econ quiz 1 Flashcards
a choice involves a cost
always
a surplus in a maket occurs when
the market price exceeds the equilibrium price
law of deminishing returns
As additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline.
Opportunity Cost is
the value of the next best alternative
About 540 million passengers took plane trips in the United States in 2012. Since the 9/11 hijackings, security screening has become more intensive, and consequently, the procedure takes one hour longer than in the past. If the average price of time for air travelers is $25 per hour, the ____________ of delay in airports is 540 million hours × 25 dollars/hour, or $13.5 billion per year.
Opportunity cost
A sunk cost is a cost that is
unavoidable
Marginal thinking is best demonstrated by
choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.
A demand curve shows the relationship between price and _________________ on a graph.
quantity demanded
When income increases, the demand for an inferior good
decreases
The production possibility frontier illustrates the concept of
cost
What is meant by law of demand?
The common relationship that a higher price leads to a lower quantity demanded of a certain good or service.
The equilibrium price in this market is
when quantity demand and quantity supply equal
The equilibrium quantity is
the number of when quantity demand and quantity supply equal
if there is a surplus quantity demand that means
there is a shortage of quantity supply
In a free market equilibrium,
Quantity Demand= Quantity supply
When economists talk about supply, they are referring to a relationship between price received for each unit sold and the ___.
quantity supplied
If new manufacturers enter the computer industry, then (all other things equal):
the supply curve shifts out
What is meant by producer surplus?
The benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept.
In a competitive market where the price of the product is $25, we know that marginal cost of the last unit sold is
equal to $25.
This month, Joe Blow sold 40 fewer snowblowers at a lower price than he did last month. This change is likely due to
a decrease in market demand.
Consumer surplus is
the amount of money a consumer is willing to pay above what the consumer has to pay.
The rational rule is
-act to maximize the economic surplus
-act so that MB = MC
-act to maximize the total benefits minus the total costs
ALL OF THE ABOVE
A market is
an institution that brings together buyers and sellers of goods or services.
An influence that reduces the supply of a good is
an increase in costs.
Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect
Andy’s demand for beer to increase.
All other things equal, an increase in price causes
supply to increase
An influence that increases demand for a normal good is
an increase in the price of substitutes.
A decrease in quantity demanded refers to
a movement up the demand curve
A variable cost is a cost that
changes when output changes
In economic decision making, sunk costs are
irrelevant in choosing among different options.
When only knowing that both the demand curve and supply curve shift and nothing else, it is
possible to determine to what happens to either equilibrium price or the equilibrium quantity but not both.
After widespread press reports about the dangers of contracting “mad cow disease” by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:an
an inward shift of the demand curve for beef.
At the market equilibrium
- all the market participants who are willing and able to participate at the market price either buy or sell all that they wish.
-there is no shortage or surplus
-quantity demanded equals quantity supplied
ALL OF THE ABOVE
A change in price of a pretzels typically causes ___ for those pretzels.
a change along the supply curve
The framing effect
should be avoided in economic decision making
A fixed cost is one that
remains constant while output changes.
The tendency for the quantity supplied to be higher when the price is higher is the
Law of Supply
Last semester in the bookstore, no one had any trouble getting a microeconomics textbook from the bookstore when the price was $40, and the bookstore had no books unsold. This semester, even though more textbooks were ordered, the bookstore ran out of microeconomics textbooks when the price was $45. This indicates
the price of $45 was too low.
When the marginal cost exceeds the marginal benefit of an extra unit
net benefit falls.
A market equilibrium maximizes
consumer surplus plus producer surplus.
Draw the graph showing what should happen to the equilibrium price and equilibrium quantity of downloadable classic rock music recordings when the price of CDs falls.
CDs are substitutes for downloadable music, so when the price of a substitute good falls, the demand for the primary good drops.
Cell phones are a substitute for CDs,
so a reduction in the price of cell phones should reduce the demand for classic rock CDs.
this reduces the equilibrium price and equilibrium quantity of classic rock CDs
all other things equal
An increase in productivity in the CD industry
increases the supply of CDs by lowering the costs of production
this reduces the equilibrium price and increases in the equilibrium quantity.
when all things equal
Since both effects reduce the equilibrium price, it is clear the equilibrium price for classic rock CDs must
fall
insufficient information to determine the actual outcome for
the effects have opposite influences on the equilibrium quantity
EX = -0.74 which suggests that
the two goods are complements.
An elastic response means that
the dependent variable changes proportionally more than the independent variable
Along a linear demand curve, the price elasticity of demand
changes.
An effective market impediment
causes a deadweight loss.
An underlying precept of microeconomics is…
People are the best judge of their interests.
People respond to incentives.
What is the economic surplus generated by a decision calculated?
It is the total benefits minus total costs arising from the decision.
Marginal thinking refers to
looking at deviations from the status quo
Cost is..
what is given up in obtaining something.
Following the Rational Rule, the maximum economic surplus occurs when:
marginal benefits equal marginal costs.
Opportunity Cost is
the value of something in its next best use.
Ron is buying jeans online and is deciding how many to buy. Applying the Rational rule, he will buy an additional pair if the:
marginal benefit of the next pair is at least as high as the price of the jeans.
The Law of Diminishing Marginal Returns States…
a. indicates that after a point, marginal benefits decline with each additional unit.
b. indicates that after a point, marginal costs increase with each additional unit.
c. gives assurance that marginal benefits and marginal costs usually will end up equal at a point.
Ignoring opportunity cost in economic decision making
reduces net benefits.
Marginal cost (MC) is,
the cost of obtaining one more unit.
The rational rule is
a) act to maximize the economic surplus.
b) act to maximize the total benefits minus the total costs.
c) act so that MB = MC.
The framing effect
Should be avoided in economic decision making.
Quantity demanded (QD) is
the amount people are able and want to purchase
A normal good is one that,
anything unless told so
Quantity supplied is
the amount a producer is willing and able to sell
the market demand curve shows
the amount consumers are willing and able to buy at various prices during a specific period of time
The law of supply indicates as price falls
so does the quantity supplied
At the market equilibrium,
a. all the market participants who are willing and able to participate at the market price either buy or sell all that they wish.
b. there is no shortage or surplus
c. quantity demanded equals quantity supplied
A surplus
occurs when QS>QD
All other things equal, an increase in price causes
quantity supplied to rise
In a competitive market where the price of the product is $25, we know that marginal cost of the last unit sold is
equal to $25
When only knowing that both the demand curve and supply curve shift and nothing else, it is
possible to determine to what happens to either equilibrium price or the equilibrium quantity but not both.
All other things equal, a decrease in quantity demanded refers to
a movement down the demand curve
