Micro Test 1
You order a $20 sweatshirt online for a Father's Day gift. The shipping charge is $10. You can get free shipping if your order totals $25 or more. Consequently, you order a $5 bobble head doll, even though neither you nor your father really likes bobble head dolls. This is an example of
incentives
Barter
involves individuals trading a good they already have or providing a service in exchange for something they want. (page 17)
Law of increasing opportunity cost
law stating that the opportunity cost of producing a good rises as a society produces more of it (page 36)
Scarcity refers to the __________ nature of society's resources.
limited
Economics is the study of how people allocate their ________ resources to satisfy their nearly _________ wants
limited; unlimited
Specialization
limiting one's work to a particular area (page 39)
When a student is making a decision about the college she will attend, which of the following would be an endogenous factor?
location of the school
Suppose there is a country where factory production creates a lot of the air pollution. What could be a possible trade-off if the country wanted to lower the levels of pollution?
lower national income
Alison goes to an all-you-can-eat restaurant. She has eaten three slices of pizza and is considering having another, but she is quite full from the first three slices. Alison's consideration is an example of
marginal thinking
Suppose that Marie is buying bananas. She decides that she would like to purchase three bananas at the price of $0.25/banana but not a fourth banana. Which of the five foundations of economics best describes Marie's thinking?
marginal thinking
Surplus
market condition when the quantity supplied of a good is greater than the quantity demanded; also called excess supply (page 95)
Shortage
market condition when the quantity supplied of a good is less than the quantity demanded; also called excess demand (page 95)
Ceteris paribus
meaning 'other things being equal,' the concept under which economists examine a change in one variable while holding everything else constant (page 30)
The field of economics that studies the decisions of individuals and firms is called
microeconomics
According to the Food and Drug Administration, "...the ultraviolet (UV) radiation from these devices [sunlamps and tanning beds] poses serious health risks." As a result of reading this, the local mayor decides to introduce legislation that will put a 10% excise tax on tanning consumers. From an economic point of view, this will
shift the demand curve leftward for tanning
Markets
systems that bring buyers and sellers together to exchange goods and services (page 17)
Absolute advantage
the ability of one producer to make more than another producer with the same quantity of resources (page 41)
Equilibrium quantity
the amount at which the quantity supplied is equal to the quantity demanded (page 95)
Quantity demanded
the amount of a good or service that buyers are willing and able to purchase at the current price (page 75)
Quantity supplied
the amount of a good or service that producers are willing and able to sell at the current price (page 85)
Which of the following is an example of a positive economic statement?
the average rainfall in August 2016 was 5 inches nationwide.
Slope
the change in the rise along the y axis (vertical) divided by the change in the run along the x axis (horizontal) (page 61)
Marginal thinking
the evaluation of whether the benefit of one more unit of something is greater than its cost (page 15)
Opportunity cost
the highest-valued alternative that must be sacrificed to get something else (page 13)
Law of supply and demand
the law that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance (page 95)
Law of demand
the law that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls (page 76)
Law of supply
the law that, all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls (page 85)
Scarcity
the limited nature of society's resources, given society's unlimited wants and needs (page 6)
Equilibrium price
the price at which the quantity supplied is equal to the quantity demanded; also known as the market-clearing price (page 94)
Investment
the process of using resources to create or buy new capital (page 47)
Inputs
the resources (labor, land, and capital) used in the production process (page 90)
Comparative advantage
the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can (page 19)
Economics
the study of how individuals and society allocate their limited resources to satisfy their unlimited wants (page 6)
The difference between the study of microeconomics and the study of macroeconomics is a difference between
the study of individual economic units and the study of aspects of the economy as a whole.
Microeconomics
the study of the individual units that make up the economy (page 7)
Macroeconomics
the study of the overall aspects and workings of an economy (page 7)
Market demand
the sum of all the individual quantities demanded by each buyer in the market at each price (page 77)
Market supply
the sum of the quantities supplied by each seller in the market at each price (page 87)
Purchasing power
the value of your income expressed in terms of how much you can afford (page 80)
Endogenous factors
the variables that can be controlled for in a model (page 31)
Exogenous factors
the variables that cannot be controlled for in a model (page 31)
Trade
the voluntary exchange of goods and services between two or more parties (page 19)
What is the term for the voluntary exchange of goods and services between two or more parties?
trade
Suppose your friend can obtain concert tickets for $100 but you can't get them for less than $300. Your friend sells the tickets to you for $200. Which of the five foundations of economics best describes this activity?
trade creates value
Complements
two goods that are used together; when the price of a complementary good rises, the demand for the related good goes down (page 81)
The opportunity cost of attending college is likely to be highest for a high school graduate
who is capable of playing a professional sport
Suppose workers attend several skill-building workshops, increasing their labor productivity. How is this represented by a production possibilities frontier?
The entire PPF shifts out.
Which of the following statements refers to a macroeconomic issue? John was recently hired at a new job and starts next week. H&M decides to open 50 new stores. The national unemployment rate is currently 7.7% Sears and Kmart are closing stores nationwide.
The national unemployment rate is currently 7.7%
Supply curve
a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices (page 85)
Scatterplot
a graph that shows individual (x,y) points (page 60)
Imperfect market
a market in which either the buyer or the seller has an influence on the market price (page 74)
Competitive market
a market in which there are so many buyers and sellers that each has only a small (negligible) impact on the market price and output (page 72)
Production possibilities frontier
a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently (page 33)
Subsidy
a payment made by the government to encourage the consumption or production of a good or service (page 90)
Invisible hand
a phrase coined by Adam Smith to refer to the unobservable market forces that guide resources to their highest-valued use (page 72)
Where is unemployment such that employment is below the full-employment level plotted on a production possibilities frontier?
a point inside the PPF
Where would you plot full employment on a production possibilities frontier if all other resources are being used efficiently?
a point on the PPF
Suppose that a politician wants to build more production facilities for solar power and wind power. At the same time, the politician is unwilling to cut any other programs. If the resources that would be used to produce the solar and wind power facilities are already being efficiently used in other programs, where is the point the politician is trying to reach located on the production possibilities frontier?
a point outside the frontier
Economic thinking
a purposeful evaluation of the available opportunities to make the best decision possible (page 15)
Variable
a quantity that can take on more than one value (page 57)
Demand schedule
a table that shows the relationship between the price of a good and the quantity demanded (page 76)
Supply schedule
a table that shows the relationship between the price of a good and the quantity supplied (page 85)
Reverse causation
condition occurring when causation is incorrectly assigned among associated events (page 66)
Negative correlation
condition occurring when two variables move in opposite directions (page 60)
Positive correlation
condition occurring when two variables move in the same direction (page 60)
Equilibrium
condition occurring at the point where the demand curve and the supply curve intersect (page 94)
Sam has two options this weekend. He could work at his job and earn $9/hour for three hours, or he could go to a show at the theater for that three hours. A ticket to the theater costs $30. What is the opportunity cost of going to the theater?
$57
A recent study shows the benefits of using public transportation. Government officials have hired your consulting firm to increase the demand for public transportation. They come to you with three of their suggestions. Suggestion 1. Reduce the price of public transportation. Suggestion 2. Increase the price of private transportation by increasing tolls. Suggestion 3. Offer monthly and yearly passes that reduce the price paid per ride of public transportation.
2
Judy spent 8 hours studying for an exam. Normally, she would have spent that time watching TV instead of studying. She figures she could have made a "B" after only studying 4 hours, but she really wanted an "A." What is Judy's marginal cost in terms of TV viewing to improve her grade from a "B" to an "A"?
4 hours
As the owner of a hotel, you have decided to lower the price for all rooms in the month of October. What should you expect to happen?
As the price is lowered, the quantity demanded of rooms will increase
The concept of scarcity in economics refers to
Limited resources and unlimited wants
Businesses across the country are starting to install extra insulation in their buildings and warehouses. Households are now deciding to install more insulation as well. Which of the following outcomes would you predict will happen to the market for oil?
Equilibrium price and quantity of oil will decrease
Inferior good
a good purchased out of necessity rather than choice (page 81)
What role does money play in the circular flow model
It increases the efficiency of a market.
The market for breakfast cereal is currently in equilibrium. Suddenly there is a storm that destroys the wheat that farmers had been growing for the cereal manufacturer. What will happen to the cereal market after the storm?
Supply will decrease
Suppose that Tegan is good at cooking but not very good at cleaning up the kitchen afterward and that Sara is good at cleaning kitchens but not very good at cooking. Which of the following statements is true with regard to Tegan and Sara?
Tegan should cook and Sara should clean up the kitchen.
There are a number goods that over time, for a variety of reasons, transition from being a normal good to an inferior good or from being an inferior good to a normal good. One such example of a good is the Toyota Camry. In the 1980s, more income for a household usually resulted in more Camrys being purchased. However, today more Toyota Camrys are purchased by households that have experienced a reduction in income
The Camry becomes an inferior good because the good is now perceived as lower in quality than a Lexus
Demand curve
a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices (page 76)
Market power
a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both (page 74)
Normal good
a good consumers buy more of as income rises, holding other things constant (page 80)
Positive statement
an assertion that can be tested and validated; it describes 'what is' (page 29)
Market economy
an economy in which resources are allocated among households and firms with little or no government interference (page 72)
Normative statement
an opinion that cannot be tested or validated; it describes 'what ought to be' (page 29)
A physician who hires a plumber to fix a broken toilet is an example of
comparative advantage
Monopoly
condition existing when a single company supplies the entire market for a particular good or service (page 74)
Causality
condition existing when one variable influences another (page 65)
Which of the following is a type of incentive? scarce direct limited unconditional
direct
Suppose a student has 3 hours of time to spend at her apartment before afternoon classes. She has the option of doing laundry, studying for a test, or watching television. If she decides to do laundry, then her opportunity cost is
either watching television or studying for the test, whichever would have been her second choice to doing laundry.
Incentives
factors that motivate a person to exert effort (page 8)
Consumer goods
goods produced for present consumption (page 47)
Substitutes
goods that are used in place of each other; when the price of a substitute good rises, the quantity demanded of that good falls and the demand for the related good goes up (page 81)
Capital goods
goods that help produce other valuable goods and services in the future (page 47)
Opportunity cost is the ______________ alternative that must be sacrificed in order to get something else.
highest valued
The circular flow model shows how resources and final goods and services flow through the economy. There are two groups in the circular flow model. Which of the following make up the two groups?
households and firms
Suppose that government officials want to increase the population, so they offer a $1,000 payment to the parents of each child born. Which of the five foundations of economics best describes the thinking of these government officials?
incentives