Microeconomics Test 1 (ch 1, 2, 3)

If producers incorrectly set the price of their product too high:

a surplus will result and excess goods in inventory will signal the producers to lower their prices.

An increase in the price of ice cream is likely to cause:

a movement along the demand curve

Consider the production possibilities frontier displayed in the figure shown. Which of the following combinations could be produced?

15 watermelons, 100 bushels of apples

Suppose the price of a sweater is $56. Julia's marginal benefit for purchasing each additional sweater is given in the table below. Julia gets the most benefit from the first sweater and less benefit from each additional sweater. If Julia is behaving rationally, how many sweaters will she purchase?

4 +/- 2%

Tom and Jerry have two tasks to do all day: set traps and build bombs. If Tom spends all day setting traps, he will have set 16 traps. If he instead devotes his day to building bombs, Tom will build 4 bombs. If Jerry spends his day setting traps, he will set 14 traps; if he spends the day builiding bombs, he will build 7 bombs. The opportunity cost of one bomb is _____ for Tom and ______ for Jerry. Therefore Tom should specialize in _____.

4 traps; 2 traps; traps

Maya and Max are neighbors. Each grows lettuce and tomatoes in their gardens. Maya can grow 45 heads of lettuce or 9 pounds of tomatoes this summer. Max can grow 42 heads of lettuce or 6 pounds of tomatoes this summer. If Maya and Max specialize and trade, the price of tomatoes (in terms of lettuce) would be: 1 pound of tomatoes would cost between _____ heads of lettuce.

5 and 7

As corn prices rise, salsa sales tend to fall. This is an example of:

a negative correlation.

A change in a nonprice factor of supply will cause:

a shift of the supply curve

Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year. Country B has 400 workers. The opportunity cost of one tomato in Country A is:

5 bananas

Suppose an American worker can make 50 pairs of gloves or grow 300 radishes per day. A Bangladeshi worker, on the other hand, can produce 100 pairs of gloves or grow 200 radishes per day. The opportunity cost of one pair of gloves is

6 radishes for the United States and 2 radishes for Bangladesh

Which of the following could be considered a microeconomic issue?

A family decides to drive their child to school instead of relying on a school bus. Apple releases a new version of the iPhone. Coors Light packages alcohol in bottles that turn blue when cold. ALL OF THESE ARE EXAMPLES OF MICROECONOMIC ISSUES.

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After comparing each country's production possibilities curves, it is clear that:

Country A should specialize in cars and Country B should specialize in trucks, and both will benefit from trade

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering both country's production possibilities frontiers, we can conclude that:

Country B will specialize in trucks, and be willing to accept no less than 3 cars for each truck.

The graph below shows supply and demand in the market for automobiles. For each of the following events, determine the new market outcome and indicate where the new equilibrium point will be.

Environmentalists launch a successful One Family, One Car campaign; A A steel tariff increases the price of steel; B A baby boom occurred 16 years ago.; C An oil shortage causes the price of gasoline to soar; A Improvements in robotics increase efficiency and reduce costs; D The government offers a tax rebate for the purchase of commuter rail tickets; A

Which actor in the circular flow model is on the supply side of goods market?

Firms

Your best friend has an idea for a drive-thru bar. Indicate the best explanation for why other have not taken advantage of her idea:

Government intervention.

Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year. Country B has 400 workers. Suppose Country B decides to specialize in tomatoes, and Country A specializes in bananas. What terms of trade would both countries agree to?

One tomato for four bananas

From the list below, select the characteristics that describe a good economic model.

Predicts that A causes B. Makes approximately accurate assumptions. Predicts things that are usually true.

Suppose two artists are selling paintings for the same price in adjacent booths at an art fair. By the end of the day, one artist has nearly sold out her paintings while the other artist has sold nothing. Which characteristic of competitive markets has not been met and best explains this outcome?

Standardized good.

Consider the market for ride-on lawn mowers and the recent increases in the price of oil. The recent increase in the price of oil makes it more expensive to manufacture ride-on lawn mowers. An increase in the price of oil also makes it more expensive to run a ride-on mower. What is likely to happen to equilibrium price and quantity of lawn mowers as a result in the changing price of oil?

Supply and demand will both decrease, decreasing equilibrium quantity and having an indeterminate effect on price.

Which of the following is an example of a normative statement?

The American Recovery and Reinvestment Act should not have been passed during the Great Recession.

Consider a market that is in equilibrium. If it experiences both an increase in demand and an increase in supply, what can be said of the new equilibrium?

The equilibrium quantity will definitely rise, while the equilibrium price cannot be predicted.

A paper mill discovers that burning old tires is a far cheaper way to get power than using coal, and they quickly adopt the new technology. We can assume which of the following will happen in the market for paper?

The supply of paper will increase.

A price taker is:

a buyer who cannot affect the market price

A drought causes most fruit crops to fail, decreasing the amount of available fruit. the fruitcake market would see.

a decrease in the supply of fruitcake

Suppose two countries each produce only paper and cars. Russia can produce 8 tons of paper or 4 million cars each year. Sweden can produce 25 tons of paper or 5 million cars each year. a. In the diagram above, draw the possibilities frontier for each country. b. Both countries want 2 million cars each year and as much paper as they can produce along with 2 million cars. Find this point on each production possibilities frontier. c. Suppose the counties specialize.______ will produce cars. d. Once they specialize, suppose they work out a trade of 2 million cars for 6 tons of paper.

a. b. c. Russia will produce cars d.

Eleanor and her little sister Joanna are responsible for two chores on their family's farm, gathering eggs and collecting milk. Eleanor can gather 18 dozen eggs or collect 6 gallons of milk per week. Joanna can gather 2 dozen eggs or collect 2 gallons of milk per week. a. The family wants 2 gallons of milk per week and as many eggs as the sisters can gather. Currently, they collect one gallon of milk each and as many eggs as they can. How many dozens of eggs does the family have per week? b. If the sisters specialized, which sister should collect the milk? c. If the sisters specialized, how many dozens of eggs would the family have per week?

a. 16 dozen eggs b. Joanna c. 18 dozen eggs

Your friend Sam has been asked to prepare appetizers for a university reception during homecoming weekend. She has an unlimited amount of ingredients but only 6 hours to prepare them. Sam can make 300 mini-sandwiches or 150 servings of melon slices topped with smoked salmon and a dab of sauce per hour. a. Draw Sam's production possibilities frontier.b. Now suppose that the university decides to postpone the reception until after the big game, and Sam has an extra 4 hours to prepare. Redraw Sam's production possibilities frontier to show the impact of this increase in resources. b. Now suppose that the university decides to postpone the reception until after the big game, and Sam has an extra 4 hours to prepare. Redraw Sam's production possibilities frontier to show the impact of this increase in resources. c. Now, in addition to the extra time to prepare, suppose Sam's friend Chris helps by preparing the melon slices. Sam can now make 300 mini-sandwiches or 300 melon appetizers per hour. Redraw Sam's production possibilities frontier to show the impact of increased productivity in making melon appetizers.

a. 300 mini-sandwiches/hour = 1,800 mini-sandwiches in 6 hours. This is the endpoint on the y axis. 150 melon appetizers/hour = 900 melon appetizers in 6 hours. This is the endpoint on the x axis. b. 300 mini-sandwiches/hour = 3,000 mini-sandwiches in 10 hours. This is the endpoint on the y axis. 150 melon appetizers/hour = 1,500 melon appetizers in 10 hours. This is the endpoint on the x axis. c. 300 mini-sandwiches/hour = 3,000 mini-sandwiches in 10 hours. This is the endpoint on the y axis. 300 melon appetizers/hour = 3,000 melon appetizers in 10 hours. This is the endpoint on the x axis.

Two students are assigned to work together on a project that requires both writing and an oral presentation. Steve can write 3 pages or prepare 6 minutes of a presentation each day. Anna can write 5 pages or prepare 2 minutes of a presentation each day. a. Who has a comparative advantage at writing? b. Suppose that Steve goes to a writing tutor and learns some tricks that enable him to write 6 pages each day. Now who has a comparative advantage at writing?

a. Anna b. Anna

Suppose that three volunteers are preparing cookies and cupcakes for a bake sale. Diana can make 23 cookies or 22 cupcakes per hour; Andy can make 21 cookies or 21 cupcakes; and Sam can make 6 cookies or 16 cupcakes a. Who has the absolute advantage at making cookies? b. At making cookies?

a. Diana b. Diana

Consider the market for corn. Indicate whether each of the following events will cause a shift in the supply curve or a movement along the curve. If it will cause a shift, specify the direction. a. A drought hits corn-growing regions b. The government announces a new subsidy for biofuels made from corn: c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food (assuming corn is a normal good): d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre: e. An advertising campaign by the beef producers' association highlights the health benefits of corn-fed beef:

a. Leftward shift of supply b. Movement along the supply curve c. Movement along the supply curve d. Rightward shift of supply e. Movement along the supply curve

Consider the market for corn. Indicate whether each of the following events will cause a shift in the demand curve or a movement along the curve. If it will cause a shift, specify the direction. a. A drought hits corn-growing regions, cutting the supply of corn: b. The government announces a new subsidy for biofuels made from corn: c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food (assuming corn is normal good): d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre: e. An advertising campaign by the beef producers' association highlights the health benefits of corn-fed beef:

a. Movement along the demand curve b. Rightward shift of demand c. Leftward shift of demand d. movement along the demand curve e. Rightward shift of demand

Consider the following examples. For each one, say whether the incentive is positive or negative. a. Bosses who offer time-and-a-half for working on national holidays: b. Mandatory minimum sentencing for drug offenses: c. Fines for littering: d. Parents who offer their children extra allowance money for good grades:

a. Positive b. Negative c. Negative d. Positive

Determine whether each of the following statements is positive or normative. a. People who pay their bills on time are less likely than others to get into debt: b. Hard work is a virtue: c. Everyone should pay his or her bills on time: d. China has a bigger population than any other country in the world: e. China's One-Child Policy (which limits families to one child each) helped to spur the country's rapid economic growth: f. Lower taxes are good for the country:

a. Positive b. Normative c. Normative d. Positive e. Positive f. Normative

Determine whether each of the following statements is best explained by correlation without causation, an omitted variable or reverse causation. a. In cities that have more police, crime rates are higher: b. Many retired people live in states where everyone uses air conditioning during the summer. c. More people come down with the flue during the Winter Olympics than during the Summer Olympics: d. For the last five years, Punxsutawney Phil has seen his shadow on Groundhog Day, and spring has come late:

a. Reverse causation b. An omitted variable c. Correlation without causation d. Correlation without causation

The graph below shows Tanya's weekly production possibilities frontier for doing homework (writing papers and doing problem sets). The vertical intercept (point A) is 10, and the horizontal intercept (point B) is 5.

a. The slope of the production possibilities frontier is -2. b. The opportunity cost of doing one problem set is 0.5 paper. c. The opportunity cost of writing one paper is 2 problem sets.

The Dominican Republic and Nicaragua both produce coffee and rum. The Dominican Republic can produce 20 thousand tons of coffee per year or 4 thousand barrels of rum. Nicaragua can produce 12 thousand tons of coffee per year or 2 thousand barrels of rum. a. Suppose the Dominican Republic and Nicaragua sign a trade agreement in which each country would specialize in the production of either coffee or rum. Which country should specialize in coffee? Which country should specialize in rum? b. The minimum price at which these countries will trade rum is ____ barrel per ton of coffee and the maximum price is _____ barrel per ton of coffee.

a. coffee - Nicaragua rum - The Dominican Republic b. 0.167 +/- 0.0102; 0.200+/- 0.0102

Refer to the demand and supply schedule shown in the table below. a. If pizza parlors charge $3.50 per slice, there will be an excess: b. If pizza parlors charge $1.00 per slice, there will be an excess: c. The equilibrium price of $___ per slice, and the equilibrium quantity is ___ slices of pizza.

a. supply of 400 units b. demand of 100 units c. 1.5 + 2%; 200+/- 2%

Making a decision "on the margin" involves comparing:

additional benefits against additional costs.

The law of supply can be stated as:

all else equal, quantity supplied rises as price rises.

The graph depicts the demand for a normal good. A movement from A to B in the graph shown might be caused by:

an increase in income

For almost all goods, the:

lower the price goes, the higher the quantity demanded

Entrepreneurs tend to take greater risks if low tax rates offer greater after-tax profit potentials. The government's decision to offer low tax rates to entrepreneurs is:

providing an incentive, in the hopes that more entrepreneurs will take risk and create economic growth.

A nonprice determinant of demand refers to:

something that affects demand other than the price

The term market refers to:

the buyers and sellers who trade a particular good or service, not to a physical location

The equilibrium price is sometimes called:

the market-clearing price.

When a produce is acting efficiently:

they are producing at a point on their production possibilities frontier

You may incorrectly conclude that an idea no other person has implemented is highly profitable because:

you misjudged people's wants and constraints. you miscalculated the trade-offs they face. you misunderstood how people would respond to incentives. ALL OF THESE.