Micreco Exam 1 WS 1
Which of the following is a positive economic statement?
Scarcity necessitates that people make trade-offs
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What is his marginal benefit if he sells the machine "as is" now?
$1,000
Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What is the marginal cost of completing the task?
$1,100
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?
$20
Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is the marginal cost of moving up from the 1-color application to the 3-color application?
$40
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package?
$75
Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is Allison's marginal benefit if she sells a basic 1-color job?
$95
The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?
2 1/2 Russian tea cakes
The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a Russian tea cake?
2/5 of a cappuccino
In economics, choices must be made because we live in a world of
Scarcity
Damian shares a small food truck with his sister. His share of the expenses is $500 per month. He has decided to get his own, newer food truck which he will not have to share with anyone. His expenses for the newer truck are $1,400 per month. Damian is as rational as any other person. As an economics major, you rightly conclude that
Damian figures that the additional benefit of having his own truck (as opposed to sharing) is at least $900.
Which of the following is an example of a "how much" decision?
Dinah's Diner is only open for breakfast and lunch. Dinah is trying to decide whether to open for dinner as well
Which of the following statements is true?
Every individual, no matter how rich or poor, is faced with situations that require trade-offs
Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?
Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others
Since 1994, obesity rates in the United States
Have increased in all 50 states
Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do?
He should sell the machine now to make the most profit
How are the fundamental economic questions answered in a market economy?
Households and firms interact in markets to decide the answers to these questions
Which of the following is a normative economic statement?
Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.
Which of the following is a positive economic statement?
If the price of iPhones falls, a larger quantity of iPhones will be purchased.
The basic economic problem of ________ has always existed and will continue to exist
Scarcity
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?
No, his marginal benefit is less than his marginal cost (doesnt make sense)
Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?
Only individuals face scarcity; firms and the government do not
One reason some manufacturing companies have moved production from overseas locations back to the United States is rising foreign labor costs. Assuming that managers at these companies used all available information, including the rising cost of foreign labor, when making the decision to move production back to the United States exemplifies which key economic idea?
People are rational
Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?
People respond to economic incentives
One reason some manufacturing companies have moved production from overseas locations back to the United States is an increasing preference by U.S. consumers for products made in the United States. If buyers have increased their preference for domestically produced goods and manufacturers believe they can increase revenues by supplying more of these goods, firms are following which key economic idea when they return production to the United States?
People respond to economic incentives
________ is a situation in which a good or service is produced at the lowest possible cost
Productive efficiency
Which of the following is a positive economic statement?
Raising the tax on gasoline raises the selling price of gasoline.
Which of the following statements about scarcity is true?
Scarcity refers to the situation in which unlimited wants exceed limited resources
Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics student, you rightly conclude that
Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250.
How are the fundamental economic decisions determined in North Korea?
The government decides because North Korea is a centrally planned economy.
Which of the following is a normative economic statement?
The price of gasoline is too high
The three fundamental questions that any economy must address are:
What goods and services to produce; how will these goods and services be produced; and who receives them?
Which of the following is a problem inherent in centrally planned economies?
There is too little production of low-cost, high-quality goods and services
Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks, and compact cars. What fundamental economic question are they addressing by making this range of products?
What to produce?
The distribution of income primarily determines which of the fundamental economic questions?
Who will receive the goods and services produced?
Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. Should Allison continue to offer the 3-color pinstripe application?
Yes, she still makes a profit by selling the 3-color application
Consider the following statements: a. Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower price than other rival electronics stores in the area. b. Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards. c. Citrus growers produce more oranges when the selling price of oranges falls.
a and b
Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises.
a, b, and c
The revenue received from the sale of ________ of a product is a marginal benefit to the firm
an additional unit
Economists assume that individuals
are rational and respond to incentives
The prime minister of the tiny island nation of Wowza has proposed that the speed limit on its only highway be reduced by 10 miles per hour on Thursdays. Enacting this proposal would be optimal
as long as the marginal benefit of reducing the speed limit is just equal to or greater than the marginal cost of reducing the speed limit.
Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?
at least $125,000
The decision about what goods and services will be produced in a market economy is made by
consumers and firms choosing which goods and services to buy or produce
Making "how much" decisions involves
determining the additional benefits and the additional costs of that activity
Economists assume that rational behavior is useful in explaining choices people make
even though people may not behave rationally all the time
Where do economic agents such as individuals, firms, and nations interact with each other?
in any arena that brings together buyers and sellers
Billie's Billiard Barn has seen its business slow down ever since Patti's Ping Pong Parlour opened up across the street. Since the opening of Patti's Ping Pong Parlour, the opportunity cost of shooting pool at Billie's Billiard Barn has ________ for Billie's customers who also like to play ping pong.
increased
All of the following contributed to the downfall of the Soviet Union in 1991 except
lack of a strong dictator who could coordinate economic activities
In economics, the term ________ means "additional" or "extra."
marginal
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the marginal cost
The extra cost associated with undertaking an activity is called
marginal cost
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?
marginal revenue
A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to describe the money received from the sale of an additional large soft drink is
marginal revenue
In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade
market
An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.
model
The highest-valued alternative that must be given up to engage in an activity is the definition of
opportunity cost
Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that
people are rational
Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that
people are rational
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 who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that
people respond to economic incentives
Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that
people respond to economic incentives
Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that
people with health insurance are more likely to be overweight than people without health insurance
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.
rationally
The ________ the sale of an additional unit of a product is a marginal benefit to the firm
revenue received from
Consider the following economic agents: a. the government b. consumers c. producers Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?
the government
Who receives the most of what is produced in a market economy?
those who are most willing and able to buy them
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
trade-off
Economists assume that rational people do all of the following except
undertake activities that benefit others and hurt themselves
Marginal analysis involves undertaking an activity
until its marginal benefits equal marginal costs
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued
Society faces a trade-off in all of the following situations except
when some previously unemployed workers find jobs
Which of the following is not an example of an economic trade-off that a firm has to face?
whether or not consumers will buy its products
