Microeconomics Exam 01 Study Guide

The "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes.

Resources are

scarce for households and scarce for economies.

Between point A and point B, price elasticity of demand is equal to

1.5

A binding price ceiling is shown in

graph (b) only.

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 that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by

between $0.50 and $1.

A shortage results when a

binding price ceiling is imposed on a market

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

buyers will make purchases from other sellers.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

The price ceiling causes quantity

demanded to exceed quantity supplied by 90 units.

Normative statements are

prescriptive

The graph shown is known as a

scatterplot

Trade can make everybody better off because it

allows people to specialize according to comparative advantage

Trade

allows specialization, which reduces costs.

A $1.39 tax levied on the buyers of elderberry juice will shift the demand curve

downward by exactly $1.39.

Efficiency means that

society is getting the most it can from its scarce resources.

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

In most societies, resources are allocated by

the combined actions of millions of households and firms.

You have driven 850 miles on a vacation and then you notice that you are only 50 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

the cost of driving the next 50 miles, but not the cost of driving the first 850 miles.

The shift from Db to Da in the market for tortilla chips could be caused by

a decrease in income, assuming that tortilla chips are a normal good

The movement from point A to point B on the graph is caused by

a decrease in price.

A circular-flow diagram is a model that

helps to explain how the economy is organized.

If Tanek and Barb both spend all of their time producing burritos, then total production is

0 tacos and 500 burritos.

[Assume that Cuba and Denmark can switch between producing coolers and producing radios at a constant rate.] Cuba's opportunity cost of one cooler is

0.5 radios, and Denmark's opportunity cost of one cooler is 0.125 radios.

[Assume that Cuba and Denmark can switch between producing coolers and producing radios at a constant rate.] At which of the following prices would both Cuba and Denmark gain from trade with each other?

1 radio for 4 coolers

If the production possibilities frontier is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced?

2,400

Using the midpoint method, if the price falls from $160 to $120, the absolute value of the price elasticity of demand is

2.33

Tanek's opportunity cost of one burrito is

4/3 tacos and Barb's opportunity cost of one burrito is 2 tacos.

What is the opportunity cost of increasing the production of rye from 700 bushels to 1200 bushels?

500 bushels of corn

Suppose a tax of $98 per unit is imposed on this market. Which of the following is correct?

Buyers will bear more of the burden of the tax than sellers will.

How are economists not like mathematicians, physicists, and biologists?

Economists typically pay closer attention to natural experiments through history than lab experiments.

Which of the following is true?

Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.

A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

The effect of changes in the money supply on the inflation rate

Taking cause and effect into account, which of the following interpretations would be most reasonable regarding the relationship between coffee and hours without sleep?

The more coffee a person drinks per day, the more time he can go without sleep.

The shift from Da to Db is called

an increase in demand

The movement from point A to point B on the graph shows

an increase in quantity demanded.

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba.

Soup is an inferior good if the demand

for soup falls when income rises.

Two goods are complements when a decrease in the price of one good

increases the demand for the other good.

Rent-control laws dictate

only a maximum rent that landlords may charge tenants

Minimum-wage laws dictate

only a minimum wage that firms may pay workers.

A monopoly is a market with one

seller, and that seller sets the price.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

A production possibilities frontier is bowed outward when

the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

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.