micro midterm 1

Question 1

Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, “Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of cell phones.”

Answer 1

marginal cost

Question 2

Extra Hours Open Total Revenue (dollars)
1 $50
2 75
3 95
4 110
5 120
6 125
Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of extra hours the nail salon is open as shown in the table above. She would have to hire a worker for those extra hours at a wage rate of $10 per hour. Using marginal analysis, by how many hours should Lydia extend her nail salon’s hours of operations?

Answer 2

5 hours

Question 3

DeShawn’s Detailing is a service that details cars at the customers’ homes or places of work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car’s engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?

Answer 3

$20

Question 4

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

Answer 4

model

Question 5

Economists assume that individuals

Answer 5

are rational and respond to incentives.

Question 6

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

Answer 6

at least $125,000

Question 7

Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, “Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of cell phones.”

Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones?

Answer 7

marginal revenue

Question 8

The machines that workers have to work with are considered

Answer 8

physical capital.

Question 9

In economics, all of the following is counted as “capital” except

Answer 9

money.

Question 10

In economics, the term ________ means “additional” or “extra.”

Answer 10

marginal

Question 11

In economics, the accumulated skills and training that workers have is known as

Answer 11

human capital.

Question 12

The extra cost associated with undertaking an activity is called

Answer 12

marginal cost.

Question 13

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

Answer 13

a trade-off.

Question 14

________ is a situation in which a good or service is produced at the lowest possible cost.

Answer 14

Productive efficiency

Question 15

Which of the following is a normative economic statement?

Answer 15

Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Question 16

Which of the following statements about competition in a market is true?

Answer 16

Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production.

Question 17

The decision about what goods and services will be produced in a market economy is made by

Answer 17

consumers and firms choosing which goods and services to buy or produce.

Question 18

Consider the following statements:
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than
other rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to allow some bank
robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.

Which of the above statements demonstrates that economic agents respond to incentives?

Answer 18

a, b, and c

Question 19

Which of the following is an example of an activity undertaken by an entrepreneur?

Answer 19

starting your own cigar manufacturing business

Question 20

Which of the following is a positive economic statement?

Answer 20

If the price of iPhones falls, a larger quantity of iPhones will be purchased.

Question 21

In economics, the term “equity” means

Answer 21

economic benefits are distributed fairly.

Question 22

Households ________ factors of production and ________ goods and services.

Answer 22

supply; demand

Question 23

Consider the following economic agents:
a. the government
b. consumers
c. producers

Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

Answer 23

the government

Question 24

Which of the following statements about scarcity is true?

Answer 24

Scarcity refers to the situation in which unlimited wants exceed limited resources.

Question 25

Which of the following is a positive economic statement?

Answer 25

Scarcity necessitates that people make trade-offs.

Question 26

Economists reason that the optimal decision is to continue any activity up to the point where the

Answer 26

marginal benefit equals the marginal cost.

Question 27

Technology is defined as

Answer 27

the processes used to produce goods and services.

Question 28

Marginal analysis involves undertaking an activity

Answer 28

until its marginal benefits equal marginal costs.

Question 29

Which of the following is a normative economic statement?

Answer 29

The price of gasoline is too high.

Question 30

The highest-valued alternative that must be given up to engage in an activity is the definition of

Answer 30

opportunity cost.

Question 31

In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.

Answer 31

market

Question 32

In economics, choices must be made because we live in a world of

Answer 32

scarcity.

Question 33

The three fundamental questions that any economy must address are:

Answer 33

What goods and services to produce; how will these goods and services be produced; and who receives them?

Question 34

Which of the following correctly describes the relationship between economic efficiency and economic equity?

Answer 34

There is often a trade-off between the two.

Question 35

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package?

Answer 35

$75

Question 36

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

Answer 36

2 1/2 Russian tea cakes

Question 37

Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." Refer to Scenario 1-1. Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and by how much?

Answer 37

Its profit will be $700 higher.

Question 38

Allocative efficiency is achieved when firms produce goods and services

Answer 38

that consumers value most.

Question 39

When every good or service is produced up to the point where the last unit provides ________, allocative efficiency occurs.

Answer 39

a marginal benefit to society equal to the marginal cost of producing it

Question 40

Who receives the most of what is produced in a market economy?

Answer 40

those who are most willing and able to buy them

Question 41

If opportunity costs are constant, the production possibilities frontier would be graphed as

Answer 41

a negatively sloped straight line.

Question 42

The slope of a production possibilities frontier

Answer 42

measures the opportunity cost of producing one more unit of a good.

Question 43

​ Serena Haley Bracelets 8 9 Necklaces 16 12 Table 2-7 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Refer to Table 2-7. Which of the following statements is true?

Answer 43

Haley has an absolute advantage in making bracelets and Serena in making necklaces.

Question 44

A production possibilities frontier with a bowed-outward shape indicates

Answer 44

increasing opportunity costs as more and more of one good is produced.

Question 45

Households ________ final goods and services in the ________ market.

Answer 45

purchase; product purchase; product

Question 46

Table 2-7 ​ Serena Haley Bracelets 8 9 Necklaces 16 12 Table 2-7 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Refer to Table 2-7. Which of the following statements is true?

Answer 46

Haley has a comparative advantage in making bracelets and Serena in making necklaces.

Question 47

The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources.

Answer 47

maximum attainable

Question 48

​ One Canoe One Sailboat Guatemala 10 hours 60 hours Honduras 15 hours 75 hours Table 2-10 shows the number of labor hours required to produce a canoe and a sailboat in Guatemala and Honduras. Refer to Table 2-10. If the two countries specialize and trade, who should export canoes?

Answer 48

Guatemala

Question 49

Production choices for Tomaso's Trattoria Choice Quantity of Pizzas Produced Quantity of Calzones Produced A 48 0 B 36 15 C 24 30 D 12 45 E 0 60 Refer to Table 2-1. Assume that Tomaso's Trattoria only produces pizzas and calzones. A combination of 36 pizzas and 30 calzones would appear

Answer 49

outside Tomaso's production possibilities frontier.

Question 50

Which of the following is a factor of production?

Answer 50

an oven in a bakery

Question 51

The points outside the production possibilities frontier are

Answer 51

unattainable.

Question 52

The production possibilities frontier model shows that

Answer 52

if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

Question 53

The concept of opportunity cost is that

Answer 53

the economic cost of using a factor of production is the alternative use of that factor that is given up.

Question 54

________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.

Answer 54

Increasing

Question 55

The slope of a production possibilities frontier

Answer 55

measures the opportunity cost of producing one more unit of a good.

Question 56

Production choices for Tomaso's Trattoria Choice Quantity of Pizzas Produced Quantity of Calzones Produced A 48 0 B 36 15 C 24 30 D 12 45 E 0 60

Answer 56

on Tomaso's production possibilities frontier.

Question 57

​ Serena Haley Bracelets 8 9 Necklaces 16 12 Table 2-7 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Refer to Table 2-7. What is Haley's opportunity cost of making a bracelet?

Answer 57

1 1/3 necklaces

Question 58

If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.

Answer 58

linear

Question 59

​ Serena Haley Bracelets 8 9 Necklaces 16 12 Table 2-7 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Refer to Table 2-7. What is Haley's opportunity cost of making a necklace?

Answer 59

3/4 of a bracelet

Question 60

When you purchase a new pair of jeans you do so in the

Answer 60

product market.

Question 61

In 2017, Tesla Motors introduced the Model 3, its first low cost model which it had hoped to sell for $35,000 but realized that it would lose several thousand dollars per car at that price. Prior to the introduction of the Model 3, Tesla's two existing models (the Model S sedan and the Model X SUV) had starting prices of over $70,000 and at those prices, the company was earning a profit on each car sold. Tesla CEO Elon Musk said that "Higher volume and manufacturing design improvements are crucial for Tesla [to sell the Model 3 at a price of $35,000]...." In deciding to increase volume and improve manufacturing design for the Model 3, Tesla

Answer 61

faced a trade-off between devoting additional resources to the production of the Model 3 and devoting additional resources to producing its other models.

Question 62

The term "property rights" refers to

Answer 62

the ability to exercise control over one's own resources within the confines of the law.

Question 63

Caviar Price per oz. (dollars) Ari's Quantity Demanded (oz.) Sonia's Quantity Demanded (oz.) Rest of Market Quantity Demanded (oz.) Market Quantity Demanded (oz.) $75 6 0 46 ​ 65 18 6 64 ​ 55 28 14 136 ​ 45 36 24 170 ​ 35 44 36 220 ​ Refer to Table 3-3. The table above shows the demand schedules for caviar of two individuals (Ari and Sonia) and the rest of the market. At a price of $75, the quantity demanded in the market would be

Answer 63

52 oz

Question 64

What is the difference between an "increase in supply" and an "increase in quantity supplied"?

Answer 64

An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Question 65

Loose Leaf Tea Price per lb. (dollars) Sunil's Quantity Demanded (lbs) Mia's Quantity Demanded (lbs) Rest of Market Quantity Demanded (lbs) Market Quantity Demanded (lbs) $8 4 0 30 ​ 6 7 2 40 ​ 5 9 3 51 ​ 4 12 5 64 ​ 3 15 8 90 ​ Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be

Answer 65

63 lbs.

Question 66

If the price of orchids falls, the substitution effect due to the price change will cause

Answer 66

an increase in the quantity of orchids demanded.

Question 67

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

Answer 67

an inferior good.

Question 68

Price (dollars per surfboard) Quantity (surfboards per week) ​ ​ ​ 340 $600 ​ ​ 175 Table 3-4 represents the supply schedule for surfboards. Assume that the market for surfboards has an upward-sloping supply curve. Refer to Table 3-4. At a price of $600, the quantity of surfboards supplied per week will be

Answer 68

greater than 175 per week

Question 69

Which of the following will shift the demand curve for a good?

Answer 69

a decrease in the price of a complementary good

Question 70

A supply schedule

Answer 70

is a table that shows the relationship between the price of a product and the quantity of the product supplied.

Question 71

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

Answer 71

complements.

Question 72

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, then economists would describe this as

Answer 72

a decrease in quantity demanded.

Question 73

The demand by all the consumers of a given good or service is the ________ for the good or service.

Answer 73

market demand

Question 74

Which of the following would shift the supply curve for MP3 players to the left?

Answer 74

an increase in the price of an input used to produce MP3 players

Question 75

Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?

Answer 75

a decrease in the price of cattle

Question 76

The supply curve for watches

Answer 76

shows the relationship between the price of watches and the quantity of watches supplied.

Question 77

If, in response to a decrease in the price of grapes, the quantity of grapes demanded increases, then economists would describe this as

Answer 77

an increase in quantity demanded.

Question 78

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

Answer 78

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.

Question 79

If a demand curve shifts to the right, then

Answer 79

demand has increased.

Question 80

The law of demand implies, holding everything else constant, that as the price of bagels increases

Answer 80

the quantity of bagels demanded will decrease.

Question 81

A decrease in the price of dashboard cameras will result in

Answer 81

a smaller quantity of dashboard cameras supplied.

Question 82

Which of the following is the correct way to describe equilibrium in a market?

Answer 82

At equilibrium, quantity demanded equals quantity supplied.

Question 83

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant?

Answer 83

The demand curve shifts to the left.

Question 84

The athletic shoe industry is highly competitive. In recent years, companies like Allbirds and Skechers began offering shoes made of different materials or in different styles to better compete with industry giants Nike and Adidas. These new styles of athletic shoes that are being marketed to compete with shoes by Nike and Adidas would be considered

Answer 84

substitutes for shoes by Nike and Adidas.

Question 85

In a perfectly competitive market, there are ________ buyers and ________ sellers.

Answer 85

many; many

Question 86

If the amount of athletic shoes purchased by millennials and members of generation Z increase as they choose to purchase these types of shoes compared to other types such as sandals and hiking boots, this will likely

Answer 86

increase the demand for athletic shoes, because athletic shoes, sandals, and hiking boots are considered substitutes.

Question 87

Price (dollars per surfboard) Quantity (surfboards per week) ​ ​ ​ 175 $600 ​ ​ 340 Table 3-2 represents the demand schedule for surfboards. Assume that the market for surfboards has a downward-sloping demand curve. Refer to Table 3-2. At a price of $650, the quantity of surfboards demanded will be

Answer 87

less than 340 per week.