Micro Econ Midterm

curved ppf

set of choices society faces for the combinations of goods and services it can produce given the resources available. trade offs

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because

the Federal Reserve is worried about inflation.

The president of the United States receives tax policy advice from economists in the

Department of the Treasury

The gains from trade are

a result of more efficient resource allocation than would be observed in the absence of trade

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?

To protect an industry from foreign competition

Which of the following changes would not shift the demand curve for a good or service?

A change in the price of the good or service.

Which of the following is an example of a capital input? -A computer -A share of stock -The finances necessary for firms to produce their products -The money households use to purchase firms' output

A computer

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good? Question options:

A decrease in consumer income

Which of the following events would explain the shift of the production possibilities frontier upward

A general technological advance

If Canada is capable of producing either shoes or toy trains or some combination of the two, then

Canada's opportunity cost of shoes is the inverse of its opportunity cost of toy trains.

The outer loop of the circular-flow diagram represents the flow of dollars in the economy. Which of the following is not measured in dollars and therefore does not appear on the outer loop?

Capital

Which of the following is an important cause of inflation in an economy?

Growth in the quantity of money in the economy

In the simple circular-flow diagram, which of the following is not true?

Households are the only decision makers.

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

a market failure caused by an externality

If Mike can produce more donuts in one day than Sue can produce in one day, then

Mike has an absolute advantage in the production of donuts.

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?

New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

Suppose this economy is producing at a point below the PPF curve Which of the following statements would best explain this situation?

Not using the most efficeint production method, technology not being used to full potential

Economists at which of the following government offices help formulate spending plans and regulatory policies? Question options:

Office of Management and Budge

Which of the following is not held constant in a demand schedule?

Price

Which of the following is an example of a positive, as opposed to normative, statement

Prices rise when the government prints too much money

You go to the movieplex where movies ordinarily cost $8.00. You are intending to see a movie for which you have a $2.50-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?

The amount you value the first movie + $2.50

Which of the following is not correct?

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Which of the following is not held constant in a supply schedule?

The price of the good

When constructing a production possibilities frontier, which of the following assumptions is not made? Question options:

The quantities of the factors of production that are available are increasing over the relevant time period.

Which of the following events could cause an increase in the supply of ceiling fans?

There is an increase in the price of the motor that powers ceiling fans.

Which of the following is not an example of a group responding to an incentive? - Students attend class because of an attendance policy that reduces their grade for absences. - Consumers buy more of a product when it is on sale at a reduced price. - Universities offer fewer online classes when they generate more revenue at the same cost than traditional classes. - Employees work harder to earn higher commissions.

Universities offer fewer online classes when they generate more revenue at the same cost than traditional classes.

The entire supply curve shifting right (increasing) is caused by

an increase in input prices.

If muffins and bagels are substitutes, a higher price for bagels would result in

an increase in the demand for muffins

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome

an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

Both Ryan and Sachi produce ankle bracelets and rings. However, Ryan is better at producing both goods. In this case, trade could

benefit both Sachi and Ryan.

Suppose your finance professor has been offered a corporate job with a 25 percent pay increase. He has decided to take the job. For him, the marginal

benefit of leaving was greater than the marginal cost.

If a seller in a competitive market chooses to charge more than the going price, then

buyers will make purchases from other sellers.

ou are considering staying in college another semester so that you can complete a major in finance. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester.

Making rational decisions at the margin means that people

compare the marginal costs and marginal benefits of each decision.

The line that relates the price of a good and the quantity supplied of that good is called the supply

curve, and it usually slopes downward.

Equilibrium price must decrease when

demand does not change and supply increases.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage.

Economists sometimes give conflicting advice because

economists have different values and scientific judgments.

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises.

By definition, exports are

goods produced domestically and sold abroad.

The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by

government actions that distort prices.

The basic principles of economics suggest that

government should become involved in markets when those markets fail to produce efficient or fair outcomes.

Tao and Miray are economists. Tao thinks that the wealthiest 10 percent of the U.S. population should be taxed a rate higher than the rest of society because they can better afford it. Miray thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Tao and Miray

have different normative views about tax policy.

A circular-flow diagram is a model that

helps to explain how the economy is organized.

An increase in the overall level of prices in an economy is referred to as

inflation

Absolute advantage is found by comparing different producers _______

input requirements per unit of output.

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth

is more equal but less efficient for society

For a self-sufficient producer, the production possibilities frontier

is the same as the consumption possibilities frontier

Suppose the economy is producing at a point outside the PPF which isn't possible because

it does not have the resources and technology to produce that level of output

The term used to describe a situation in which markets do not allocate resources efficiently is

market failure.

The production possibilities frontier provides an illustration of the principle that

people face trade-offs.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

people face tradeoffs.

Efficiency

refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.

The phenomenon of scarcity stems from the fact that

resources are limited.

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

Straight line PPF

the opportunity cost is constant

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales

Opportunity cost on a PPF

the slope of the production possibilities frontier

Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would

the supply curve shifts.

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

If the supply of a product decreases, then we would expect equilibrium price

to increase and equilibrium quantity to decrease.

The opportunity cost of an item is

what you give up to get that item.