ECON F THIS
After struggling for four weeks in a calculus course he was nearly failing but did not want to drop the course. The deciding factor in his mind was that he had put in such hard work, which would be wasted if he dropped the course. If the term were just beginning, he said, he would drop the course without even picking up another to replace it. Given this, what advice should I have given if I felt he was working up to capacity?
Drop the course now.
production possibilities curve
A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good
Two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer. The likely result will be that the
demand for fiber will decrease
In general, to make optimal decisions one needs information on the
marginal benefits and marginal costs
If an economy is producing efficiently
more of one product can only be produced if less of another product is produced.
Assume the demand for 16 MB graphics cards decreases while the supply increases. Which of the following outcomes is certain to occur?
the equilibrium price of the product will fall
reservation price
the maximum price one is willing to pay for a product
Assume that the market for smart phones begins in equilibrium. Then, there is a decrease in the cost of memory used by smart phones. When the new equilibrium in the smart phone market is reached,
the price of smartphones will have fallen while the quantity of smart phones will have risen.
An increase in price will cause
the quantity supplied to increase.
Low-hanging fruit principle
simplest, easiest work with a good result
For many students, the opportunity cost of taking an 8:00 am Monday, Wednesday, and Friday class is the value of one hour's worth of
sleeping
For most consumers, ___ would be considered a normal good, while ___ would be an inferior good.
steak; Spam
normative statement
subjective and value/judgment based
A market is comprised of
suppliers and demanders
Currently, the price in the market for widgets is $4. At this price, consumers want to buy 1 million widgets/week, while sellers want to sell 2 million widgets/week. This market is experiencing excess ___, which will cause price to ___.
supply; fall
scarcity principle
having more of "this" means having less of "that"
A demand curve can shift because of changing
incomes
as the price of cookies increases, firms that produce cookies will
increase the quantity of cookies supplied
scarcity, as economists use the term
is a fact of life for the rich and the poor
complement goods
items that go together, so if the price of one increases the demand for the other will decrease.
A graph showing all the combinations of goods and services that can be produced if all resources are used efficiently is called a
production possibility curve
sunk cost
a cost that cannot be recovered
attainable point
Any combination of goods that can be produced with currently available resources
The price of a gallon of cow's milk falls. Which of the following is a possible cause?
New research showing that goat's milk is more healthy than cow's milk.
you know that the supply of tennis rackets decreased and the demand for tennis rackets increased, but you do not know the magnitude of the changes. Compared to the original equilibrium price and quantity (before the changes), what can you say for certain?
The equilibrium price of tennis rackets will increase.
cost-benefit principle
an action should only be taken if the extra benefit is at least as great as the extra cost
Which of the following statements is true?
an efficient point must be attainable
Suppose that both the equilibrium price and quantity of mustard rise. consistent explanation for these observations is
an increase in demand for mustard with no change in supply
economic naturalist
applies economic insights to everyday life
absolute advantage in production
can produce more and or higher quality products
marginal cost of an activity
change in the costs of the activity divided by the change in the level of the activity
If Jane can produce 3 pairs of shoes hourly, while Bob can produce 2, then one can infer the __________ advantage belongs to __________
comparative: either, neither, or both, not enough info
Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental fatigue) is
cost-benefit principle
if supplies increase
equilibrium will fall
if demand increases
equilibrium will rise
The principle of scarcity applies to
everyone
"As the price of personal computers continue to fall, demand increases." is inaccurate because
falling prices for personal computers increases quantity demanded, not demand.
After graduating from high school, Steve had three choices, listed in order of preference: (1) matricu- late at our campus, (2) work in a printed circuit board factory, or (3) attend a rival college. His oppor- tunity cost of going to college here includes which of the following?
he income he could have earned at the printed circuit board factory
Shelly purchases a leather purse for $400
her reservation price was at least $400
If marginal benefit is less than marginal cost, a rational choice involves
less of the activity
net benefit
marginal benefit - marginal cost
inefficient point
necessarily an attainable point
Good economic models
omit many details to allow us to see what is truly important.
demand curve illustrates that consumers
purchase more of a good as its price falls
Ann has the opportunity to purchase a new pair of shoes for $100. Her reservation price for that pair of shoes is $140. Ann will
purchase the shoes and earn $40 of economic surplus.
When a market is in equilibrium
quantity supplied equals quantity demanded and excess demand is zero.
A surplus exists when
quantity supplied exceeds quantity demanded
Another name for the marginal benefit of an activity
reservation price
marginal cost
the cost of producing one additional unit
With ATM machines it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The difference is because
the cost of providing 24 hour a day service is much lower today.
Assume that hot dogs and hamburgers are substitutes for consumers. Suppose the supply of hot dogs increases, then
the demand for hamburgers will decrease.
economic surplus
the difference between the benefit and the cost of the action
Dean decided to play golf rather than prepare for his exam in economics that is day after tomorrow
the economic surplus from playing golf exceeded the surplus from studying
Assume the demand for 7200 RPM hard disks increases while the supply decreases. Which of the following outcomes is certain to occur?
the equilibrium price of the product will rise
Forest is a mountain man living in complete isolation in Montana. He is completely self sufficient through hunting, fishing, and farming. He has not been in the city to buy anything in five years
the scarcity principle still applies because if he hunts he can't fish as much
If a campus organization provides a free lunch to all students who show up, then
the scarcity principle still applies because if they go they have to eat
The opportunity cost of any activity
the value of the next best alternative activity not chosen
A positively sloped production possibilities curve
would violate the principle of resource scarcity
One country enjoys a comparative advantage over another in producing oil when
it can produce oil at a lower opportunity cost than the other country
Which of the following is an example of a positive (as opposed to normative) statement?
If the United States bombs Syria, the Syrian government will collapse.
Mary and Joe live on neighboring islands. Assume that in one hour Joe can either collect 3 coconuts or 9 dates. In one hour Mary can either collect 2 coconuts or 8 dates. According to the principle of comparative advantage,
Joe and Mary could expand their consumption possibilities by having Joe specialize in coconuts and Mary specialize in dates and then trading with one another.
In a two-person economy, Joe can trap a maximum of 6 rabbits or catch 10 fish a week, while his father can trap 12 rabbits or catch 15 fish per week. If their family wants to consume 20 fish per week while maximizing their joint production
Joe should specialize in producing only fish, and his father should produce both fish and rabbits
Which of the following options is most valuable?
Saving $30 on a $1000 purchase
Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient, and so would not engage in foreign trade. From an economic perspective, this idea would
not make sense as long as Xenophobia had a comparative advantage in any good.
postive statement
objective and fact based that can be tested
when the price of X increases, the demand for Y decreases, one can conclude that
X and Y are complements
fixed cost
a cost that is independent of the amount of activity
what will not cause a shift in the demand curve
a decrease in the price
demand curve
a graph showing a negative relationship between price and quantity
supply curve
a graph showing a positive relationship between price and quantity
substitute goods
a substitute for something else, when the price increases for one good, the demand for the substitute will increase
