micro study guide

Michal values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for $3,000. Michael's consumer surplus is

$500

Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

$7.00

At equilibrium, consumer surplus is represented by the area

A+B+C

Which of the following is likely to have the most price elastic demand?

Tommy Hilfiger jeans

If a seller's marginal cost is $15, and the price at which the good is sold is $30, the producer surplus is _____.

$15

The percentage change in quantity of good A is an increase of 2.5 and the percentage change in price of good B is a decrease of 1.5. What is the cross price elasticity between good A and B? What relationship exists between good A and B?

-1.67; complements

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

0.3

Refer to Figure 2-2. What is the opportunity cost of one pound of meat?

1 1/3 pounds of vegetables

Suppose that the price of a money clip increases from $0.75 to $0.90 and the quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.

1.22

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800

2.33

Figure 1-1 shows the market for milk where the government imposes a price floor of $5. After the price floor is in place, how many units of milk are bought?

2.93

What is the opportunity cost of increasing the production of hotdogs from 450 to 900?

225 burgers

Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?

3⁄4 pound of meat

Refer to table 10-1. The market equilibrium quantity of output is

6 units

Refer to Figure 10-3. The social optimum can be reached if

A subsidy of $36 is applied to each unit of the good

Which of the following would result in a higher price elasticity of demand for a product?

A wide variety of substitutes are available for the good

A price ceiling is binding when it is set:

Below the equilibrium price, causing a shortage

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.

A fall in price will

Decrease producer surplus due to sellers leaving the market and remaining sellers receiving a lower price Increase consumer surplus due to buyers entering the market and existing buyers paying lower price

If the demand for bananas is elastic, then an increase in the price of bananas will:

Decrease total revenue of banana sellers

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Encouraging a private solution to a positive externality problem

Which is NOT one of the 4 assumptions of a perfectly competitive market?

Few buyers and sellers

In the circular flow model, producers:

Hire resources sold by households in the factor market

What predictions can be made about the market for pumpkins if in October, there is a too much rain which kills the pumpkin crops, and there is an increase in tastes for pumpkins during the holiday season?

Increase price of pumpkins, quantity is ambiguous

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples

Increases, and producer surplus increases

A price ceiling:

Is the legal maximum on price of a good or service

________ economics prescribes what an individual or society ought to do.

Normative

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Offer grants to university researchers

The highest valued alternative that must be given up to engage in an activity is the definition of:

Opportunity cost

Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?

Panel (d)

"The American stock market has boomed in recent years."

Positive statement

Which is not a shifter of a possibilities production frontier curve?

Price of the good

Market (Price) Equilibrium occurs when:

Qd=Qs

Refer to Figure 3-2. An increase in price of inputs would be represented by a movement from

S2 to S1.

Which of the following statements is true about scarcity?

Scarcity refers to the situation in which unlimited wants exceed limited resources

Which of the following is not a determinant of the price elasticity of demand for a good?

Steepness or flatness of supply curve for the good

A minimum wage that is set above a market's equilibrium wage will result in an excess

Supply of labor, that is, unemployment

According to Figure 1-1, the market is not in equilibrium after the price floor is imposed. Rather, there is a ______ of ______ in the market.

Surplus: 3.66 units

Assume that the market for notebooks is in equilibrium. Which of the following islikely to happen if a few sellers of notebooks decide to exit the market, everything else remaining unchanged?

The Equilibrium price of notebooks increases, but the equilibrium quantity decreases

Studies have shown links between calcium consumption and a reduction in osteoporosis. How does this affect the market for calcium?

The calcium demand curve shifts to the right because of a change in tastes in favor of calcium.

Which of the following areas of study typifies macroeconomics as opposed to microeconomics?

The effect on the economy of changes in the nation's unemployment rate

Melody decided to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

The enjoyment she would have received had she gone to the park

University researches create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?

The equilibrium quantity is less than the socially optimal quantity

Fanny receives a marriage proposal from rich Henry. Agreeing to this proposal will increase her wealth by £1 mln. Instead she marries poor Edmund, whom she loves very much. Besides wealth and besides her feeling towards Edmund, the suitors have no other essential differences. If Fanny is rational, then for her:

The opportunity cost of love (marrying Edmund) is £1 mil

In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?

The supply curve shifts to the right.

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

They are equal

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

a change in the price of the good or service

Refer to Figure 3-4. If the current market price is $10, the market will achieve equilibrium by

a price increase, increasing the quantity supplied and decreasing the quantity demanded.

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?

an increase in consumer income

The law of demand implies, holding everything else constant, that

as the price of bagels increases, the quantity of bagels demanded will decrease.

If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an increase in the price of the iPhone will:

increase the demand for the Galaxy

A production possibilities frontier with a bowed outward shape indicates

increasing opportunity costs as more and more of one good is produced.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

its price.

A rational choice is ___________.

made by comparing marginal benefit and marginal cost

Refer to Figure 3-4. If the price is $10,

there would be a shortage of 600 units.