Unit 1 Microeconomics

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than _____ will exert pressure for the price to _____.

$2.50; rise

(Table: Production Possibilities Schedule II) Look at the table Production Possibilities Schedule II. If the economy is producing at alternative X, the opportunity cost of producing at Y instead of X is _____ units of consumer goods per period.

6

(Table: Supply of Lemonade) Look at the table Supply of Lemonade. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be:

90 cups.

(Figure: Supply of Coconuts) Look at the figure Supply of Coconuts. If the price of coconuts decreased, it would be represented in the figure as a movement from:

A to B.

(Figure: Supply of Coconuts) Look at the figure Supply of Coconuts. An improvement in the technology used to harvest coconuts (e.g., a faster, less expensive coconut picker) would be represented in the figure as a movement from:

A to C.

(Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities. Which point or points represent(s) a feasible combination of coconuts and fish?

A, B, and C

When the economy turns down and the incomes of many people decrease, vacationers are more likely to take car trips than to fly. Which of the following provides one possible explanation for this phenomenon?

Air travel is a normal good and travel by car is an inferior good.

(Figure: Supply of Coconuts) Look at the figure Supply of Coconuts. If the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport coconuts increased, it would be represented in the figure as a movement from:

C to A.

Which of the following illustrates the law of demand?

Consumers buy more personal computers because prices have fallen.

In a single day, George can bake 10 cakes and Greta can bake 5 cakes. We know that _____ has a(n) _____ advantage in baking cakes.

George; absolute

For which of the following decisions would marginal analysis be most relevant?

Should I eat another doughnut?

Which of the following is a normative statement?

The best way to encourage growth in the economy is through government spending.

Consider the market for corn. What happens if there is an increased demand for corn tortillas and at the same time a new corn seed becomes available that dramatically increases the yield per acre?

The change in price is indeterminate; quantity increases.

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

The price will decrease, but quantity may increase, decrease, or stay the same.

(Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities. The opportunity cost for Tom to move from point C on the curve to point A is:

There is no opportunity cost.

When a factory closes, why does it spell bad news for the local restaurants?

Unemployed factory workers have lower incomes and are less likely to dine out.

The primary difference between a change in supply and a change in the quantity supplied is that:

a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve.

Which of the following factors would result solely in a movement along the demand curve for a particular good?

a change in the price of that good

In the market for tacos, each of the following shifts the supply curve to the left EXCEPT:

a decrease in the price of tacos.

A decrease in supply means:

a shift to the left of the entire supply curve.

Because Casey can type reports faster and more accurately than Ahmet, Casey has a(n) _____ in typing reports.

absolute advantage

The trade-off between equity and efficiency occurs because:

allocating resources fairly may cause inefficiency.

In much of the country, homeowners choose to heat their houses with either natural gas or heating oil. Which of the following would cause an increase in the demand for natural gas?

an increase in consumer incomes

Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would expect to see:

an increase in demand for new potatoes.

An economy is said to have a comparative advantage in the production of a good if it can produce that good:

at a lower opportunity cost than another economy.

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the equilibrium after a change in supply from S1 to S2:

at the old price of $2.50, there will be pressure for the price to fall.

The production possibility frontier will shift outward because of:

better technology that improves worker productivity.

(Figure: Guns and Butter) Look at the figure Guns and Butter. This production possibility frontier is:

bowed out because of increasing opportunity costs.

(Figure: Guns and Butter) Look at the figure Guns and Butter. The combination of guns and butter at point H:

cannot be attained, given the level of technology and the factors of production available.

Thinking in economic terms, when Mary Sweet-Tooth is deciding whether to eat another brownie, she:

compares all of the benefits and costs of eating another brownie.

If the demand for tires goes down when the price of gas goes up, then tires and gas are:

complements.

In the local market for coffee, a normal good, the price will _____ and the quantity will _____ if new coffee shops open and consumers' incomes decrease because of a recession.

decrease; be indeterminate

The simplest circular-flow model shows the interaction between households and firms. In this model:

firms supply goods and services to households, which in turn supply factors of production to firms.

When markets fail:

government intervention may help.

An economy is said to have a comparative advantage in the production of one good if it:

has the lowest opportunity cost of producing a particular good.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

If the opportunity cost of manufacturing machinery is lower in the United States than in Britain and the opportunity cost of manufacturing sweaters is higher in the United States than in Britain, then the United States will

import sweaters from Britain and export machinery to Britain.

The phrase gains from trade refers to the:

increase in total output that is realized when individuals specialize in particular tasks and trade with each other.

Over the past few years, the technology associated with producing flat-panel televisions has improved. This has led to a(n) _____ in the _____ flat-panel televisions.

increase; supply of

Which of the following methods of discouraging speeding is likely to be MOST effective because people usually exploit opportunities to make themselves better off?

increasing the fine associated with speeding tickets

(Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A, B, E, and F:

indicate combinations of guns and butter that society can produce using all of its factors efficiently.

Market failure occurs when:

individual actions have side effects that are not properly taken into account

All points outside the production possibility frontier are:

infeasible

Consider a production possibility frontier for Iraq. If in 2014 Iraq's resources are not being fully utilized, Iraq will be somewhere _____ of its production possibility frontier.

inside

If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price:

is above the market equilibrium price.

(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods. Point Z:

is unattainable, all other things unchanged.

If every individual were required to be self-sufficient:

living standards would fall.

After eating three slices of pizza, you decide to eat one more piece. Your decision is an example of the economic principle called:

marginal decision making.

(Figure: Guns and Butter) Look at the figure Guns and Butter. If the economy is operating at point B, producing 16 guns and 12 pounds of butter per period, a decision to move to point E and produce 18 pounds of butter:

necessitates a loss of eight guns per period.

Equilibrium exists when:

no individual has an incentive to change his or her behavior.

Economists usually assume that production is subject to increasing opportunity costs because:

not all resources are equally suited to producing every good.

Buying vegetables at a farmers' market benefits the community because:

one person's local spending will increase another local person's income.

Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, "Our cost of housing is now zero." Zoe should explain to them the economic principle of:

opportunity cost: by living in the house, they are giving up the opportunity to sell the house, buy a smaller one, and pocket the difference.

The typical supply curve illustrates that:

other things equal, the quantity supplied for a good is positively related to the price of a good.

(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply. The graph shows how supply and demand might shift in response to specific events. Suppose a new machine allows restaurants and fast-food outlets to produce french fries at a lower cost. Which panel BEST describes how this will affect the market for french fries?

panel A

(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's orange crop. Which panel BEST describes how this will affect the market for vitamin C tablets, which are a substitute in consumption for oranges?

panel C

(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel BEST describes how this will affect the market for used furniture, an inferior good?

panel D

The _____ apples will decrease when apple prices rise.

quantity demanded of

(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines. As the economy moves from point A toward point D, it will find that the opportunity cost of each additional submarine:

rises.

When individuals act in their own self-interest:

society may be worse off in some cases.

Gains from trade arise because of:

specialization in production.

(Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply of Wheat. If a price of $8 temporarily exists in this market, a _____ of _____ bushels will result.

surplus; 4,000

(Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply of Wheat. If a price of $10 temporarily exists in this market, a _____ of _____ bushels will result.

surplus; 8,000

Economists generally believe that a country should specialize in the production of a good or service if:

the country can produce the product while forgoing fewer alternative products than any other country.

A shift of the demand curve for thin-crust pizza would NOT be caused by a change in:

the price of thin-crust pizza.

Scarcity in economics means that:

we do not have sufficient resources to produce all of the goods and services we want.

The opportunity cost of something is:

what is given up to acquire it.

A new fast-food restaurant offered a free meal (valued at $5) a week for a year to its first 100 customers. Ramona camped out for 48 hours before the opening to be one of the first 100 customers. The cost of the free meal a week for a year for Ramona was:

whatever else she would have done with the 48 hours.

Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:

whatever she would have purchased with the $10,000 plus whatever she would have earned had she not been in college.

The best measure of the opportunity cost of any choice is:

whatever you have given up to make that choice, even if no monetary costs are involved.