Chapter 1 microeconomic

The diagram to the right shows a hypothetical demand curve for apples. The slope of this curve is -----------. ​ ELEVEN11

-1

Economists often are interested in percentage change from one period to the next. The percentage rate of change of gross domestic product​ (GDP) is an important macroeconomic variable. If in 2010 GDP was​ $11,150 billion​ dollars, and GDP increased to ​$11 comma 412 billion in​ 2011, what is the growth rate of the U.S. economy in​ 2011?

2.3​%. ​(Enter your response rounded to one decimal​ place.)

Refer to the graph on the right What percentage of the marbles are​ blue? What fraction of the marbles are​ yellow? What fraction of the marbles are​ red? TEN10

23.5​% 19/85 0.18

The pie chart to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is EIGHT8

65​%. ​(Enter your response as an​ integer.)

In your economics​ class, you scored a 61 on the first​ quiz, a 86 on the second​ quiz, and an 66 on the third quiz. Your average quiz grade is ------. ​(Enter your response rounded to one decimal​ place.) On the fourth​ quiz, you scored an 76. Did the fourth quiz raise your​ average?

71 Yes

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?

A market Markets come in all shapes, sizes and forms. EBay, the New York Stock Exchange and the local labor market are all examples of either formal or informal markets where buyers and sellers come together to exchange goods and services. Marginal analysis and rationality are both economic assumptions we make and adhere to in the marketplace. Normative economics deals with value decisions of what we should be doing.

Which of the following shows a negative linear ​relationship? ​ (assume values of x greater than 0​)

A. y = 90 - 1.7 x

A hypothesis in an economic model is A. usually about a causal relationship. B. a statement that may be either correct or incorrect about an economic variable. C. tested before it can be accepted​ (or not​ rejected). D. all of the above.

All of the above

__________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.

Capital Capital goods and services are those bought by businesses to be used to increase efficiency or enhance production. Forklifts and assembly line components are included in this category. Goods and services that include Honda civics and haircuts are known as consumption goods and services. This category of goods and services includes anything a person might buy and consume for themselves. It is the largest category of goods consumed in our economy. Government goods and services include any goods or services bought by the U.S. government.

----------------- ​decide(s) what goods and services will be produced.

Consumers, firms, and government

The diagram to the right represents a demand curve for apples. The original demand curve is D1. If a factor other than price which affects demand​ changes, causing demand to decrease​, the resultant demand curve is represented by Upper ------ FOUR4

D 3

According to the rationality assumption, people:

Do not intentionally make decisions that would leave them worse off. One of the basic assumptions of economics is that people are rational. In other words, they tend to make decisions that will make them better off. This does not mean they ignore other persons and their input. It simply means they make the best decision possible given the knowledge and resources they have available to them at that time.

​1.) Use the line drawing tool to draw the equation Y = 1 + 1.25 X. Label your line​ 'A'. ​2.) Use the line drawing tool to draw the equation Y = 18 - X. Label your line​ 'B'. ​3.) Use the point drawing tool to indicate the point where both equations are equal. Label this point​ 'Equilibrium'. Carefully follow the instructions​ above, and only draw the required objects.

FIFTEEN15

Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?

How do we produce the products? There are typically multiple ways that we can combine factors of production to achieve a particular outcome. For example, you can produce electricity with solar power, hydroelectric generators, coal-fired plants and other means. The power company will answer this question given their various constraints. Two other key economic questions deal with determining what to produce and who consumes the products or services. Trade-offs exist on both the production and the consumption side since we all have scarce resources. A market economy will allow the free market to make these decisions and a central planning or command economy will make these decisions via a government agency. In both cases, the questions are answered with different levels of efficiency.

Which of the following is a positive economic statement?

If minimum wage rates rise, then unemployment will rise. Positive economic statements are statements of fact that imply no value judgment. Notice that the correct response merely stated what would happen if minimum wage went up and made no statement about whether that was good or bad. The other responses all imply value by using the word 'should.' If we 'should' do something we are implying that is a good outcome and something we need to pursue.

What is the name given to the development of a new good?

Invention Innovation involves taking the invention and applying it. Inventions may occur years before widespread innovation follows. Entrepreneurship involves business creation and can stem from an invention or be something as commonplace as opening a new restaurant. Entrepreneurs risk their own financial capital in this process.

Which of the following covers the study of topics such as inflation or​ unemployment?

Macroeconomics

A -------- economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Mixed

Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?

North Korea While all countries have mixed economies to some extent, the market economies are characterized by privately owned businesses that provide goods and services. From what we know about North Korea much of the economic activity is directed by the government.

Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?

People respond to economic incentives. Jim's decision was also rational since he will be better off financially after the study is completed. In addition, his decision was based on the fact that the marginal cost (time involved) was less than the marginal benefit ($1,000). However, both of these economic ideas were not as prominent as the fact that Jim responded to an economic incentive.

------------ is concerned with what is​, and ------------ is concerned with what ought to be. Economics is about ------------​, which measures the costs and benefits of different courses of action

Positive analysis normative analysis positive analysis

------------ occurs when a good or service is produced at the lowest possible cost. ------------ occurs when production is in accordance with consumer preferences.

Productive efficiency Allocative efficiency

Complete the following​ table: ​(Enter your responses rounded to two decimal​ places.)

SEVEN7

The diagram to the right illustrates a hypothetical demand curve representing the relationship between price​ (in dollars per​ unit) and quantity​ (in 1,000s of units per unit of​ time). TWO2

The area of the triangle shown on the diagram is ​$ 612,500. ​(Enter your response as an​ integer.)

Which of the following is not a possible opportunity cost of attending college?

The cost of housing The other costs are all related to your decision to attend school and would not be incurred otherwise. These costs include the explicit out of pocket costs of paying for tuition and buying textbooks since you could have used those funds to purchase other goods and services. In addition, you are forgoing making income by instead choosing to allocate that time attending class and studying.

The diagram to the right illustrates a hypothetical demand curve representing the relationship between price​ (in dollars per​ unit) and quantity ​(in ​1,000s of units per unit of time​). ONE1

Total revenue is ​$2025. ​(Enter your response as an​ integer.)

The slope of a curve is defined as the ---------- divided by the ------------ (Assume the Y values are on the vertical axis and the X values are on the horizontal​ axis) Suppose your business operates a machine at a cost of ​$150 per day whether it is used or not plus ​$25 for each hour it is used. Use the line drawing tool to draw the daily cost curve for this machine assuming an 8 hour day. Label the curve​ 'cost'. Carefully follow the instructions​ above, and only draw the required objects. The slope of the cost curve is -----------per hour. TWELVE12

Upper Delta Upper Y ​Upper Delta Upper X $25

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality.

In what type of economy does the government decide how economic resources will be allocated?

a centrally planned economy The government decides what products and services to produce, how to produce them, and who gets those goods and services. In a market economy the signals are provided by the market and the profit motive determines the answers to those questions. Most economies are mixed with some elements of both a centrally planned economy and a market economy.

Economics is a social science because A. it considers human behaviorlong dashparticularly ​decision-making behavior. B. it is based on studying the actions of individuals. C. it applies the scientific method to the study of the interactions among individuals. D. all of the above.

all of the above.

The bar graph to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. THREE3

auto firms control is 60​%. ​(Enter your response as an​ integer.)

The diagram to the right is an example of FORTEEN14

a​ time-series graph.

Any model is based on making assumptions because A. models have to be simplified to be useful. B. we cannot analyze an economic issue unless we reduce its complexity.

both a and b.

When we graph the relationship between two​ variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing​ so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include A. reverse causality. B. an omitted variable. C. both a and b.

both a and b.

A market is a group of -------------------------- of a good or service and the institution or arrangement by which they come together to trade.

buyers and sellers

Societies organize their economies in two main ways to answer the three questions of​ what, how, and who. A society can have a ---------------- economy in which the government decides how economic resources will be allocated. Or a society can have a ------------ economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned market

One of the first steps in deciding whether to complete your education is to:

evaluate the marginal cost and marginal benefit of that decision. Economists think on the margin. In other words, evaluate the cost of completing your degree from this point forward. Compare that cost to the benefits you will receive if you complete your degree such as the increase in lifetime earnings for college graduates. If the marginal cost is less than the marginal benefits, then you should complete the degree.

Tangible products like cars and televisions are referred to as __________.

goods Services include any activity such as a massage, haircut, or legal advice. Factors commonly refers to factors of production which are the necessary inputs used to produce a good or deliver a service. Factors of production include labor, economic capital, and natural resources.

Macroeconomics can be used to understand all of the topics listed below, except:

how a consumer decides between the purchase of two different cars Macroeconomics is concerned with the broader perspective related to the overall economy. Things like economic booms and recessions, unemployment levels and monetary policy are all big picture macroeconomic topics. The decision a consumer makes about whether to buy a Ford or a Chevy is a topic of microeconomics.

Microeconomics is the study of

how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

In the United​ States, who receives the goods and services produced depends largely on ------------

how income is distributed

Economics:

is concerned with how people respond to incentives is the study of the choices people make to attain their​ goals, given their scarce resources. Economics is a social science that studies choices made in the face of scarcity. Economics also attempts to model how people would respond to a given set of incentives in order to encourage some type of desired outcome or discourage some type of unwanted behavior. Both of these require some type of value assessment on the part of the policymaker, employer, etc. And, while modeling economic behavior does require simplifying assumptions, most simple models do a reasonably good job of explaining economic behavior.

Firms choose how to produce the goods and services they sell. In many​ cases, firms face a​ trade-off between using more workers or using more machines. For​ example,

many times in the past several​ decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

Economists believe that an individual or firm should continue any activity until:

marginal benefit is equal to marginal cost. Economists believe that an individual or firm should continue any activity until marginal benefit is equal to marginal cost. Continuing to engage in the activity when marginal benefit exceeds marginal cost will increase the total benefit of the activity. Conversely, continuing to engage in the activity when marginal benefit is less than marginal cost will reduce the total benefit of the activity. For this reason, the point where you should cease the activity is where marginal benefit is equal to marginal cost.

The United States economy is best classified as a:

mixed economy. The United States economy is best classified as a mixed economy. In a mixed economy, most economic decisions occur in markets where buyers and sellers determine the price but the government is also heavily involved in resource allocation. The United States, Japan, and most Western European countries have mixed economies. In a market economy, the private sector, instead of the government, determines the goods and services produced. Markets where buyers and sellers interact with no government intervention determine the price and the types of goods and services produced. In centrally planned economies like North Korea and Cuba, the government determines the type of goods produced, the production method, and allocates those goods among the citizens.

The resources provided by nature and used to produce goods and services are also known as:

natural resources Some examples of natural resources include fertile land, mineral deposits, oil, natural gas and water. These natural resources are often collectively referred to by economists as land. The factors of production include land, labor and capital and are all used in some combination to produce goods and services.

The stock of computers, factory buildings and machine tools used to produce goods is known as:

physical capital Physical capital includes any goods, equipment or tools used in the production process. On the other hand, financial capital refers to stocks, bonds, money and other financial assets. Human capital refers to education, training or skill sets that a worker might possess. Production will require some input from all types of capital and technology refers to the type of production process used by the firm.

Macroeconomics is concerned with all of the following except:

political party affiliation While various political parties can have widely different economic beliefs and approaches, the study of political party affiliation is not a macro topic. An individual's choice of political affiliation is a topic of microeconomics. The other broad topics of inflation, overall standard of living and unemployment rates are all macroeconomic topics.

The diagram to the right illustrates a supply curve. As with all supply ​curves, this​ curve's slope is NINE9

positive

The diagram to the right illustrates a very important relationship in economics between two​ variables: the price of a good and the quantity demanded of that good. The two variables in this diagram​ are: FIVE5

price​ (dollars per​ bushel) on the vertical axis and quantity​ (bushels per​ week) on the horizontal axis.

The principle of opportunity cost evolves from the concept of:

scarcity Because resources are scarce there is a trade-off for every choice we make. In other words, you have to forego something (i.e., incur an opportunity cost) in order to consume one thing. While our level of wealth or poverty will certainly provide constraints to our consumer spending, we still all ultimately make consumption choices and incur opportunity costs as a result of scarce resources.

Economics is the study of choice under conditions of:

scarcity Every decision we make factors in the limited amount of time and money available to us as we attempt to maximize our satisfaction. In other words, we make the best decision possible given the scarce resources available to us at that time. The market system will be willing to supply virtually anything we need or want but our consumption choices are constrained by our scarce resources.

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity.

Equity is

the fair distribution of economic benefits.

Opportunity cost is

the highest valued alternative that must be give up to engage in an activity.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives,

the policies are consistent with economic incentives. A market is a group of buyers and sellers of a good or​ service, and the institution or arrangement by which they come together to trade. Most of economics involves analyzing how buyers and sellers make choices and interact in markets.

Macroeconomics is

the study of the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

​Trade-offs force society to make​ choices, particularly when answering the following three fundamental​ questions:

​One, what goods and services will be​ produced? Two, how will the goods and services be​ produced? Three, who will receive the goods and services​ produced?

The diagram to the right illustrates a common economic relationship. Economists know this relationship as marginal cost​ (MC). The diagram illustrates the relationship between the change in total cost and quantity produced. There are three lines​ (A, B, and​ C) drawn tangent to the MC curve. At line​ A, the MC curve has a​ _____ slope. Where lines B and C touch the MC​ curve, the slope is​ _____ and​ _____. THIRTEEN13

​negative; positive; increasing

In the diagram to the​ right, the curve labeled​ "S" is apparently​ _____, while the curve labeled​ "D" is apparently​ _____. SIX6

​nonlinear; linear