Micro Study Guide Chapters 1,2,3,6
Refer to the provided graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods?
D
The graph provided shows the production possibilities curve for an economy producing two goods, X and Y. Which of the points on the graph indicate(s) unemployed resources?
E and A only
If falling gasoline prices are good for the consumers, then they must be good everyone in the economy.
False
When economists talk about the capital resources in the economy, they are referring to the amount of money circulating in the economy.
False
Which of the following exemplifies a microeconomic question?
Will a new type of electronic reader or tablet increase the number of buyers?
Which of the following is an example of a microeconomic question?
Will the merger of two airlines likely lead to a higher cost of air travel in the economy?
Other things equal, which of the following would shift an economy's production possibilities curve to the left?
a law requiring mandatory retirement from the labor force at age 55
The phrase "other things equal" means that
a number of relevant variables are assumed to be constant.
If the opportunity cost of producing extra units of one good (expressed in terms of the amount of another good given up) remains constant, then the shape of the production possibilities curve is
a straight downward-sloping line.
Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point
a to point b.
Which of the following would not be considered a capital resource by economists?
a van used by a father to transport his family around
Economists have difficulty applying the scientific method because
controlled laboratory experiments in economics are often not feasible.
Refer to the data sets. The vertical intercept is positive for
data sets 1 and 3 only.
Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara
decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.
A relationship illustrated by an upward-sloping graph means that a(n)
decrease in the value of one variable causes the value of the other to decrease.
On a production possibilities curve, the single optimal or best combination of output for any society
depends upon the preferences of society.
The individual who brings together economic resources and assumes the risk of business ventures in a capitalist economy is called the
entrepreneur
Which of the following is another way of saying "marginal benefits of an action"?
extra benefits resulting from the action Group Ends
Refer to the provided production possibilities curves. Curve (a) is the current curve for the economy. Focusing on curve (a), point N suggests that the economy currently produces
fewer goods for the future than at point P.
You should decide to go to a movie
if the marginal benefit of the movie exceeds its marginal cost.
Refer to the diagram. Which one of the following would shift the production possibilities curve from PP1 to PP2?
immigration of skilled workers into the economy
The slope of a graph with "income" on the horizontal axis and "saving" on the vertical axis is +0.2. This means that if
income increases by $100, then saving will rise by $20.
If the nation produces more and more tanks, the opportunity cost of each additional tank in terms of autos
increases
Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve?
international specialization and trade
The production possibilities curve
is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.
Unemployment
is illustrated by a point inside the production possibilities curve.
A point outside (to the right of) the production possibilities curve of a nation
is not attainable for this nation.
A nation's production possibilities curve might shift to the left (inward) as a result of
the depletion of its soil fertility due to overplanting and overgrazing.
Which situation would most likely cause a nation's production possibilities curve to shift inward?
the destruction caused by bombing and warfare in a losing military conflict
Briefly describe the three interrelated features of the economic perspective.
Opportunity costs-the amount of other products that must be forgone or sacrificed to produce a unit of a product Utility-the pleasure, happiness, or satisfaction obtaining from consuming a good or service Marginal analysis- comparisons of marginal benefits and marginal costs.
Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?
Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.
Which one of the following expressions best states the idea of opportunity cost?
"There is no such thing as a free lunch."
The amount of pizzas that consumers want to buy per week is reflected in the equation P = 15 − .02Qd, where Qd is the amount of pizzas purchased per week and P is the price of pizzas. On the basis of this information, we can say that
50 fewer pizzas will be purchased per week for every $1 increase in price.
Discuss an example of a price floor and a price ceiling.
A price ceiling sets the maximum legal price a seller may charge for a product or service. A price floor is a minimum price fixed by the government.
Discuss the three categories of businesses and list one pro and one con of each.
A sole proprietorship is a business owned and managed by a single person. Pro: You receive all of the revenue. Con: You have to do all the work. In a partnership, two or more individuals agree to own and operate a business together. Pro: You have help. Con: You have to share the revenue. A corporation is an independent legal entity that can, on its own behalf, acquire resources, own assets, produce and sell products, incur debts, extend credit, sue and be sued, and otherwise engage in any legal business activity. Pro: The revenue tends to be much more. Con: You could be sued.
List the four resource categories, and give a brief description of each.
Land, labor, capital, and entrepreneurial ability. Land includes all natural resources used in the production process. Labor includes the physical actions and mental activities that people contribute to the production of goods and services. Capital includes all manufactured aids used in producing consumer goods and services. Entrepreneurial ability is the human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs.
Discuss the law of supply and the law of demand.
Law of supply is the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease. To a supplier, price represents revenue, which serves as an incentive to produce and sell a product. Law of demand is the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price. The law of demand is consistent with common sense.
Which of the following statements is true?
Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
Discuss the difference in macroeconomics and microeconomics
Microeconomics is concerned with decision making by individual customers, workers, households, and business firms. Macroeconomics examines the performance and behavior of the economy as a whole.
Differentiate between the independent and dependent variables in an economic relationship.
The independent variable is the cause or source and the dependent variable is the effect or outcome.
Which of the following statements is correct?
The value of the dependent variable is determined by the value of the independent variable.
In drawing a particular budget line, money income and the prices of the two products are fixed.
True
The process by which capital goods are accumulated is known as investment.
True
Which of the following is an example of a macroeconomic question?
What policies would be recommended for stimulating national economic growth?
In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?
advancements in technology that make labor more productive
Refer to the provided production possibilities curves. Curve (a) is the initial curve for the economy, and the nation is initially producing combination P. A shift from curve (a) to curve (b) suggests that the economy can then increase its production of capital goods
and consumer goods simultaneously.
Economists
are somewhat arbitrary in assigning independent and dependent variables to the horizontal and vertical axes.
If an inverse relationship exists between two variables, then
as one variable increases, the other decreases.
Through specialization and international trade, a nation
can attain some combination of goods lying outside its production possibilities curve.
A nation that devotes more of its resources to the production of capital goods rather than consumer goods is likely to
cause its production possibilities curve to shift outward.
A budget line is a graph that shows the various combinations of two products that a
consumer can buy with a given amount of money income.
The basic difference between consumer goods and capital goods is that
consumer goods satisfy wants directly, while capital goods satisfy wants indirectly.
The economizing problem is one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants.
From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the
marginal benefit of more insurance coverage is greater than the marginal cost.
Suppose that a consumer purchases just two goods, X and Y. The Y-intercept of the budget line in this case would indicate the
maximum quantity of good Y that the consumer could buy with a given budget.
Which of the following is not considered by economists to be an economic resource?
money
Which of the following is a land resource?
natural gas
One basic difference between "land" and "capital" resources is that land is
natural, while capital is created by humans.
(Last Word) Assuming a fixed amount of menu space, Starbucks should
only offer a new menu item if it replaces one for which the gap between MB and MC is smaller.
Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates
opportunity costs.
The Latin term "ceteris paribus" means
other things equal
Variables X and Y in the above table are
positively related
In a graph of the production possibilities curve, the two axes of the graph indicate the
quantities of the two products that a nation can produce.
Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as
rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.
Economic models do not reflect the full complexity of reality, but instead are based on
simplifications
Suppose that a consumer purchases just two goods, X and Y. The ratio of the price of good X to the price of good Y is the
slope of the budget line.
Economics may best be defined as the
social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then
society would consider additional units of shoes to be less valuable than alternative products.
A society can consume a combination of goods outside its production possibilities if there is
specialization in production and International trade.
The production possibilities curve tells us
the combinations of two goods that can be produced with society's available resources. Prev
A production possibilities curve shows
the maximum amounts of two goods that can be produced, assuming the full use of available resources.
The production possibilities curve is a graph of
the maximum combinations of products that can be produced with the available resources.
If the equation y = −10 + 2.5x was plotted,
the vertical intercept would be −10.
Which of the following terms implies the greatest degree of confidence in an economic generalization?
theory
The idea in economics that "there is no free lunch" means that
there are opportunity costs involved even in free lunches.
Which of the following is not a main function of the entrepreneur?
to make routine pricing decisions
In economics, the pleasure, happiness, or satisfaction received from a product is called
utility
The opportunity cost of constructing a new public highway is the
value of other goods and services that are sacrificed in order to construct the new highway.
A positive statement is concerned primarily with
what is
Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods
would involve an inefficient use of the economy's scarce resources.
Refer to the diagram. The slope of curve ZZ at point C is approximately
−2⅖.