Microeconomics Chapter 1

Which of the following statements is an example of confusing correlation with causation? V "When the temperature falls below 50 degrees Fahrenheit, I wear a jacket. The cold weather causes me to change clothes." V "Every time I wash my car, it rains. Therefore, washing my car causes rain." V " When I wear a red hat, I do well on exams. Wearing the hat improves my grades."

" Every time I wash my car, it rains. Therefore, washing my car causes rain. " " When I wear a red hat, I do well on exams. Wearing the hat improves my grades."

Suppose you are going to a film festival. The admission price is $20 and you can view each film for $1 per film. The marginal cost of the fifth film is $________.

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Susan has a chance to take two weeks of unpaid leave from her job to go on a trip to Antarctica that will cost $5,000. She earns $2,000 per week. She estimates that the trip would be worth twice what she has to pay for the pleasure it would give her. The total cost of the trip for Susan is $________and the benefit of the trip for Susan is $________

1) $9,000 2) $10,000

What are the 4 questions economists use?

1) What are the wants and constraints? 2) What are the trade offs? 3) How will others respond? 4) Are resources being allocated in the best way possible?

What does a good model do? (3 things)

1) predicts cause and effect 2) describes the world accurately 3) has clear assumptions

Microeconomics is based on

1) small concepts, how to spend money and time 2) everyday decisions people face 3) big concepts, health-care reform

When considering a choice, there are

costs and benefits for either option.

Suppose you are going to a film festival. The admission price is $20, and you can view each film in the festival for $1 per film. The cost of viewing the first film

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A sunk cost is

A cost that has already been incurred and cannot be recovered.

Suppose that out of two cities that send football teams to the Super Bowl, the city with the lowest unemployment rate wins 70% of the time. What does this imply?

A positive correlation between Super Bowl wins and low unemployment rates.

Suppose that a policy maker knows there are currently 1,000 cars purchased each year in the city. In order to build a new park next year, which will cost $500,000, the policy maker decides to impose a tax of $500 on each car purchased. Which of the following scenarios is most likely to occur?

A. The $500 tax will be disincentivize car purchases, and fewer than $500,000 will be raised.

In the past, there was a strong correlation between ice cream consumption and polio diagnoses in children. However, this was shown not to be a causal relationship by: A identifying a common underlying omitted variable B demonstrating reverse causality C correcting errors in data reporting D eliminating coincidences

A. identifying a common underlying omitted variable.

Consider two neighbors who each run a small business. Juan grows and sells vegetables. Amber grows and sells flowers. Currently, Juan uses a herbicide on his vegetables, because he can grow more crops with the use of herbicide. Specifically, he earns $1,500 more during the years when he uses herbicide. Amber's flower farm is harmed by Juan's use of herbicide because it drifts to her farm and kills $3,000 worth of flowers each year. Which would be an efficient solution to this problem? A The government bans the use of herbicide B Amber sells her flower business. C Amber pays Juan S1,500 not to use a herbicide D There is no need for an intervention, as a result the current situation is efficient.

C. Amber pays Juan $1,500 not to use a herbicide.

You read a news article that states "More people purchase ChapStick after the weather report predicts a windy week. " Which of the following statements is true? A Buying ChapStick is negatively correlated with the announcement of a windy week. B Reverse causation can explain this observed correlation. C Buying ChapStick is positively correlated with the announcement of a windy week D The observation reflects a normative statement.

C. Buying ChapStick is positively correlated with the announcement of a windy week.

Suppose the owner of a rare piece of art had recently died, and their will specified that an economist should make sure that the painting passed on "efficiently". What method is likely to result in efficiency? A The painting is given to the owner's only child B The painting is out into storage to preserve its quality C The painting is auctioned to the highest bidder D All of these are equally efficient

C. The painting is auctioned to the highest bidder.

Suppose a salon owner notices that their pedicures are very popular with customers. The owner decides to double the price of the pedicure in order to raise more revenue. Which of the following statements is most likely to be true? A The owner will dibble her revenue as a result of the price increase. B More customers will get pedicures because the price indicates it is a desirable service. C The salon's revenue will less than double as customers are disincentivized from getting. a pedicure. D Customers will no longer visit the salon as a result of the price increase.

C. The salon's revenue will less than double as customers are disincentivized from getting a pedicure.

A ______ is anything that can be used to make something of value.

resource.

Your sister always brags about how savvy she is as a grocery shopper, claiming she saves lots of money by using coupons and shopping at multiple stores to get the lowest prices on all goods. Why might your sister be overestimating her savings? A She does not count the value of the time it takes her to sort and clip coupons as a cost. B She does not count the cost of the gas she uses driving extra miles to multiple grocery stores. C She does not count the value of the time it takes her to check out at multiple stores and use multiple coupons, compared to a trip to one store with no coupons. D All of these are correct.

D. All of these are correct.

Suppose that a policy maker is considering offering free college tuition to all low-to-moderate income families in your state. There are currently 1,000 students attending college who would meet the income qualifications to receive free tuition, and tuition is $10,000 per year. Which of the following statements is most likely to be true? A This program will cost the state approximately $10 million per year. B Some of the students will be disincentivized from attending college because that will have to apply for the program. C The $10,000 is a sunk cost that policymakers shouldn't consider when estimating the funds needed to administer this program. D Free tuition will incentivize more students to attend college, and this program will cost more than $10 million per year.

D. Free tuition will incentivize more students to attend college, and this program will cost more than $10 million per year.

The statement "People who drink coffee tend to wake up early" implies that

Drinking coffee is positively correlated with waking up early.

A journal reports that students who attend private schools have higher tests scores. Which of the following is an example of an omitted variable that could explain this correlation? I. Parents' education level II. Socio-economic status III. Private school tuition

I and II only.

A physical item, such as a factory, and something less tangible, like education, are both considered __________.

resources

What groups make economic choices about how to allocate resources?

Individuals, Firms, Families, and the Government

You have an idea to open a rooftop restaurant in the downtown area of your community, as none currently exists. However, after some investigation you discover that any rooftop restaurant would violate city regulations. What makes this an abnormal circumstance?

Intervention

Economics is the study of how people manage ______.

resources

What does the circular flow model do?

It shows the circular flow of economic transactions in a graphic format.

Yasmin has an idea, but she cannot implement it because a monopoly producer has placed a barrier to entry. What makes this an abnormal situation?

Market Failure

Suppose a university offers college seniors one "free" course. Is this course also free to society?

No, because of a college senior takes the last seat in class, then a paying student will not have the opportunity to take it.

What are the 3 ways correlation and causation can be confused?

Omitted variables, reverse causation, and correlation without causation

The Widgetville County Wolfpack has won 90% of their last 20 games played under a full moon. What does this imply?

There is a positive correlation between their play and the occurrence of a full moon.

Are resources tangible and intangible things?

Yes

A local street festival that previously sold bracelets in exchanges for unlimited alcohol consumption is now concerned about overconsumption. If the festival providers decide to instead sell tickets for each drink, will overall alcohol consumption at the next festival decrease?

Yes, because the marginal cost per additional drink will increase for consumers.

People can achieve outcomes that beat achieve their goals when they: V carefully compare their choices V act on economic instinct V ignore utility maximization V are earning an economic profit

carefully compare their choices

Evaluate the following statement: "Every time I wash my car, it rains. Therefore, washing my car causes rain." This is an example______.

coincidence

Economic analysis requires us to

combine theory with observations, and to subject both to tough scrutiny before drawing conclusions.

Economics is a field of study in which people

confuse facts with judgements that are based on beliefs.

The Macroeconomics is the field of study that focuses on

economic issues at the national level

We use the tools of ________ to answer some of the world's biggest (and smallest) challenges.

economics

Are resources being allocated in bathe best way possible? is concerning the idea of

efficiency

In the circular flow model, : V households buy resources in the market and provide goods and services to firms. V firms pay wages to households for their labor. Households buy goods and services from firms. V firms sell resources to consumers and make goods and services for the market. V households provide labor to firms. Firms use labor to produce goods and services.

firms pay wages to households for their labor. Households buy goods and services from firms. households provide labor to firms. Firms use labor to produce goods and services.

Which of the following is an opportunity cost of attending college? V the price of books V tuition and fees V foregone wages V a summer job

foregone wages

Microeconomics is largely concerned with

how individuals and individual firms make decisions involving resources.

The difference between a positive and negative incentive is

how likely someone is to do something

Something that causes people to behave in a certain way by changing the trade-offs they face is an ________.

incentive

How will others respond? is concerning the idea of

incentives

Suppose you have to come up with a truly new idea that didn't exist before. This is an example of

innovation

Market failures are an important cause of

inefficiency

In the circular flow model: labor, land, and capital is considered ______ (input/output). good and services provided are considered ______ ( input/output).

inputs; outputs

Rent control is a government-imposed price control that forces the price of rental apartments to remain lower than under "normal" circumstances. This is an example of government _________.

intervention

"During the summer months, ice cream sales increase. At the same time, home burglaries also increase. Eating ice cream causes crime." This is an example of

omitted variables

"There is a positive correlation between the presence of firefighters and people with severe burn injuries. " This is an example of

omitted variables

Causation occurs when

one event causes another.

What are the trade-offs? is concerning the idea of

opportunity costs

If two variables tend to move in the same direction, we say there is a ________ correlation.

positive

A ______ incentive = the opportunity costs decreases when the price falls

positive.

Economists assume people exhibit ________ behavior when they try to achieve their goals in the most efficient way.

rational

"Rain often occurs when people wear raincoats, so we might conclude that wearing a raincoat causes rain. " This is an example of

reverse causation.

What are the wants and constraints of those involved? is concerning the idea of

scarcity

According to economic theory, individuate required to make choice because of

scarcity.

A model is a

simplified representation of a complicated situation.

In the circular flow model, households

supply labor and buy goods

One of the most basic models of the economy is

the circular flow model

Suppose you have $12,000 in the bank and plan to spend $10,000 to buy a car. One opportunity cost of buying the car would be; V the upkeep and maintenance you will have to pay for V the interest you cannot earn in your $10,000 V $22,000 V the insurance you have to buy for the car

the interest you cannot earn on your $10,000

A macroeconomic analyst would likely study which of the following? V Monetary policy V The amount of spinach consumers purchase V The unemployment rate V Game Theory

the unemployment rate

People exhibit rational behavior when

they make their choices to achieve their goals on the most effective way possible

In marginal analysis, the relevant __________- ________ is between the additional benefits and the additional costs.

trade-off

When we weigh the costs and benefits of daily decisions, we are considering the economic _________ involved.

trade-off

In answering the third question economists use to break down problems, " How will others respond?", a decision maker is recognizing that

trade-offs change