Microeconomics Exam 1

If marginal cost exceeds marginal benefit then you should produce:

More

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off

Mutually Agreeable

A public good is:

Nonrival and nonexcludable

The next-best thing that must be forgone in order to produce one more unit of a given product:

Opportunity Cost

When negative externalities exist in a market

equilibrium output will be greater than the efficient output.

If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?

Fewer

Making choices based on comparing marginal benefits with marginal costs

Marginal Analysis

An institution that brings buyers and sellers together

Market

Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:

4 Pens

Statement that is consistent with the law of demand

A reduction in market price will lead to an increase in quantity demanded

What is a positive economic statement

A statement of facts

What is a normative economic statement

A statement of opinion "ought to"

How do you derive a market supply curve from individual supply curves

Add up all quantities supplied by all individual producers for each price

How is a market demand curve derived from individual demand curves?

Add up quantities demanded for all individual consumers at each price

Statement consistent with the law of supply

An increase in market price will lead to an increase in quantity supplied

Economists say competitive markets are efficient because

By producing up to the point where marginal benefit=marginal cost, the maximum potential consumer surplus and producer surplus are generated

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit

Competition

Characteristics of a downward sloping demand curve

Diminishing marginal utility and an increase in purchasing power as market price decreases

The relationship between quantity supplied and price is _____, and the relationship between quantity demanded and price is _____.

Direct; Inverse

The marginal benefit curve is _____________ sloping

Downward

The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity

Economics

The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate

Freedom Of Choice

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice

Freedom of Enterprise

Suppose a city block was going to be used for a parking lot in both New York City and a small town. The opportunity cost would be

Greater in New York because the alternative uses of the block are more valuable

The determinants of demand

Income, prices of related goods, tastes and preferences, and the number of consumers

Which characteristics leads to an upward sloping supply curve

Increasing opportunity costs and increasing marginal costs

If marginal cost exceeds marginal benefit then you should produce:

Less

A price ceiling will result in a shortage only if the ceiling price is ___________________ the equilibrium price.

Less Than

For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm's shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock shares ever change?

Prices change in reaction to the mismatch between quantity demanded and quantity supplied

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property

Private Property

Characteristic of a market system

Private ownership of property resources

Statement regarding equilibrium

Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces total surplus.

The government could correct the difference between the equilibrium output level and the efficient output level by

Regulations that force firms to internalize external costs

What each individual or firm believes is best for itself and seeks to obtain

Self Interest

Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length?

Shape

If the equilibrium price in a market is $15, and there is a price ceiling imposed at $10, what will be the resulting market condition?

Shortage

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be a ________ of memory chips.

Surplus

Determinants of Supply

Technology, resource prices, number of producers

If marginal cost equal marginal benefit then you should produce

The same amount

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

The substitution effect

The phrase "invisible hand" means that

The tendency of competition between individuals and firms that cause them to unintentionally promote the interests of society

Who will get the goods and services

Those who are willing and able to pay for them

Is the U.S. border patrol a public or private good? How about satellite TV?

U.S. border patrol is a public good, and satellite tv is a private good

The Marginal Cost curve is __________________________ sloping

Upward

The pleasure, happiness, or satisfaction obtained from consuming a good or service

Utility

Laissez-faire capitalism is characterized by

Very limited government role in the economy

In a market system, the allocation of scarce goods involves the consideration of

What must be sacrificed in using a resource for its next best use

An example of an external benefit is

safety provided by motion-detector lights

Supply side market failures occur when

supply curves don't reflect the full cost of producing a good or service

Public goods are not privately provided because

when goods are nonexcludable, those people purchasing the good could simply allow others the use without requiring compensation.