Principles of Microeconomics (ECO 2023) Chapter 1

model

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue. Answers: trade-off model market variable

firms produce goods and services at the lowest cost

Productive efficiency is achieved when Answers: firms add a low profit margin to the goods and services they produce. firms produce the goods and services that consumers value most. there are no shortages or surpluses in the market. firms produce goods and services at the lowest cost.

The price of gasoline is too high

Which of the following is a normative economic statement? Answers: The current high price of gasoline is the result of strong worldwide demand. The price of gasoline is too high. When the price of gasoline rises, the quantity of gasoline purchased falls. When the price of gasoline rises, transportation costs rise.

that consumers value most.

Allocative efficiency is achieved when firms produce goods and services Answers: at a marginal cost of zero. that consumers value most. at the lowest possible cost. at the lowest opportunity cost.

at least $125,000

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision? Answers: zero, since she will no longer be earning a salary It depends on the "going rate" for home-care providers. at least $125,000 the value she attributes to the satisfaction she receives from taking care of her parents

3,640

At a recent faculty meeting, Lorraine Waverly, president of Skywalker College, announced that enrollment is up by 12 percent over the previous semester. If enrollment the previous semester was 3,250 students, what is the student enrollment this semester? Answers: 390 2,860 3,640 4,030

30 percent

If the price of milk was $2.50 a gallon and it is now $3.25 a gallon, what is the percentage change in price? Answers: 13 percent 30 percent 75 percent 77 percent

scarcity.

In economics, choices must be made because we live in a world of Answers: greed. scarcity. unlimited resources. unemployment.

marginal

In economics, the term ________ means "additional" or "extra." Answers: equity marginal optimal allocative

allocative efficiency

Voluntary exchange between buyers and sellers generates ________ in a market economy. Answers: scarcity allocative efficiency productive efficiency equity

If the price of iPhones falls, a larger quantity of iPhones will be purchased.

Which of the following is a positive economic statement? Answers: The government should revamp the health care system. The U.S. government should not have bailed out U.S. auto manufacturers. The standard of living in the United States should be higher. If the price of iPhones falls, a larger quantity of iPhones will be purchased.

even though people may not behave rationally all the time.

Economists assume that rational behavior is useful in explaining choices people make Answers: even though people may not behave rationally all the time. because individuals act rationally all the time in all circumstances. even though people rarely, if ever, behave in a rational manner. because irrational people do not make economic choices.

the economy as a whole.

Macroeconomics is the study of Answers: how firms make choices. how households make choices. how households and firms make choices. the economy as a whole.

how households and firms make choices.

Microeconomics is the study of Answers: the economy as a whole. the global economy. how households and firms make choices. topics such as unemployment, inflation, and economic growth.

marginal revenue

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes? Answers: gross earnings marginal revenue net benefit marginal costs pure profit

the choices people make to attain their goals, given their scarce resources.

By definition, economics is the study of Answers: the choices people make to attain their goals, given their scarce resources. how to make money in the stock market. supply and demand. how to make money in a market economy.

rationally

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits. Answers: emotionally selfishly rationally equitably

are rational and respond to incentives.

Economists assume that individuals Answers: behave in unpredictable ways. prefer to live in a society that values fairness above all else. will never take actions to help others. are rational and respond to incentives.

marginal benefit equals the marginal cost.

Economists reason that the optimal decision is to continue any activity up to the point where the Answers: marginal cost is zero. marginal benefit is greater than the marginal cost. marginal benefit is zero. marginal benefit equals the marginal cost.

negative seven tenths

If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10, the slope of this line is Answers: seven tenths 6 divided by 11 negative seven tenths negative 11 divided by 6

5 hours

Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. Table 1-1 Hours Open Total Revenue (dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Refer to Table 1-1. Using marginal analysis, how many hours should Lydia extend her nail salon's hours of operations? Answers: 2 hours 3 hours 4 hours 5 hours 6 hours

$25

Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. Table 1-1 Hours Open Total Revenue (dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Refer to Table 1-1. What is Lydia's marginal benefit if she decides to stay open for two hours instead of one hour? Answers: $25 $50 $75 $125

weighing the costs and benefits of a decision before deciding if it should be pursued.

Making optimal decisions "at the margin" requires Answers: making decisions according to one's whims and fancies. weighing the costs and benefits of a decision before deciding if it should be pursued. making borderline decisions. making consistently irrational decisions.

until its marginal benefits equal marginal costs.

Marginal analysis involves undertaking an activity Answers: only if its marginal costs are greater than its marginal benefits. until its marginal costs start declining. only when its marginal benefits are positive. until its marginal benefits equal marginal costs.

competition and voluntary exchange

Markets promote Answers: equity and competition. equity and equality. competition and voluntary exchange. voluntary exchange and equality.

people respond to economic incentives

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers would be exemplifying the economic idea that Answers: people are rational. people respond to economic incentives. optimal decisions are made at the margin. equity is more important than efficiency.

$10

Table 1-1 Hours Open Total Revenue (dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. Refer to Table 1-1. What is Lydia's marginal cost if she decides to stay open for two hours instead of one hour? Answers: $10 $20 $25 $40

marginal cost.

The extra cost associated with undertaking an activity is called Answers: marginal cost. foregone cost. opportunity cost. net loss.

opportunity cost.

The highest valued alternative that must be given up to engage in an activity is the definition of Answers: marginal benefit. opportunity cost. marginal cost. economic equity.

trade-off.

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of Answers: equity. efficiency. optimization. trade-off.

an additional unit

The revenue received from the sale of ________ of a product is a marginal benefit to the firm. Answers: the total number of units no units an additional unit only profitable units

market

The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade. Answers: cooperative market trade-off collective

Scarcity refers to the situation in which unlimited wants exceed limited resources.

Which of the following statements is true about scarcity? Answers: Scarcity arises when there is a wide disparity in income distribution. Scarcity is not a problem for the wealthy. Scarcity refers to the situation in which unlimited wants exceed limited resources. Scarcity is only a problem when a country has too large a population.

Two-dimensional graphs

________ have a horizontal and a vertical axis and are used in economics to illustrate relationships between two economic variables. Answers: One-dimensional graphs Bar graphs Two-dimensional graphs Pie Charts