ECON Exam 1 (10/7/2021)

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the benefit of something must be related to the price

FALSE

Damon's wage falls. The substitution effect would cause him to _____ his work hours, and the income effect would cause him to _____ his work hours.

decrease; increase

Why does an employer's labor demand curve slope downward?

diminishing marginal product

How do economists measure utility?

do not measure utility. It is a hypothetical measure used for modeling behavior

the labor demand curve has a BLANK slope

downward

higher prices lead to less total revenue if demand is

elastic

higher prices lead to less total revenue if the demand is

elastic

the CBP says before you make any decision, you should

evaluate the full set of costs/benefits associated with that choice

convert costs and benefits by

evaluating your willingness to pay

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time

inelastic supply

exists when a change in a good's price has little impact on the quantity supplied

Marginal utility is the

extra satisfaction received from consuming one more unit of a product

elasticity of labor demand

indicates how responsive the quantity of labor demanded is to changes in the wage

Over long periods, the price elasticity of demand for labor becomes

more elastic

changes in price causes BLANK along the demand curve, yielding a WHAT?

movement; change in the quantity supplied

in general, the slop of the demand curve is

negative

the cross price elasticity of a complement will be

negative

when demand is elastic, changes in price and revenue move in the BLANK direction

opposite

The marginal product of labor is how much an additional unit of labor affects

output

the law of supply states

producers are willing to offer more units for sale when the price at which they can sell their product increases

an inelastic graph will be

steep

your economic surplus is BLANK and it also BLANK

the difference between the benefits you enjoy and the costs you incur; measures how much your decision has improved your wellbeing.

Marginal Revenue Product

the extra revenue an extra worker generates

Marginal Revenue Product

the extra revenue created from one additional input (ie the extra money made from one extra worker)

what is the opportunity cost principle?

the true cost of something is the next best thing you must give up to get it

The value of the marginal product of labor is the marginal product of labor multiplied by

value of the marginal product equals the wage

a perfectly inelastic graph will be

vertical

employers should keep hiring workers until

wage equals the marginal revenue product

when the price elasticity is greater than 1, it is

elastic

Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

What do economists mean when they say behavior is "rational"?

Individuals making choices which help them reach their goals

How is the economic surplus generated by a decision calculated?

It is the total benefits minus total costs arising from the decision.

people respond to

incentives

When the price elasticity of demand is less than one it is

inelastic

higher prices lead to more total revenue if demand is

inelastic

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependency principle

Carolyn Bates is a junior in college studying economics. She has created a new software application that applies the four principles of economic decision making to any potential decision that a user faces. She is considering leaving school after this academic year to pursue further development of her app. Carolyn should ignore all of the following costs when calculating the opportunity costs of leaving college EXCEPT the

skills she may gain from her final year of economics courses

producer surplus

the difference between the lowest a business is willing to accept for their quantity and the market price

Scarcity Principle

the economic problem of having limited resources to satisfy unlimited wants

The Rational Rule for Employers says to hire more workers if

the marginal revenue product is greater than or equal to the wage

principle 2 of the 4 core principles; the opportunity cost principle

before making a choice, we consider alternatives

what is the best definition of economics?

Economics studies how to make the best choice when coping with scarcity

Economists use the phrase "revealed preference" to mean

What you actually do when faced with a choice.

what is the elasticity of demand for labor?

a measure of how responsive a firms supply of labor is in response to a change in the wage rate

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal

benefit of watching another episode is equal to the marginal cost

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction

both

The slope of demand curve formula

change in price/ change in quantity (USE Y2-Y1)

What impacts the demand for labor?

changes in demand for output good, price of capital, productivity, non-wage benefits, taxes and subsidies

Which of the following will NOT shift a company's demand curve for labor?

changes in wages to paid workers

When faced with a quantity decision, the economic surplus stops increasing when

marginal benefits equal marginal costs

Carlo implemented some management changes that increased worker productivity in his company. This increased the _____ and led him to _____ workers.

marginal revenue product of labor; hire more

When an increase in demand for stand-up paddleboards rises, then the demand for skilled paddleboard shapers _____, and their marginal revenue product _____

rises, rises

diminishing marginal product leads to

rising marginal costs for a seller.

when demand is inelastic, changes in price and revenue move in the BLANK direction

same

opportunity cost is a reflection of

scarcity

Economic surplus is maximized when

the marginal benefit of consumption is equal to the marginal costs

in the labor market, wage is

the price of labor

True Opportunity Cost is

the value of the benefits of the next best alternative

Diamond-Water Paradox

the water has a higher total benefit but the diamond has a higher marginal cost

When people make rational choices, they

weight the costs and benefits of their options and act to satisfy their wants

the interdependence principle leads you to ask

what else?

2 questions to ask when determining opportunity cost

what happens if I pursue my choice and what happens under my next best alternative

what is the counterfactural?

what would have happened in another scenario?

Elastic Supply

when a small change in price causes a major change in demand

elastic demand

when consumer demand is very sensitive to price

employers engaging in taste-based discrimination are ____ profits and employers engaging in statistical discrimination are ____ profits

willing to forego profits; trying to enhance

the cross price elasticity formula

(% change in quantity demand for good X) / (% change price Y)

Complements-in-production

allows a business to produce goods together.

A rise in the price of a substitute in production for a good leads to

a decrease in the supply of that good

specific brands tend to have MORE/LESS elasticity than categories

more

the cross price elasticity of a substitute will be

positive

individual human decisions are

the foundation of economic forces

when the substitution effect dominates, the labor supply curve slopes

upward

What is statistical discrimination?

using information about group averages to make conclusions about individuals

Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the

money spent on the groceries he used to cook dinner

when the income effect dominates, leisure is

more attractive

Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of the concert ticket that he purchased yesterday is ____ in his opportunity cost and represents a _____ cost

not included; sunk

to always follow the cost benefit principle

only chose to trade if the benefits are at least as large as the cost

when labor supply decreases,

there will be higher wages and fewer hours of employment

when labor demand decreases,

there will be lower wages and less hours of employment

how do you calculate opportunity cost

cost of your choice MINUS the cost of the next best alternative

Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime?

$18

economics is the study of

choices and decisions under scarcity

a perfectly elastic graph will be

horizontal

the labor supply curve has a BLANK slope

upward

The cost of your favorite coffee is $6.50 per cup at the coffee shop. The marginal cost of each cup you drink is _____. The first cup of coffee you drink gives you a marginal benefit of $8. The marginal benefit from the second cup is $6, $4 from the third, $2 from the fourth, and $0 from the fifth. You should drink _____ cups of coffee

$6.50; one

The price of coffee at a local coffee shop is $2.50. Cheryl is willing to pay $8 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase? Three

3

What is the difference between a change in quantity demanded and a change in demand?

A change in quantity demanded can be measured by moving along the demand curve while a change in quantity demanded can be represented by a shift in the demand curve.

If the price of jet fuel rises, the A)supply of jet fuel decreases. B)supply of airline flights decreases. C)supply of jet fuel increases. D)quantity supplied of jet fuel falls.

B

Which of the following is the best definition of the opportunity cost of a decision?

Benefits from the best foregone alternative.

Which of the statements is NOT a reason why economists still consider their models valid, in spite of the irrationality of people? A)People typically behave rationally in general B)Despite the flaws, the models are still fairly accurate at predicting behavior C)Models are made to simplify understanding, and irrational behavior is more difficult to generalize D)The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law.

D)The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law.

Decisions should reflect the _____ costs, rather than just the _____ costs

Decisions should reflect the _____ costs, rather than just the _____ costs

In economics, what is meant by "optimal decisions are made at the margin?"

The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.

Economists use money equivalents to compare costs and benefits because money is

a common measuring stick

what are sunk costs

a cost that has already been incurred and cannot be recovered

Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making

a rational decision if her marginal benefit from the movie is greater than her marginal cost.

The cost-benefit principle will lead you to make unselfish decisions if you

account for unselfish motivations

what is the or what trick

adding OR in the middle, example "should i get my masters OR keep working

following the cost benefit principle will

allow your choices to increase your economic surplus

inelastic demand

an increase or decrease in price will not signficantly effect consumer demand

principle 4 of the 4 core principles; the interdependence principle

are we attuned to understanding how different decisions depend on each other

principle 3 of the 4 core principles; marginal principle

asking "a bit more or a bit less" of something would be an improvement

Why might the labor supply curve be backward-bending?

at low wages, the substitution effect dominates, but at high wages the income effect dominates

The key to using the cost-benefit principle is to think about _____ aspects of a decision

both financial/nonfinancial

what are some examples of economic discrimination?

boycotting a specific product or giving someone a different wage due to their gender, sexuality, race or ethnicity

Rational Rule for Buyers

buy more of an item if its marginal benefit is greater than (or equal to) the price

What causes the labor supply curve to shift?

changing wages in other occupations, changing number of potential workers, changing benefits of not working, and nonwage benefits, taxes and subsidies

principle 1 of the 4 core principles; the cost benefit principle

considering cost and benefits of a choice

what are two reasons college graduates earn more?

education acts as a signal to employers and increases worker productivity

opportunity costs include all possible alternatives T/F

false, only the next best alternative

Harry Watson is an engineering student taking an economics elective in his senior year. He has the option to work as a petroleum engineer or to design rollercoasters after college. He uses concepts learned from his economics course to help with this decision. When he considers the increasing popularity of electronic vehicles and a decrease in demand for petroleum in the future, he is acknowledging the dependencies that exist

over time

The interdependence principle states that your best choice today depends on all of the following EXCEPT

past decisions you have made

Because Farmer Mauricio will only sell his goats for one price, his supply is

perfectly elastic

the framing effect

small differences in how alternatives are described, ex a shirt on sale, an overpriced lobster

Dependencies between various people's choices reflect the fact that

society has limited resources

The marginal cost of an additional worker is

the additional cost of hiring one more worker.

Which graph shows the scenario where the income effect dominates labor supply decisions only at high wages?

the backward-bending curve

the CBP says to only pursue that choice if

the benefits are at least as large as the cost

An opportunity cost is

the benefits of the highest-valued alternative forgone

choosing to buy a friend a cup of coffee because you enjoy the way it makes you feel is an example of

the cost benefit principle

_____ is estimated by asking: "What is the _____ I am willing to pay to get this benefit (or avoid that cost)?"

willingness to pay; most

perfectly elastic supply means

you will supply any given amount at one price

Taking the absolute value of the cross-price elasticity of demand is incorrect because it would

remove the ability to tell whether the two products are substitutes or complements

If the price of Product E decreasing by 2%2% causes its quantity demanded to increase by 14%14% and the quantity demanded for Product F to increase by 17%17%, what is the cross-price elasticity of demand?

-8.5 making it a complement

Which of the following lists only factors that would cause an increase in the supply of an item

A decrease in input prices; a technological innovation; a fall in the price of a substitute-in-production

The cost-benefit principle states that the full set of _____ should be evaluated when making any choice

costs and benefits

getting married at 16 when there is a high chance you will meet a better match. therefore getting married at 16 has a BLANK opportunity cost

high

you're a great singer who has a chanced to be signed for 5 million. going to college now has a BLANK opportunity cost

higher

The law of demand states that

higher prices lead to smaller quantity demanded

the marginal principle is useful when deciding

how many

the income effect measures

how people's choices change when they have more income

when economists use the term "correlation" they are referring to

how to variables move together in a predictable way

following the marginal cost principle means

if the marginal benefits are greater than the marginal cost, do it

The current administration imposes an unannounced tariff on steel imports which causes the price of new cars to increase overnight. Will this shift the demand curve for new cars left, right, or just cause a movement?

it will move upwards along the curve. no shift

there is an economic succession and jobs are down and there is little to do. thus seeing a movie during this time has a BLANK opportunity cost

low

Economists assume that people's goals are to

make themselves as well off as possible

demand gets MORE/LESS elastic over time

more

scarcity results from the fact that

people's wants exceed the resources available to satisfy them.

Economic models do all of the following except

portray reality in all its minute details.

The opportunity costs of attending college include the

potential income that could be earned working

Taking the absolute value of the income elasticity of demand is incorrect because it would:

remove the ability to tell if a product is an inferior or normal good

The supply curve shows

the quantity a seller is willing to supply at each price and their marginal costs

Utility is the measure of

the satisfaction a good or service gives to the consumer

the opportunity cost principle reminds you to

think about alternative uses of your time/money

everything you do requires you to give up something

tradeoffs

the opportunity cost principle forces you to focus on

tradeoffs

both buyers and sellers benefit from voluntary exchange, T/F

true

when the price elasticity is exactly 1

unit elastic


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