Man Ec: #2

Question 1

What does microeconomic analysis contribute to understanding?

Answer 1

1) conceptualizes what markets are and how they function
2) how individuals and firms can optimize their efforts and decisions
3) introduces study of organization of the firm as well as the industry as a whole

discussion material

Question 2

define optimization

Answer 2

the process of finding a maximum of some desired criterion (or minimum of undesired criterion). “getting the most out of an activity”

Question 3

What are “substantive propositions”?

Answer 3

They are propositions that are empirically (by experince or experiment) testable

Question 4

How is market defined in the reading?

Answer 4

the interaction of one or more buyers with one or more sellers.

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Question 5

In a competitive market it is _______ that limits and guides the _____ of market participants and forms the basis of _________ on which the whole economy rests

Answer 5

competition; behavior; efficiency

Question 6

How does the government fit into the “competitive model” . What is the motive that keeps the market moving in this model?

Answer 6

The government is not really part of it. They shouldn’t interfere . The motivation is self interest.

Question 7

In a world of perfect competition is it the public officials or private firms that wield economic power?

Answer 7

neither of them do

Question 8

What is the scientific method defined as?

Answer 8

it is a way to think about problems and formulate a solution/explanation of them.

Question 9

What are the steps in the scientific method? (6)

Answer 9

1) Observe Phenomena
2) Consult Existing knowledge (research)
3) Construct theory/model (hypothesis)
4) Empirical validation (test your hypothesis)
5) Reject/ Accept
6) Continue testing

Question 10

What are examples of hard sciences? of soft sciences? What are the big differences? (2)

Answer 10

Hard: chemistry, physics, engineering
Soft: psychology, sociology, economics

The big differences come from:

1) hard sciences have controlled experiment, soft do not (green and yellow chemicals make blue)
2) in hard sciences random component is often small and identifiable, soft it is not. (people act different with same stimuli)

Question 11

The method of “inquiry” for economists is called logical positivism. What is this?

Answer 11

This suggests that the basic axioms (assumptions) of the theory are not subject to independent empirical verification. (this means that you have to trust the theory, however, you still test the hypothesis).

Question 12

The study of managerial economics and organizations deals with both positive and normative economics. What are positive and normative questions defined as?

Answer 12

positive: have to do with explanations and predictions of what is or is expected to be (what it probably is in reality)
normative: entail some moral or ethical basis within the issues to be addressed, dealing with what ought to or should be. (how it should be ideally)

Question 13

The basic model of the economy has three assumptions. They are…?

Answer 13

assumptions about

1) how firms behave
2) how consumers behave
3) the market in which firms and consumers interact

Question 14

Underlying much of economic analysis is the basic assumption of rationality. What does “rationality” suggest?

Answer 14

This is an assumption that individuals and firms will act in a consistent manner, and with a reasonable idea of what they want and how to get it

Question 15

In the basic competitive model each firm is a price taker. what does this mean?

Answer 15

This means they accept the prices of the market. Consumers also accept this price as given.

Question 16

how is “demand” defined?

Answer 16

This is the quantity of a good or service that a customer is willing and able to purchase over a period of time

Question 17

There are two factors that determine individual demand. what are they?

Answer 17

1) the value associated with using the good or service
2) the ability to acquire it

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Question 18

What is direct demand?

Answer 18

the concept of analyzing the demand for goods and services that directly satisfy buyer desires

Question 19

What is derived demand?

Answer 19

Demand that is derived from the demand for the products or services (such as engineers, natural resources, etc) that are not for direct consumption, but help them get to final consumption.

Question 20

When the demand relationship is made explicit and defined over a range of prices it is called a…

Answer 20

demand function

Question 21

What is the relationship between price and quantity in a demand function according to . what is an example of a demand function?

Answer 21

Price determines quanity. There is an inverse relationship between price and quantity.

ex. q=f(p)

Question 22

The book states that the quantity demanded is a function of price in the …. short run? or the long run?

Answer 22

short run

Question 23

what is a change in the quantity demanded?

Answer 23

this means that price changed and so you move along the demand curve to the amount demanded at the new price.

Question 24

A demand schedule (table of numbers) and demand curve (graph) are always stated with the assumption of ceterius paribus which means?

Answer 24

all thin things being constant

Question 25

A change in demand, which shifts the demand curve out and therefore changes the quantity and demand relationship can be caused by several things. Name a few.

Answer 25

income, price of other goods, consumer tastes, population, advertising, etc.

ex. reducing import taxes on mexico increases the population that will buy which will shift the demand curve to the right because more consumers will demand goods at the lower prices (with no taxes)

Question 26

There are nonprice determinants for a demand curve these are felt in two ways? what are they?

Answer 26

1) change in willingness/ability to buy

2) change in number of soncumers

Question 27

How is supply defined in economic terms?

Answer 27

the relationship between the amounts of a commodity a seller will make available and the prices for that during a given period.

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Question 28

The law of supply explains that there is a relationship between price and quantity for supply. What is the relationship?

Answer 28

it is direct, not inverse like demand

Question 29

Is there always a supply function? If not, when is there one?

Answer 29

When there is competition. If there was only one seller in the market they can sell the item for whatever the consumer is willing to bear.

Question 30

When does a supply shift take place?

Answer 30

When there is a change in one of the non-price determinants of supply. this is a movement of the line.

Question 31

Change in quantity supplied is…

Answer 31

movement along the line. This is movement along a fixed line.

Question 32

What example is given for why a demand curve may shift up or down?

Answer 32

the price paid for an input (ex. raw materials). If it costs you more to make something you charge others more to buy it.

Question 33

When is a market in equilibrium?

Answer 33

When the quantity of a good or service demanded and the quantity supplied are in perfect balance as some price governing exchanges.

Question 34

What is comparative statistics?

Answer 34

the theory is static rather than dynamic

Question 35

what is static theory concerned with?

Answer 35

determining the direction in which economic variables move in response to other variables

Question 36

With equations how do you find the equilibrium of a supply curve and a demand curve?

Answer 36

By setting them equal to each other… yo.

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Question 37

Which of the following causes a movement along a market demand curve but not a shift of the demand curve? A change in

technology
the price of the product
the number of buyers in the market
the price of other related goods

Answer 37

b

Question 38

According to the textbook, we call economics a hard science because there is a random component to economic behavior.

true
false

Answer 38

false

Question 39

Assuming that coffee is a substitute commodity for tea, how will an increase in the price of tea affect the demand for coffee?

Only the quantity of coffee demanded will increase.
The demand for coffee will increase.
The demand for coffee will decrease.
The demand for coffee will not change.

Answer 39

b

Question 40

Markets exist to

promote fairness between buyers and sellers
provide a clearing house for products and services
determine how to organize firms
facilitate transactions between buyers and sellers

Answer 40

d

Question 41

The scientific method can be applied to economics, but that often requires working with statistical models.

true
false

Answer 41

true

Question 42

With more people buying the Ford Taurus, the demand curve will shift to the right.

true
false

Answer 42

true

At any given Ford Taurus price, the quantity demanded will be greater because the price of its substitute, the Honda Accord, has gone up. The price of imports from Japan will increase. The quantity demanded of Honda Accords will decrease and the demand for the Ford Taurus will increase. This is shown in a diagram simply as an increase in demand, with D1 shifting out and upward to D2 on the same supply curve.

Question 43

If the Honda Accord is more expensive, people will tend to buy a smaller number of the Ford Taurus.

true
false

Answer 43

false

These two kinds of cars are substitutes. If the Honda Accord is more expensive, Americans will be more attracted to the Ford Taurus as an alternative.

Question 44

If the dollar declines in value, Japanese imports will become more expensive.

true
false

Answer 44

true

If importers have to pay more dollars to buy yen, everything produced in Japan becomes more expensive to Americans.

Question 45

The equilibrium price will be higher, but the quantity will increase after the tax.

true
false

Answer 45

false

The higher supply curve will intersect with the old demand curve at a point of higher price and smaller quantity bought and sold.

Question 46

If you tax cigarettes, as suggested in the second case, consumers will pay the same amount as always, but producers must now pay the tax.

true
false

Answer 46

false

The tax will have to be passed along to the consumer unless cigarette manufacturers have unlimited surplus wealth and love for their customers. Consumers must pay not only the old, pre-tax price for any quantity of cigarettes, but they must pay the additional amount of the tax.

Question 47

With the greater supply of fast food available, the quantity sold will increase even though the number of people eating lunch in the area may remain the same.

true
false

Answer 47

true

Some people will switch from brown bags to the patronage of the new firm. Perhaps a few people will even travel to the new restaurant from outside the area. That’s why the question said the number eating lunch in the area may remain the same.

Question 48

The shift in the supply curve will result in an increase in price.

true
false

Answer 48

false

Entry into the market would result in an increase of supply in the lunch market near your university. Such an increase in supply would be shown in a diagram as a shift from an S1 to an S2 to the right of and below S1, and the equilibrium price decreases.

Question 49

The higher price for all possible quantities of cigarette packs (old production cost plus new tax) will cause the supply curve to shift to the left.

true
false

Answer 49

true

That simply says that suppliers will offer each pack for the old price PLUS the amount of the tax.

Question 50

A new restaurant would increase the supply of fast food, shifting the supply curve left.

true
false

Answer 50

false

An increase in supply shifts the supply curve to the right. A shift in the supply of cigarettes means that any quantity available before the imposition of the tax is now available after the tax at a price equal to the old price plus the amount of the tax. This is shown in a diagram as a shift (decrease) in the supply function from an S1 to an S2 above and to the left of S1 on the same demand curve. The price increases, and the quantity decreases.

Question 51

If the dollar becomes weaker relative to the yen, as suggested in the first case above, it will take more dollars to purchase any given amount of yen.

true
false

Answer 51

true

A currency that grows “weaker” in international exchange markets can be bought with fewer units of other currencies and can buy smaller amounts of other currencies. This would occur if the dollar in one month can buy 1.5 DM (German Marks) but can only buy 1.3 DM in a later month.