Microeconomics Exam 1
In the consumption function C = $1000 + .3Y, C is consumption and Y is national income. How much is consumption when national income is zero?
$1000
Suppose a line shows that every time a family's income increases by $1, the family's spending increases by $0.90. If income increased by $300, the spending must have increased by
$270
Given the demand formula for frisbees P = $8.30 − 1.23Q, what is the proper interpretation of the value of $8.30?
$8.30 represents the price that would cause the quantity of frisbees demanded to fall to zero. When frisbee purchases drop to zero (i.e., Q = 0), the price that would motivate the drop in frisbee purchases would be $8.30: (P = $8.30 - 1.23(0) = $8.30).
What is the slope between points A and B?
-.50 Slope = ($5.00 - $4.00)/(1 - 3) = $1.00/-2 = -.50. A $.50 reduction in price is needed to increase hot dog consumption by 1 unit.
Given a demand formula for frisbees of P = $8.30 − 1.23Q, what is the proper interpretation of the value of −1.23?
-1.23 represents the decrease in price necessary to cause the quantity demanded of frisbees to increase by one unit.
Bobby can vacuum two rooms in ten minutes or dust two rooms in twenty minutes. Assuming that dusting is on the vertical axis, the slope of Bobby's production possibilities frontier is
-1/2.
Consider the equation of linear function y = −4 + 7x. If it were graphed, the intercept would be
-4.
Referring to the table below, what is the opportunity costs of Good B, as the production of Good B increases from 0 units to 2 units?
1 less unit of Good A
Referring to the table below, what is the opportunity cost of tea in terms of coffee?
1 pound of coffee
According to the graph, the society has to give up _______ pounds of food to build one car.
1/10
Suppose Canada produces only beer and oil. One unit of labor can produce, in a one hour period, either 100 barrels of beer or 10 barrels of oil. Examine the PPF for Canada. What is Canada's opportunity cost for one barrel of beer?
1/10 of a barrel of oil
According to the graph, the society has to give up _______ cars to produce another pound of food.
10
Suppose Canada produces only beer and oil. One unit of labor can produce, in a one hour period, either 100 barrels of beer or 10 barrels of oil. Examine the PPF for Canada. What is Canada's opportunity cost for one barrel of oil?
10 barrels of beer
Given the equation for a linear function, 20 + .67x = y, what is the value of y when x is zero?
20
Consider the equation of linear function y = −4 + 7x. If it were graphed, the slope would be
7
The slope of the line is defined by
A and C. The slope is determined by the change in y over the change in x and is used to figure the demand formula.
Which of the following examples represents a method of presenting data in terms of the relative size of vertical columns?
A bar graph The vertical format fixes the definition of "bar graph." It displays information by using columns or horizontal bars. It is often used to compare data in one time period.
The slope of a line on a graph is defined as
B and C. The slope of a line on a graph is calculated by dividing the change in the y-axis variable by the change in the x-axis variable. The common expression is "rise over run."
Which point on the graph is not attainable?
C
Which of the following resources is scarce?
Clean air Scarcity is the imbalance between what is freely available and what people want. Clean air has a cost so it is not freely available.
Economists only use three-dimensional graphs when using three variables.
False
True or false? Referring to the table below, resulting production possibilities curve is a straight line?
False
When each trading partner specializes in the production of a good for which it has a comparative advantage, each partner can gain from trade, but total production remains unchanged.
False
When the demand curve shifts, the intercept remains the same.
False A shift in a demand curve means that an outside variable has changed. The entire demand curve, including the intercept, shifts parallel to itself.
If a country's PPF shows capital goods on one axis and consumer goods on the other axis, the country's PPF will shift out faster if it spends more on consumer goods in the current time period.
False The country's PPF will shift out faster if the country invests in capital goods and foregoes current consumption. Capital goods represent an investment in future productive capacity.
The slope of a demand curve is the change in the x-axis divided by the change in the y-axis.
False The slope is the change in the y-axis divided by the change in the x-axis. It is the "rise over the run."
Which of the following is not a scarce good?
Garbage Garbage is not a scarce resource because no one wants garbage. In fact, most people pay to have it removed. Air, space, and water are commodities because, under certain circumstances, people will pay for them.
Referring to the table below, which describes the production of Good A and Good B by a small economy?
If the economy produces eight units of Good A, it can simultaneously produce only two units of Good B.
A relatively flat demand curve indicates that the demand for a product is very sensitive to a change in price.
True
An example of an isoquant is a curve that shows the combinations of longitude and latitude that have the same altitude.
True
An inward shift in the production possibilities frontier (PPF) could be the result of a decline in the general level of education.
True
In an economy, assume that labor is the only factor of production. One worker can produce either twelve pounds of food a year or six rifles. The slope of the country's PPF is −2 if rifles are on the horizontal axis.
True
Mandatory retirement at age 55 will cause an inward shift in the PPF.
True
Points on the production possibilities frontier are the only efficient production points.
True
The slope of a linear function depends on the units of measurement.
True
The slope of the production function is flatter near the bottom of the curve.
True
When a demand curve shifts, the slope of the curve remains the same.
True
When increasing opportunity costs exist, resources are not perfectly substitutable for each other.
True
The vertical intercept is defined in the demand formula as the constant number.
True The vertical intercept is the price value where no quantity is demanded and is represented as $12 in the demand formula P = $12-.50Q.
Given the equation for a linear function, a + bx = y, which term represents the intercept?
a
A shift in the production possibilities frontier curve will occur as a result of all of the following except
a change in the production of one good relative to another good.
Fitting a line with a positive slope to a scatter diagram indicates
a direct relationship of the variables
Examine the accompanying graph of a PPF for an agricultural society. The most likely cause of the shift of the PPF is
a drought in wheat-producing states.
A choice to produce more of one good and less of another results in
a movement along the PPF curve.
The total product curve
all of the above.
The production possibilities frontier illustrates the supply side of an economy because
both A and B.
Rational choice
both a and c. Rational choice requires the undertaking of costs-benefit analysis (i.e., the determination of the "best" choice) to ultimately maximize self-interest.
On a demand curve, an increase in the price of a good will
cause a decrease in the quantity demanded.
Assuming that coffee is depicted on the vertical axis and tea on the horizontal axis of the production possibilities curve, what is the formula for the production possibilities curve?
coffee = 200 − 1 (tea)
Each point on a two-dimensional graph consists of
combinations of variables that represent two pieces of information.
For country A to have a comparative advantage in the production of agricultural products means that, relative to country B, with the same resources,
country A is better at producing agricultural products than country B.
Examine the accompanying graph of a society's PPF. The most likely cause of the shift from PPF1 to PPF2 is
destruction of resources because of a war.
If one variable increases when another one increases, then we say that the two variables are
directly related.
When a production possibilities frontier shifts outward, society experiences
economic growth.
Economic scarcity
exists in all economies.
In the production possibilities frontier, points A, B, and C represent feasible outcomes for this society.
false
Bobby can vacuum two rooms in ten minutes or dust two rooms in twenty minutes. Bobby's schedule of possibilities indicates that
he can dust three rooms and vacuum six rooms in one hour.
Economics is the study of
how to manage society's scarce resources. Given the fact that all societies face limited resources, the economic problem that they face is how to manage those resources to the greatest benefit.
A good is not scarce
if everybody can have all they want of it. Scarcity means an imbalance between what people want and what is freely available. If a good is freely available it is called a "free good" and is not scarce.
If two variables, consumption (C) and income (I), are directly related we can say that
if income increases, then consumption increases. A direct relationship is one in which a change in one variable causes a change in another variable in the same direction. In this example, a change in income causes a change in consumption in the same direction. The slope of the function is positive.
The idea of opportunity costs indicates that
if the production of one good is increased, the production of another good must decrease.
If everyone made rational choices,
individuals would still differ in their choices. Individuals make different choices because they have different information and different constraints. Economists assume that individuals act rationally given their constraints and information.
A scatter plot is
information arrayed in a two-dimensional space to represent two variables for each data point. The points are not connected
Referring to the graph, if this economy moves from point A to point B,
it must give up military equipment to get more food.
A negative relationship between variables exists when
one variable increases while the other variable decreases.
The display of three variables in a two-dimensional graph are organized with
one variable on each axis and the other variable held constant as the value on the isoquant.
In a farming economy that produces barley and flax, a new fertilizer is invented. The fertilizer only works on barley. The production possibilities frontier will
only shift outward on the barley axis.
The economic term "specialization" refers to the behavior of trading partners when each partner
produces only those goods for which it has a comparative advantage
Any combination of two goods lying outside the production possibilities frontier
represents an unattainable combination of goods.
Scarcity
requires people to make choices. Scarcity means that resources are limited. Therefore, unlimited wants cannot be satisfied so people must make choices.
A decrease in a consumer's income causes his demand curve to
shift inward.
In a farming economy of wheat and rice, a warming trend occurs. This trend increases the production of both goods. However, the rice production is affected more than the wheat. The production possibilities frontier will
shift outward for both goods, but the rice axis will shift further.
A shift in the demand curve
shifts the whole demand curve inward or outward.
A steeply sloping demand curve shows
that the change in quantity demanded (x-axis) is not very sensitive to a change in price (y-axis).
The slope of a demand curve describes consumer behavior by showing
that the consumer increases his/her consumption of a good when the price goes down. The demand curve slopes downward indicating that a consumer's quantity demanded increases as price decreases and decreases as price increases. The slope illustrates the law of demand.
A rational person makes a choice if
the benefits outweigh the costs. A rational person chooses actions based on benefits being greater than costs.
Opportunity cost is defined as
the best alternative that you give up when you make a choice. Because of scarcity, opportunity cost is a means by which to evaluate alternative choices. It is the best alternative that we give up when we make choice.
If you wait in line one hour to buy a concert ticket for $30, the opportunity cost of that ticket is
the best alternative to both the $30 and the one hour. The opportunity cost of this trade is both the alternative use of the money and the time.
In this production possibilities frontier, if the consumer moves from A to B,
the consumer is choosing more leisure and less income.
An inward shift in the PPF could be caused by
the destruction of resources in a war.
Economic value is defined as
the difference between the benefits and costs of an activity. The basic definition of economic value is the difference between the benefits and costs of an activity. Accordingly, profit (the excess of business revenues over business costs) represents the concept of economic value as applied to business operations.
The slope of a downward-sloping straight line is calculated as
the distance from the vertical intercept of the line to the origin divided by the distance from the origin to the horizontal intercept of the line.
The opportunity cost of a college education is
the highest salary that you could make if you worked full-time instead of going to school. The opportunity cost of any activity is the highest valued activity that you give up when you make a choice. In the case of a college education, the highest valued activity is usually the salary you could make if you were not going to school and were working instead. Opportunity cost is always something that is given up.
Each coordinate of a graph is written as
the horizontal axis x and the vertical axis y (x, y).
Scarcity is defined as
the imbalance between what is wanted and what is freely available. By definition, scarcity is concerned with the imbalance between what is wanted and what is freely available. The mismatch between the goods and services wanted and the inputs needed to produce such goods and services is at the core of the study of economics.
The opportunity cost of attending college includes
the income you could have earned while in classes. Potential income is something that one gives up to attend college.
The production possibilities frontier is a straight line when
the opportunity cost is constant.
In weighing costs against benefits in any economic trade, the total cost can be viewed as
the opportunity cost. The total costs of any economic trade can be considered the opportunity cost.
If there is an agricultural economy in which land can be used either as pasture for cattle or as crop land for wheat, the opportunity cost of converting one acre from pasture to wheat production is the
the pounds of beef that are lost.
A graph of the demand curve measures
the relationship between the price of a product and the quantity demanded.
On an exponentially increasing curve,
the slope is not constant.
The PPF is a tool in economics to illustrate
the study of rational choice in situations of scarcity.
Alternatively, economics may be defined as
the study of the creation and distribution of economic value. Given the scarcity of resources, economics is very concerned as to whether the usage of resources is producing economic value.
Which of the following statements regarding the tangent line is false?
the tangent line cannot be used to find the slope of the TP curve at a point on the line.
The production possibilities frontier (PPF) represents
the various combinations of output that an economy can produce with its available resources and technology.
If the price of a soft drink changes from $1.00 to $2.00, then
there is a change in quantity demanded. When there is a change in the price of a good, there is a change in quantity demanded. A change in quantity demanded is shown by movement along the demand curve. There is no change in demand which is a shift in the demand curve.
Economists prefer elasticities for all of the following reasons except that
they are based on total changes in units.
Bobby can vacuum two rooms in ten minutes or dust two rooms in twenty minutes. Using his unit labor requirement, Bobby's potential for vacuuming is
twelve rooms per hour or dusting is six rooms per hour.
Bobby can vacuum two rooms in ten minutes or dust two rooms in twenty minutes. The opportunity cost of dusting one more room is
vacuuming two rooms.
Suppose a PPF has capital goods on the vertical axis and consumption goods on the horizontal axis. The PPF has a constant slope with a vertical intercept of 80 and a horizontal intercept of 160. Last year, 160 units of consumption goods were produced, so the economy produced __________ units of capital goods.
zero
