Macroeconomics- Test 1
Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal cost of adding the shrub-trimming service to the standard package?
$10
Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is her marginal benefit if she sells the quilt "as is" now?
$100
Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?
$200
Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal benefit if he sells the standard package?
$25
One reason some manufacturing companies began moving production to China in the early 2000s was due to lower wages that could be paid to Chinese workers. Moving manufacturing to China to take advantage of lower wages so goods could be produced at a lower cost than if produced in the United States exemplifies which key economic idea?
People respond to economic incentives.
Explain how abundant resources such as water can be considered "scarce."
Scarcity refers to the limited nature of a resource. Even resources that are plentiful, like water, are not unlimited. In addition, some areas of the world do not have access to vast supplies of water, or must deal with temporary shortages due to drought. In all cases, scarcity is a real concern that must be answered by economics.
Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What should she do?
She should purchase the period fabric, complete the task and then sell the quilt.
A dangerous habit among those who own cell phones is driving while talking or texting. Although a great deal has been done to inform drivers of the risks of doing multiple tasks while driving, this informational campaign has been ineffective in the face of increased ownership of cell phones. If you were a policymaker, what types of negative incentives would you suggest to discourage individuals from driving, talking, and texting at the same time?
Some possible answers would include making it illegal to drive and do other things at the same time, and the negative incentive would be avoiding a traffic ticket and fine. Another negative incentive might be setting up cameras to take pictures of people driving and talking on the phone at the same time and making the pictures public. Another negative incentive might be making mandatory the installation in cars of equipment that interferes with a cell phone signal, so that using the phone in the car becomes inconvenient.
Economics professors are well aware of the importance of incentives. Which of the following situations shows the use of a positive incentive?
Students can choose to get a higher grade by doing extra credit work.
Public buildings in the United States are required to be accessible to the disabled and, as a result, almost all have an elevator. What would be an example of a positive direct incentive for those who can to use stairs?
Using the stairs will give them some exercise and make them healthier.
equity
a condition in which people receive from a relationship in proportion to what they give to it
production possibilities frontier
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
Ceteris Paribus
a latin term meaning everything else being equal
factor market
a market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
Scarcity
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
absolute adavantage
ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources
What does the term "marginal" mean in economics?
an additional or extra
mixed economy
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
centrally planned economy
an economy in which the government decides how economic resources will be allocated
market economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
positive analysis
analysis concerned with what is
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
voluntary exchange
both the buyer and the seller of a product are made better off by the transaction
normative analysis
concerned with what ought to be
Comparative advantage emerges because of the presence of
differing opportunity costs.
exogenous factors
external factors that can cause endogenous factors to happen - can't be controlled
if we move down and to the right along a ppf, the opportunity cost of this movement can be measured in terms of
how much of the y-axis good we give up
What are the 5 foundations of economics?
incentives, trade-offs, opportunity cost, marginal thinking, and the principle that trade creates value.
The cost incurred from the production of an additional unit of a product
is a marginal cost to the firm.
factors of production
labor, capital, natural resources, and other inputs used to make goods and services
An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
marginal revenue
The basic goal of economics is to
match limited resources to people's limited wants and needs.
productive efficiency
occurs when a good or service is produced at the lowest possible cost
allocative efficiency
occurs when production is in accordance with consumer preferences
With regard to the PPF, an efficient point is a point that is
on the ppf
what can be said about scarcity?
scarcity forces us to make decisions
Economic model
simplified version of reality used to analyze real-world economic situations
endogenous factors
something i want to explain
economic variable
something measurable that can have different values, such as the incomes of doctors
economic growth
the ability of the economy to increase the production of goods and services
compartive advantage
the ability to produce a good or service at a lower opportunity cost than other producers
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service (ex. gaining the benefit of the satisfaction of watching another hour of tv rather than studying)
marginal cost
the cost of producing one more unit of a good (what you give up) (ex. the cost of enjoying an extra hour of tv is the reduction on your test grade because you studied less)
The opportunity cost of working rather than going to school is
the higher wages that come with additional education.
opportunity cost
the highest valued alternative that must be given up to engage in an activity
trade-offs
the idea that, because of scarcity, producing more of one good or service means producing less of another good or service
Macroeconomics is the study of
the operation of the economy as a whole.
microeconomics
the study of how households and firms make decisions and how they interact in markets
Economics
the study of the choices people make to attain their goals, given their scarce resources
macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Rational decision making under conditions of scarcity requires individuals to
understand that trade-offs are necessary.
Indirect incentives create ________ consequences.
unintended
what is the opportunity cost of producing capital goods instead of consumer goods?
we give up consumption today
Why is the PPF downward sloping?
we must give up one good to increase production of another
As a new firm in the apple-picking business, Nicolette has considered adding an economist to her management team. This economist would be unable to help her managerial team determine
why people eat apples.