Economics - Micro Flashcards
Who wrote the Wealth of Nations?
Adam Smith
(considered the Father of Economics)
Economics is Most concerned with the tension between?
wants and resources
Scarcity implies:
trade-offs
Opportunity cost could be Best described as the?
value of the next best alternative
Which of the following costs are least likely to be considered part of the cost of college?
tuition, room & board, university fees, foregone labor income, books
room & board
If consumers select the action that produces the greatest benefit, they are said to be
rational
Gains from trade arise most directly from different?
opportunity costs
Sophie can either babysit for $10, mow the lawn for $15, or drive her brother to soccer practice for $12. What is Sophie’s opportunity cost if she chooses to mow the lawn?
$10
The number of items in an average supermarket is Closest to?
30,000
What must be true if two consumers voluntarily trade with each other?
The benefits outweigh the costs for both people
Jasmine went to a movie with her friends instead of taking a shift at work. Which economic concept does this situation involve?
trade-offs
Benjamin received a few ticket to a baseball game. What is his opportunity cost for going to the game?
the time not spent doing something else
Langston is experienced in catching fish, while Brandon bakes exceptional bread. They decide to specialize. Which economic concept does this situation involve?
gains from trade
People who engage in mutually beneficial trade are least likely to have different?
wants
(they will trade because they do have different abilities, interests, resources, and opportunity costs)
Economic analysis least relies on:
theory, speculation, description, observation, measurement
speculation
Economic models could be best described as?
simplistic
Positive economics is most concerned with?
identifying cause-and-effect relationships
Unlike positive economics, normative economics combines economic analysis with?
value judgments
Pareto efficiency requires that
there is no way to improve at least one person’s well-being without reducing another person’s well-being (only way to do it is a redistribution of wealth)
Leticia, Jose, and Maya are sharing a pizza with 9 slices. Which of the following arrangements is NOT Pareto efficient?
Jose eats 2 slices, while Leticia and Maya eat 3 each
Leticia eats all 9 slices
Leticia, Jose, and Maya each eat 3 slices
Maya eats 5 slices, while Jose and Leticia each 2 each
Leticia eats 6 slices and Jose eats 3 slices
Jose eats 2 slices, while Leticia and Maya eat 3 each
Which branch of economics can we use to determine which distribution of goods is best?
Normative economics
Microeconomics is most concerned with?
individual behavior
What would a macroeconomist most likely study?
price of gasoline, gross domestic product, income distribution, municipal regulations, world trade
gross domestic product
Micro and macro economics rae most similar in their
assumptions about human behavior
A university has $100,000 in scholarship funds. Which situation is Pareto efficient?
One student receives 40k, another 30k and another 20k
Four students receive 20k
One student receives 40k and two students each get 25k
One student receives 100k
Ten students receive 5k each
One student receives 100k
Which of the following situations would a microeconomist study?
Nike and Adidas competing for customers
Performance of the S&P 500
Monthly readings of the Consumer Price Index
Changes in potential GDP
U.S. trade deficit with China
Nike and Adidas competing for customers
Of what nationality was Vilfredo Pareto?
Italian
(Pareto efficient is named after him)
What is the central topic of microeconomics?
the interaction of supply and demand
A market consists of all
buyers and sellers of a particular good
Which of the following characteristics is NOT present in a perfectly competitive market?
A large number of sellers
Buyers are well informed about the market price
Sellers have market power
No single buyer can influence the price
The good is standardized
Sellers have market power
The best example of a perfectly competitive market is the market for?
Gasoline, cereal, tennis shoes, electricity, cell phones
Gasoline
What is the law of demand?
Quantity demanded falls as a good’s price rises
To which economic concept is the law of demand most directly related?
opportunity cost, rationality, gains from trade, scarcity, Pareto efficiency
opportunity cost
(as price of a good rises, the opportunity cost of consuming that good increases as well)
The table that shows the quantity demanded at each price is called the?
demand schedule
How do we obtain the market demand curve?
adding individual demand curves horizontally
Goods for which quantity demanded falls as income rises are called?
inferior goods
(hot dogs are an inferior good, brats are not; spam is an inferior good, good quality tuna is not)
If the decline in the price of one good causes a decrease in quantity demanded of another good, these goods are considered?
substitute goods
(Great value potato chips is a substitute for Lays potato chips - If the price of Lays potato chips decreases (demand for them will increase), the demand for great value will decrease - because it is a substitute good)
Which of the following pairs of goods are substitutes?
pencils and notebooks
tea and coffee
automobile insurance and cars
movies and popcorn
peanut butter and jelly
tea and coffee
Suppose Steve expects the price of gasoline to increase next month. What can we say about his demand curve today?
It shifts to the right
All of the following would be considered inferior goods Except?
instant ramen, bologna, bus rides, electronics, fast food
Electronics
Changes in all of the following factors would cause the demand curve to shift Except?
price of related goods, tastes, expectations, a good’s own price, income of buyers
Good’s own price
(change in a price of a good causes a movement on the demand curve)
If the price of Coke increases, it is Most likely that the
demand curve for juice shifts to the right
What is the law of supply
Quantity supplied increases as price increases
(Price & quantity move in the same direction for law of supply
Suppliers will stop supplying a good when?
the opportunity cost exceeds the price
How do we obtain the market supply curve?
Adding individual supply curves horizontally
Changes in all of the following factors cause the supply curve to shift Except?
technology, input prices, a good’s price, expectations, number of sellers
A good’s price
(change in the price of a good will cause a movement on the supply curve)
What can be considered inputs costs for gasoline?
real estate costs for the land a gas station is on, labor costs for all the workers, price the gas station pays its suppliers, utilities to operate the station
What are input costs?
anything that goes into making a good/product
The x and y axes of a supply curve, respectively show?
quantity supplied and price
How does the market for calculators change when the price of processor chips, an input, increases?
Quantity supplied decreases
How does the market for cell phones change when a new technology makes production more efficient?
Quantity supplied increases
If suppliers of gasoline expect prices to rise in the future, they are most likely to?
Reduce quantity supplied today
A situation where the quantity supplied of cell phones would NOT increase?
Apple, a major cell phone supplier, decides to close a production facility (quantity supplied will decrease in this situation)
In which of the following scenarios does the supply curve for wine shift to the left?
Price of grapes increases
Price of wine increases
A wine producer develops a new technology to squeeze grapes more efficiently
A wine producer expects the price of wine to decrease in the future
A new vineyard starts producing wine
Price of grapes increases
What type of relationship exists between quantity supplied and input prices?
negative (or opposite)
Quantity supplied refers to the amount of a good?
produced by sellers
Which of the following factors affect both quantity demanded and quantity supplied?
Expectations, technology, prices of related goods, tastes, input prices
Expectations
What happens to the market for football tickets if their price increases?
Quantity supplied increases
The market equilibrium occurs where?
Supply and demand intersect
Suppose the equilibrium price of apples is $4. If the current price of apples is $5, we could most confidently conclude that?
quantity supplied exceeds quantity demanded (this is also known as excess supply)
How would a supplier most likely react in a situation where the current market price is above the equilibrium price?
The supplier would lower its price
Shortages are most associated with?
Excess demand (prices are below equilibrium)
Suppose the equilibrium price of Oreos is $2.50. At which of the following prices would we most likely see excess demand?
$2.50, $2, $5, $2.75, $3.50
$2
Statements that can be used to describe market equilibrium
It results in a stable position.
The market has an automatic tendency to gravitate toward it.
It is the point where the market settles
It is a unique point on a diagram
Suppose the current quantity supplied of grapes is 500. At what level of quantity demanded would sellers have an incentive to lower prices?
600, 1,000, 500, 550, 450
450
Suppose that at the current price of avocados of $2, quantity supplied is 9,000 and quantity demanded is 8,500. The equilibrium price of avocados is most likely?
$1.50, $3, $0.50, $2.50, $2
$1.50
(for the current situation there is a slight excess supply - we can conclude that the equilibrium price is slightly below the current market price)
Suppose the inverse demand function is represented by P = 45 -5Q and the inverse supply function is represented by P = 6 +3Q. What is the equilibrium price?
5, 10, 15, 20, 8
20
(set the two equations equal to each other - then plug the number into either one of the equations to solve)
What is the equilibrium quantity if inverse demand is given by P= 74 - 4Q and inverse supply is given by P = 14 + 6Q?
6, 8, 32, 50, 15
6
(set the two equations equal to each other - then plug the number into either one of the equations to solve)
Suppose the inverse demand function is P = 10 - Q and the inverse supply function is P = 4 + 2Q. At what price would excess demand equal 3?
4, 10, 2, 8, 6
6
(given the functions - remember to set them equal to each other - at a market price of 6, quantity demanded equals 4 and quantity supplied equals 1 - resulting in excess demand of 3)
At how many points do the demand and supply curve intersect?
One
Suppose the inverse demand function is P = 20 - Q and the inverse supply function is P = 5 + 2Q. If the market price is currently $11, it is most likely that?
excess demand equals 6
When the market price of Mickey Mouse ears is lower than the equilibrium price, the market price will increase due to?
Increased demand for Mickey Mouse ears
Competitive markets do NOT?
Allocate resources effectively
Create one-way information flows
Allocate goods to the buyers who value them the most highly
Convey to suppliers the value consumers place on the good
Gravitate toward equilibrium quantity and price
Create one-way information flows
(competitive markets have two-way information flows)
What does the price reveal to consumers in competitive markets?
The opportunity cost of supplying that good
The competitive market equilibrium maximizes?
total surplus
Consumer surplus equals?
willingness to pay minus market price
The market price of Ohio State football tickets is $500. Suppose Jake values the ticket at $600, Yolanda values the ticket at $650, and Emily values the ticket at $400. What is the combined consumer surplus?
250
At any point along a demand curve, the height measures?
buyers’ willingness to pay
Where is consumer surplus located on a price-quantity graph?
Above the market price and below the demand curve
Which of the following situations results in positive producer surplus?
Quantity supplied exceeds quantity demanded.
Suppliers’ willingness to supply exceeds buyers’ willingness to pay.
Marginal cost exceeds market price.
Market price exceeds opportunity cost.
Revenue exceeds consumer surplus.
Market price exceeds opportunity cost
On a price quantity graph, producer surplus is the are
below the market price and above the supply curve
How do market participants determine the value each consumer places on the good in competitive markets?
price signals
What is total surplus?
Consumer surplus plus producer surplus
Miguel is willing to sell iPhones for $500 each, Angel is willing to sell iPhones for $200 each, Jenna is willing to sell iPhones for $800 each, and John is willing to sell iPhones for $600 each. The price of iPhones is $700. What is the total producer surplus?
$1,400, $800, $100, $900, $700
$800
The market price for televisions is $400. If Bob’s benefit is $100, then his willingness to pay is closest to?
300, 200, 400, 500, 100
$500
The market price for MacBooks is $1,200. Suppose Maya, a supplier, has a surplus of $200. At what price is she willing to sell?
200, 1000, 1600, 1200, 1400
1,000
At a quantity less than the equilibrium quantity, it is most likely that?
value to consumers exceeds producers’ cost
An increase in the supply of football tickets causes?
equilibrium price to decrease
Public education campaigns about tobacco affect the cigarette market by?
lowering demand