Microeconomics Midterm

is P = 35 - .5Q.

(Advanced analysis) The equation for the demand curve in the diagram shown.

can be represented by a line parallel to the vertical axis.

A perfectly inelastic demand schedule

decrease in the value of one variable causes the value of the other to decrease.

A relationship illustrated by an upward-sloping graph means that a(n)

they save energy and time in decision making.

According to behavioral economists, the human brain frequently employs heuristics because

greater than economic profits because the former do not take implicit costs into account.

Accounting profits are typically

total explicit costs.

Accounting profits equal total revenue minus

rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as

$35

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $100, what is the minimum amount that Susie must be willing to pay for it to be efficient for government to produce the third unit?

increase the number of strawberry pickers needed by farmers.

An increase in consumer desire for strawberries is most likely to

No, 40 percent off is the better offer

Anne is a bargain-minded shopper. Normally, her favorite toothpaste costs the same at both of her local supermarkets, but the stores are having competing sales this week. At one store, there is a bonus offer: Buy 2, get 1 free. At the other store, toothpaste is being sold at 40 percent off. Anne instantly opts for the first offer. Was that really the less-expensive choice? (Hint: Is "buy 2, get 1 free" the same as 50 percent off?)

marginal benefit equals marginal cost.

At the optimal quantity of a public good,

assuming that people always make rational decisions and choices.

Behavioral economic theories are developed based on the following, except

often succumb to temptation.

Behavioral economists believe that people

getting them to select better from the same set of options as they had initially.

Behavioral economists believe that people can be made better off by

efficient but prone to errors.

Behavioral economists believe that the human brain is generally

there are independently acting buyers and sellers in each market.

Competition means that

purposeful behavior.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of

compare the benefits and costs associated with any economic project or activity.

Cost-benefit analysis attempts to

demand curves don't reflect consumers' full willingness to pay for a good or service.

Demand-side market failures occur when

a payment that must be made to obtain and retain the services of a resource.

Economic cost can best be defined as

are essential to the reallocation of resources from less desired to more desired goods.

Economic profits and losses

equal to the difference between accounting profits and implicit costs.

Economic profits are

most decisions involve changes from the present situation.

Economics involves marginal analysis because

best use resources to maximize satisfaction of economic wants.

Economics is a social science that studies how individuals, institutions, and society may

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact

demand is elastic at relatively high prices.

For a linear demand curve,

pleasure or satisfaction.

For economists, the word "utility" means

Accounting profit=$35000 Economic profit=$13000

Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate the accounting profit and the economic profit for Gomez's pottery firm.

economic profit is zero.

If a firm's revenues just cover all its implicit costs, then

greater than one.

If demand for a product is elastic, the value of the price elasticity coefficient is

demand-side market failure.

If many people in a community get flu shots, the whole community benefits, including those who did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of

increase the amount demanded by more than 10 percent.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will

demand is price elastic.

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

increase the marginal utility of the last unit consumed of this good.

If the price of product X rises, then the resulting decline in the amount purchased will

opportunity costs of self-employed resources.

Implicit costs are

absolute value of the Ed coefficient.

In interpreting the Ed value as either elastic or inelastic, we look at the

$4-$3

In which price range of the accompanying demand schedule is demand elastic?

positive, negative, or zero.

Marginal utility can be

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

Most demand curves are relatively elastic in the upper-left portion because the original price

these assumptions allow the models to generate quite accurate predictions of behavior.

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

they care deeply about fairness and are often generous.

Neoclassical economics assumes that people have the following characteristics, except

uncertainty and fairness.

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

there is no effective way to keep people from using a good once it comes into being.

Nonexcludability describes a condition where

the return to the entrepreneur when economic profits are zero.

Normal profit is

lower price increases the real incomes of buyers, enabling them to buy more.

One reason that the quantity demanded of a good increases when its price falls is that the

4 Hours

Pham can work as many or as few hours as she wants at the college bookstore for $12 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job, at a café, will pay her $15 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $13 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $11.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

a. 3 pounds of potatoes b. 2 pounds of potatoes

Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30 per pound. a. How many pounds of potatoes will she purchase? b. How many pounds would she purchase if she only had $2 to spend?

reflect opportunity costs.

Production costs to an economist

encourage cooperation by improving the chances of mutually agreeable transactions.

Property rights are important because they

individuals may make different choices because of different desired outcomes.

Purposeful behavior suggests that

D1 is more elastic than D2.

Refer to the diagram. Between prices of $5.70 and $6.30,

unattainable given currently available resources and technology.

Refer to the diagram. The combination of computers and bicycles shown by point G is

$18

Refer to the graphs which show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the first unit of this public good is

fluid and easily influenced by framing.

Regarding people's preferences, behavioral economists observe that these preferences are

permits the production of a larger output with fixed amounts of resources.

Specialization in production is economically beneficial primarily because it

results in greater total output.

Specialization in production is important primarily because it

The firm may earn positive accounting profits but will face economic losses.

Suppose a firm sells its product at a price lower than the per-unit implicit costs of producing it. Which of the following statements is definitely true?

the third unit should be produced.

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

$200,000 and its economic profits were $0.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassical economist would expect Susie to

Yes, they are making a systematic error because "33 percent off" is the better deal.

The coffee shop near the local college normally sells 10 ounces of roasted coffee beans for $10. But the shop sometimes puts the beans on sale. During some sales, it offers "33 percent more for free." Other weeks, it takes "33 percent off" the normal price. After reviewing the shop's sales data, the shop's manager finds that "33 percent more for free" sells a lot more coffee than "33 percent off." Are the store's customers making a systematic error? Which is actually the better deal?

consumers are largely unresponsive to a per unit price change.

The demand for a product is inelastic with respect to price if

price and quantity demanded are inversely related.

The law of demand states that, other things equal,

demand curves slope downward.

The law of diminishing marginal utility explains why

competition.

The main mechanism that regulates the market system is

one person's choice may differ from another's if their circumstances and information differ.

The notion of "purposeful behavior" in the economic perspective suggests that

the value of the best alternative that is given up in order to do or get something.

The opportunity cost of doing or getting something is defined as

buyer responsiveness to price changes.

The price elasticity of demand coefficient measures

in the $6-$4 price range.

The price elasticity of demand is relatively elastic

in the $4-$3 price range only.

The price elasticity of demand is unity

elastic in high-price ranges and inelastic in low-price ranges.

The price elasticity of demand of a straight-line demand curve is

percentage change in price and percentage change in quantity demanded.

The price-elasticity of demand coefficient, Ed, is measured in terms of

fixed plant capacity.

The short run is characterized by

The recognition heuristic will overcome any negative emotional associations.

Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?

in the long run all resources are variable, while in the short run at least one resource is fixed.

To economists, the main difference between the short run and the long run is that

explicit and implicit costs.

To the economist, total cost includes

nonexcludable and rival.

Toll-free roads sometimes get congested, such as during rush-hour traffic. During those times, we would say that these roads are

total satisfaction received from consuming a given amount of a product.

Total utility is best defined as the

Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.

What do neoclassical economics and behavioral economics believe about giving people options?

Scarce resources are used up to provide "freebies" and giveaways.

What does "there is no such thing as a free lunch" mean in economics?

look for and pursue opportunities to increase their utility.

When economists say that people act rationally in their self-interest, they mean that individuals

ignorant of what their best interests are.

When people make decisions that go against their own interests, neoclassical economics explains this to be instances where people are

Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.

Which of the following best explains the difference between neoclassical economics and behavioral economics?

use of savings to pay operating expenses instead of generating interest income

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

trade-offs

Which of the following most closely relates to the idea of opportunity costs?

Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.

Which of the following represents a long-run adjustment?

People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

Which of the following statements best reflects how a behavioral economist views individual decision making?

positioning frequently purchased items at the back of the store

Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics) approach?

of wages forgone by the owner of the firm.

Which of the following would be an implicit cost for a firm? The cost

Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work.

Which of the following would represent a systematic error?

"There is no such thing as a free lunch."

Which one of the following expressions best states the idea of opportunity cost?

Because they are targeting the children who go shopping with adults.

Why do cereals marketers most prefer to have their brand occupy the shelf-space a foot or two below a typical adult's eye-level?

Many of these are small items that people will buy on an impulse.

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

as much as what it would have earned in its best alternative business venture.

Zero economic profits mean that the firm is earning