as the price of cookies increases, firms that produce cookies will increase the supply of cookies

fasle

as the price of personal computers continues to fall, demand increases -- this headline is inaccurate because the statement is backwards: increased demand leads to loewr prices

fasle

Gertie saw a pair of jeans that she was willing to buy for $35. the price tag aid they were $29.95. therefore Gertie should buy the jeans because the price is less than her reservation price

true

Rational people make decisions at the margin by comparing marginal costs and marginal benefits

true

it is impossible for total utility to be positive when marginal utility is negative

false

jessicas marginal cost for producing a pitcher of lemonade is .25$. Therefore $.25 is her reservation price

false

if the demand for milk rose, then in the long run, milk drinkers would be better off if supply were elastic rather than inelastic

True

Economics is the study of how evenly goods and services are distributed within society

false

a bowed-out production possibilities frontier assumes that the workers technology for production allows him/her to switch between producing one good and the other at a constant rate

false

a country may have an absolute advantage in producing a good even though it lacks a comparative advantage in producing that good

false

a production possibilities frontier is linear when the rate of tradeoff between the two goods being produced depends on how much each good is being produced

false

absolute advantage is the driving force of specialization

false

after specialization a wider variety of products will be produced within each country

false

an increase in both the equilibrium price and the equilibrium quantity of DVD players is best explained by a decrease in demand for DVD players

false

comparative advantage is determined by which person or group of persons can produce a given quantity of a good using fewest resources

false

diminishing marginal product suggests that additional units of ourpur becomes less costly as more output is produced

false

during thanksgiving you participated in a pumpkin eating contest. you really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. your total utility stayed the same with the first three pies you ate.

false

economics is the study of how society allocates its unlimited resources

false

equilibrium price is fiar in the sense that everyone can afford basic goods and services

false

if the equilibrium price for a gallon of gasoline is $30, then a price ceiling at $28 would have no effect in this market

false

suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the govt sets the price for prescription drugs. one can conclude that the government has encouraged buyers to hoard precriptions drugs

fasle

the entire group of buyers and sellers of a particular good or service makes up the equilibrium price and quantity

fasle

a country may have a comparative advantage in producing a good even though it lacks an absolute advantage in producing the good

true

a person can have an absolute advantage in all the tasks s/he performs

true

absolute advantage is the ability to produce a good at a lower opportunity cost than another producer

true

an increase in the demand for GM cars results in an increase in the quantity supplied of GM cars

true

as long as the opportunity cost of producing the goods differs across the two individuals, both can gain from specialization and trade

true

at the beginning of the fall semester, college towns experience large increases in their populations, causing an increase in the demand for apartments

true

economists use the principle of comparative advantage to emphasize the potential benefits of free trade

true

for both parties to gain from trade, the price at which they trade must lie between the opportunity costs

true

if pencils and paper are complements for most consumers, then if the price of paper increases, you would expect the equilibrium price and quantity of pencils to fall

true

if supply and demand both decrease, then the new equilibrium quantity will be lower, but the direction of the price change is uncertain

true

if there were no scarcity, no one would have to make decisions based on tradeoffs, because there would be no opportunity cost associated with the decision

true

in a market in which the government has set a price ceiling below the equilibrium price a black market might develop

true

it is impossible for total utility to be decreasing when marginal utility is positive

true

one reason the demand curve slopes downward is that as prices fall more people find that the price is now less than their resevation price

true

suppose a new study highlights the health benefits of eating bacon. at the same time, suppose the cost of producing bacon falls. Given these changes, you should expect to see an increase in the equilibrium quantity of bacon, but its hard to say what will happen to the equilibrium price

true

suppose sport utility vehicles get poor gas mileage compared to other available cars. If the price of gasoline increases, then one would then expect the demand for sport utility vehicles to decrease

true

suppose you observe an increase in the equilibrium price of coffee and a decrease in the equilibrium quentity of coffee. this is most consistent with an increase in the cost of producing coffee

true

the PPC of a country may shift inwards after a major earthquake hits the country

true

the opportunity cost of an action is measure in terms of foregone opportunities

true

through specialization and trade, countries can have more of all goods to consume

true

trade with any nation can be mutually beneficial

true

trade-offs are inevitable due to scarcity principle

true

when supply if perfectly elastic, changes in demand have no effect on price

true