Microeconomics Chapter 1
Economists use the phrase "ceteris paribus" to express the assumption
"all else equal"
You have decided that you want to attend a costume party as Ironman. You estimate that it will cost $40 to assemble your costume. After spending $40 on the costume, you realize that the additional piece you need will cost you $25 more. The marginal cost of completing the costume is
$25
If you can buy 9 DVDs for $126 or you could buy 10 DVDs for $130, then the marginal cost of the 10th DVD is
$4
Which of the following is NOT an opportunity cost of attending college? The income you could have earned if you didn't attend college The tuition you pay The alternative uses of the time you spend studying The cost of the food that you consume while you are attending college
*The cost of the food that you consume while you are attending college
If the value of X changes from 16 to 24 when the value of Y changes from 12 to 8, the slope of the line between those two points is
-0.5.
One of the scarce resources that constrain our behavior is time. Each of us has only 24 hours in a day, and we must allocate our time in a given day among competing alternatives. How do you go about allocating your time in a given day among competing alternatives? How do you go about weighing the alternatives? Once you choose a most important use of time, why do you not spend all your time on that activity?
As more and more time is spent on one activity, the opportunity cost of that activity in terms of other activities rises.
On the Forbes 2015 list of the World's Billionaires, Bill Gates ranks at the top with a net worth of $79.2 billion. Does this "richest man in the world" face scarcity, or does scarcity only affect those with more limited incomes and lower net worth?
Bill Gates faces scarcity because resources are limited.
Which field of economics deals primarily with the problems faced by low-income countries?
Economic development.
The Industrial Revolution refers to the rise of the modern factory system in ________ during the late eighteenth and early nineteenth centuries.
England
In economics, the concept of equity is rarely debated as most people agree as to what is and what is not equitable.
False
Macroeconomics deals with the functioning of individual industries and the behavior of firms and households.
False
On a time series graph, time is measured along the vertical scale.
False
Opportunity costs are another name for marginal costs.
False
T/F: Resources are unlimited in a wealthy society.
False
On the Forbes 2013 list of the World's Billionaires, Mexico's Carlos Slim Helu ranks at the top with a net worth of US $73 billion. Does this "richest man in the world" face scarcity, or does scarcity only affect those with more limited incomes and lower net worth?
He faces scarcity because resources are limited
The fundamental difference between microeconomics and macroeconomics is that microeconomics analyzes the decisions made by ____ , while macroeconomics deals primarily with ____.
Households and firms, the economy as a whole
Which of the following is a microeconomics question?
Is it sensible for a government to subsidize tobacco production?
People who eat kale on a regular basis are more likely to exercise every day than people who do not eat kale. Therefore, exercising daily causes people to eat kale
It confuses correlation and causation.
Which of the following statements uses the concept of equity to argue against the legalization of casino gambling?
Legalized casino gambling places an unfair burden on non gamblers, who must now tolerate the increased traffic that the activity necessarily produces
Which of the following statements uses the concept of equity to argue against the legalization of casino gambling?
Legalized casino gambling places an unfair burden on nongamblers, who must now tolerate the increased traffic that the activity necessarily produces.
Congress extends the maximum duration for the collection of unemployment benefits from 26 weeks to 52 weeks.
Macroeconomic
The president has proposed increasing the marginal tax rate for people whose annual earnings exceed $275,000 and lowering the marginal tax rate for those who earn less than $275,000.
Macroeconomic
Changes in the aggregate price level (inflation):
Macroeconomics
The unemployment rate:
Macroeconomics
Determine whether each of the following is covered by micro or macro economics Number of employees in the steel industry changes in the aggregate price level (inflation) The price of gasoline The unemployment rate
Micro Macro Micro Macro
The Federal Aviation Administration (FAA) is considering increasing the number of takeoff and landing slots available at Ronald Reagan Washington National Airport.
Microeconomic
Walmart announced that it will increase its starting wage for employees to $10 per hour by February, 2016.
Microeconomic
Number of employees in the steel industry:
Microeconomics
The price of gasoline:
Microeconomics
As a public safety measure, the state of Texas should not pass legislation that allows people with concealed handgun permits to carry concealed weapons on college campuses:
Normative
Florida should devote all revenues from its state lottery to improving public education:
Normative
Indicate whether the following statements are examples of positive economic analysis or normative economic analysis: The inheritance tax should be replaced because it is unfair Allowing Chile to join NAFTA would cause wine prices in the US to drop The first priorities of the new regime in the Republic of South Sudan should be to rebuild schools and highways and to provide basic health care
Normative Positive Normative
The principle that irrelevant detail should not be included in a model is known as
Ockham's razor
The best alternative given up when we make a decision is called the ________ of that decision.
Opportunity cost
The most common method for graphing the relationship between two variables is by drawing two ____ lines,where the _____ is a horizontal line and the_____ is a vertical line.
Perpendicular, x-axis, y axis,
A devaluation of the U.S. dollar would increase exports from the United States:
Positive
Eliminating the trade embargo with Cuba would increase the number of Cuban cigars available in the United States:
Positive
Increasing the federal tax on gasoline would cause shipping costs in the United States to increase:
Positive
When the variable measured along the X-axis and the variable measured along the Y-axis move in the same direction, it indicates a ____ relationship between the two variables. If the variables along the X-axis and Y-axis move in opposite directions, there is a _____ relationship between the two variables
Positive, negative
What type of relationship exists between the two variables, average income before taxes and average consumption expenditures? Will the slope of the line used to graph this information be positive or negative?
Positive relationship; positive slope.
All of the following are criteria frequently applied in judging economic outcomes except
Profitability
Which of the following is a macroeconomics question?
Should we have a constitutional amendment to balance the federal budget?
The graph to the right is a ____ graph, which measures how a single variable changes over time.
Time series
If price is increasing as quantity increases, the slope of the line representing different prices and their corresponding quantities will be positive.
True
Resources are limited in both wealthy and poor societies.
True
The collection and use of data to test economic theory is called empirical economics.
True
The phrase "there's no such thing as a free lunch" is a common way of expressing the concept of efficient markets.
True
The process of analyzing the additional costs or benefits which arise from a decision is known as marginalism.
True
When graphing two variables, the point at which the graph intersects the horizontal axis is called the
X-intercept.
Health insurance should be provided to every citizen in a wealthy nation such as the US. This statement is best described as
a normative statment
To analyze the relationship between two variables while holding the values of other variables unchanged is a device known as
ceteris paribus.
Economics is best defined as the study of
choices made by people faced with scarcity.
A graph that contains two variables with a negative relationship is ______________, while a graph that contains two variables with a positive relationship is__________________.
downward sloping; upward sloping
Which field of economics deals primarily with the problems faced by low-income countries?
economic development
The four criteria that are frequently used in judging the outcome of economic policy are
efficiency equity stability economic growth
An economist wants to understand the relationship between minimum wages and the level of teen age unemployment. The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The economist concludes that 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers. The collection and use of the data on minimum wage and teenage unemployment over time is an example of
empirical economics
Rent control laws are imposed when city officials believe landlords have been exploiting tenants. Which of the following criteria are they using to guide their actions? stability growth equity efficiency
equity
I have lived in a house on the Mississippi River for many years and have never seen a flood. Therefore, there is no reason for anyone to buy flood insurance. This statement is an example of
fallacy of composition
Statistics tells us that ice cream sales increase during the summer months. It is also the case that reported burglaries increase during the same period. We can conclude, therefore that increased ice cream sales cause an increase in burglaries. The conclusion of this statment
falls victim to "post hoc, ergo propter hoc"
Consider the following statement: "Statistics tell us that ice cream sales increase during the summer months. It is also the case that reported burglaries increase during the same period. We can conclude, therefore, that increased ice cream sales cause an increase in burglaries." The conclusion of this statement:
falls victim to "post hoc, ergo propter hoc."
All of the following are examples of topics examined in macroeconomics except
household income.
The fundamental difference between microeconomics and macroeconomics is that micro analyzes the decisions made by _____________, while macro deals primarily with ________.
households and firms the economy as a whole
An efficient market is a market
in which profit opportunities are eliminated almost instantaneously
The study of economics
is a way of analyzing decision-making processes caused by scarcity.
You own the video game Grand Theft Auto V. The opportunity cost of playing this game for the second time
is the value of the alternative use of the time you spend of playing this game.
You own the Star Wars six DVD set. The opportunity cost of watching these DVDs for the second time
is the value of the alternative use of the time you spend watching the DVDs
The importance of the ceteris paribus assumption when using models is that:
it allows researcher to isolate the effect of one event on another without the influence of outside variables.
The importance of the ceteris paribus assumption when using models is that
it allows researcher to isolate the effect of one event on anther without the influence of outside variables
The field of economics that deals primarily with the factors that determine wage rates, employment, and unemployment is called:
labor economics
The field of economics that deals primarily with the factors that determine wage rates, employment, and unemployment is called:
labor economics.
indicate whether the following statement is an example of a macroeconomic concern or a microeconomic concern. The Federal Reserve announces it is increasing the discount rate in an attempt to slow the rate of inflation. This is an example of a ________ concern
macroeconomic
If information is less costly and more easily available, then usually this
makes markets more efficinet
A formal statement of theory, usually a mathematical statement of a presumed relationship between two or more variables, is called a _______. A ________ can change over time or across observations.
model variable
A formal statement of theory, usually a mathematical statement of a presumed relationship between two or more variables, is called a _____ . A _____ can change over time or across observations.
model, variable
An economist wants to understand the relationship between minimum wages and the level of teen age unemployment. The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The economist concludes that 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers. The statement, "the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers," is an example of
normative economics
An economist wants to understand the relationship between minimum wages and the level of teen age unemployment. The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The economist concludes that 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers. The statement that a !% increase in the minimum wage causes a 0.2% increase in teenage unemployment is an example of
positive economics
Better insurance benefits increase the incentive of some individuals to work. This statement is best described as a
positive statement
It always rains about an hour after you finish washing your car. Concluding that washing your car caused it to rain is an example of the
post hoc, ergo propter hoc fallacy
An efficient market is a market in which
profit opportunities are eliminated almost instantaneously.
The reason that opportunity costs arise is that
resources are scarce
Positive economics is an approach to economics that
seeks to understand behavior and the operation of systems without making judgements
An efficient economy is an economy
that produces what consumers demand and does so at the least possible cost
Opportunity cost is
the cost involved when choosing between alternatives.
Which of the following is not an opportunity cost of attending college?
the cost of the food that you consume while you are attending college
Definition of economics
the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided
If you own a building and you decide to use that building to open a book store,
there is an opportunity cost of using this building for a book store because it could have been used in other ways
Which of the following is not listed in the book as a reason to study economics?
to learn how to make lots of money
Is the relationship between the price of turkeys and the number of turkeys sold by Godfrey's Free-Range Gobblers a positive relationship or a negative relationship?
Positive, since the quantity sold increases as the price increases.
