Midterm 1 Review Flashcards
The fact that human wants cannot be fully satisfied with available resources is called the problem of:
Scarcity
When a market price allocates a scarce resource:
Only those who are willing and able to pay get the resource
A positive statement is always what?
Always true
The concept of opportunity cost implies what?
It implies that when a person is more efficient in the production of one good, they should produce that good and exchange it for some good that they are relatively less efficient at producing.
The branch of economics that studies the choices of individuals and businesses is:
Microeconomics
The maximum price a consumer is willing to pay for a good is the:
Marginal cost (of the good)
“There can be too much of a good thing.” This statement suggests that:
A good may be produced to the point where its marginal cost exceeds its marginal benefit
Opportunity cost of an action is:
The highest-valued alternative forgone
The demand curve for a good is the same as the _________ curve of that good.
Marginal benefit
In a world characterized by scarcity, people must:
Make choices among alternatives
Model A is superior to model B if:
Its predictions correspond more closely to the facts than the predictions of model B
Which of the following is true regarding marginal benefit?
a) The marginal benefit curve shows the benefit firms receive by producing another unit of a good.
b) Marginal benefit increases as more and more of a good is consumed.
c) Marginal benefit is the maximum amount a person is willing to pay to obtain one more unit of a good.
c) only
A price elasticity of demand of 2 means that a 10 percent increase in price will result in a ___ precent _________ in quantity demanded.
20; decrease
Statements about “what ought to be” are called:
Normative statements
Marginal benefit from a good or service is the benefit received from consuming ________. It is measured by the most that people are willing to pay for ________.
One more unit of it; an additional unit of it
Sally has to decide whether to study for her economics test or her accounting test. If she chooses to study for accounting, her opportunity cost of studying accounting is:
Studying economics
What is the definition of marginal benefit?
The benefit that arises from an increase in an activity
“The rich face higher income tax rates than the poor, which is not good since it is the rich who provide jobs for the poor.” This is an example of a ________ statement.
Normative
What is the saying that best describes opportunity cost?
“No such thing as a free lunch”
Which of the following statements are positive?
1. The federal government should increase production of biofuels
2. Air travel has increased since September 11
3. The greatest number of accidents are caused by drunk drivers
4. We ought to have a cure for cancer
2 and 3
True or False: the main functions of markets include enabling buyers and sellers to get information about each other.
True
The price of oranges rises by 3 percent and quantity of oranges demanded decreases by 3 percent. We conclude that the demand for oranges is __________.
Unit elastic
True or False: the problem of scarcity exists only in economies that lack incentives.
False, the problem of scarcity exists in ALL economies
Marginal cost is:
The opportunity cost of producing one more unit of a good or service
True or False: an economic model is useful if it predicts well, even if it’s assumptions are unrealistic.
True
Complete the following sentence. As you consume more and more of a good, ____________ decreases.
Marginal benefit
The inescapable economic fact is that there are ___________ wants and ___________ resources.
Unlimited; limited
Which point is unattainable?
E
What is marginal utility?
The change in total utility that results from a one-unit increase in the quantity of a good consumed
In consumer equilibrium, a consumer equates the _______________ per dollar on each good.
Marginal utility
True or False: The budget line is based on fixed quantities
False
Which statement is true for a normal good?
a) The income effect reinforces the substitution effect.
b) As price falls, we cannot tell whether consumption increases or decreases.
c) As income increases, consumption decreases.
d)The income effect dominates the substitution effect.
e) As income increases, consumption remains constant.
a)
What is an indifference curve?
A line that shows combinations of goods among which a consumer is indifferent
If the price of the good measured on the vertical axis increases, the budget line becomes ________.
Flatter
Marie-Louise has an income of $10 to buy peanuts and popcorn. The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2. What is Marie-Louise’s real income in terms of popcorn?
5 bags of popcorn
Real income in terms of a good is defined as:
Income divided by the price of a good
If the price of the good measured on the horizontal axis increases, the budget line becomes ________.
Steeper
What is a preference map?
A series of indifference curves
What is a distinguishing characteristic of an inferior good?
A negative income effect
Utility is: (Econ definition)
The benefit or satisfaction from consuming goods and services
True or False: the substitution effect is always ‘negative’
True
Figure 9.2.2 shows three indifference curves for Brenda. Which one of the following is not true?
a) The marginal rate of substitution is higher at point C than at point B.
b) Brenda prefers consuming at point B to consuming at point A.
c) Brenda prefers consuming at point D to consuming at point A.
d) Brenda would be equally happy consuming at either point B or point C.
e) Brenda prefers consuming at point D to consuming at either point B or point C.
a)
Chuck and Barry have identical total utility schedules but Chuck has a much higher income. If each is maximizing his total utility, then:
Chuck will have lower marginal utility than Barry for each normal good consumed
If a consumer’s income increases and if all goods are normal goods:
The quantity bought of each good increases
True or False: if the marginal utility per dollar of good X is less than the marginal utility per dollar of good Y, then the consumer should shift some spending from X to Y
True
If income falls, then in the new consumer equilibrium:
The marginal utility from normal goods increases
Bikes and roller blades are substitutes. Marginal utility theory predicts that when the price of a bike rises, the quantity of bikes demanded _________ and the ________ curve for roller blades shifts _____ - ward.
Decreases, demand, right
Total utility is always __________ when marginal utility is positive
Increasing
Which one of the following is not an assumption of marginal utility theory?
a) People derive utility from their consumption.
b) Consumers maximize total utility.
c) Utility can be measured.
d) Marginal utility diminishes with more consumption.
e) More consumption yields more total utility.
c)
Which one of the following statements about Figure 9.3.2 is true?
a) Point R is not affordable.
b) Point T is preferred to point Q, but T is not affordable.
c) Point S is preferred to point Q, but S is not affordable.
d) Points Q and S cost the same, but Q is preferred to S.
e) Point R is the best affordable point.
b)
If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then:
Total utility is maximized
In consumer equilibrium:
Total utility is maximized given the consumer’s income and the prices of goods
To determine consumer equilibrium we need to know only _______, _______, and ______________.
Prices, income, and marginal utility
True or False? A firm’s total opportunity cost of production is the sum of the cost of using resources bought in the market, owned by the firm, and supplied by the firm’s owner.
True
Marginal product is the slope of the ________.
Total product curve
The difference in the market value of a new car and the market value of the same car one year later is called:
Economic depreciation
True or False: a production process is technologically efficient only if it is producing a given output at the lowest possible cost.
False
A short run is a time frame that refers to what?
A time frame when at least one factor of production is fixed
True or False: the cost of producing at point B equals the cost of producing at point C.
False
The quote “Each worker produces 2 tables a day” best represents ________ product.
Average
The long run refers to what?
A time frame in which ALL factors of production are variable
When the 7th worker is hired, output increases from 100 units per week to 110 units per week. When the 8th worker is hired, output increases from 110 units to 118 units. This is an example of:
Diminishing marginal returns
True or False: when the marginal product of labour is greater than the average product of labour, the average product of labour is decreasing.
False; the average product of labour would be increasing
Refer to Figure 11.3.2, which illustrates short-run average and marginal cost curves. Which one of the following statements is false?
a) Curve D is the marginal cost curve.
b) The vertical gap between curves B and C is equal to average fixed cost.
c) The vertical gap between curves B and C is equal to average variable cost.
d) Line B comes closer to line C as output increases because of a decrease in average fixed cost.
e) Average fixed cost decreases with output.
c)
“We can increase the number of meals we serve by just adding more kitchen staff, but each additional worker adds less meals than the previous worker because traffic in the kitchen will get worse.” This statement demonstrates:
The law of diminishing marginal returns
True or False: Marginal cost decreases at low outputs and increases at high outputs.
True
Which of the following are correct? According to the law of diminishing returns:
(1) marginal product eventually rises.
(2) marginal product eventually falls.
(3) marginal cost eventually rises.
(4) marginal cost eventually falls.
2 and 3
If ATC is falling, then MC must be __________.
Below ATC
The curve that represents the plant using the largest amount of capital is:
Plant D
True or False: Total cost equals fixed cost plus average cost
False, total cost equals to the sum of the fixed costs and variable costs
A production function is the relationship between the maximum output attainable and the:
Quantities of inputs used
Suppose a candy manufacturer can triple its production of fudge by doubling its production facility for making fudge. This indicates the presence of ____________.
Economies of scale
The MC curve shifts upward if:
Factor prices rise
The marginal cost curve slopes downward at low outputs because of ________. The marginal cost curve eventually slopes upward because of ________.
Greater specialization and division of labour; the law of diminishing returns
The equation for marginal cost equals:
ΔTC/ΔQ
True or False: the marginal cost curve intersects the average variable cost curve and the average total cost curve at their maximum points.
False
The marginal cost curve slopes upward due to:
Diminishing marginal returns
True or False: average variable cost is at a minimum at the same output at which average product is at a maximum.
True
The long-run average cost curve is the relationship between the lowest attainable average total cost and output, when plant size is ________ and labour is ________. The long-run average cost curve is made up of the segments of individual average ________ cost curves with the lowest average ________ cost for a given output.
Varied; varied; total; total
Diseconomies of scale are present when:
Average total cost rises as input increases
The vertical distance between the TC and TVC curves is equal to _______.
TFC (TFC=TC-TVC)
A firm’s total product curve describes:
The maximum output that a given quantity of labour can produce
If enforcement of the law is aimed at buyers of an illegal good, the result will be:
A decrease in demand for the good
If the price of a good is not affected by a tax, then demand is ________ elastic.
Perfectly elastic
How many sides does a market have?
Two sides - buyers and sellers
What does the law of demand state?
The higher the price of a good, the smaller is the quantity demanded
Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid mostly by ______.
Buyers
When a price ceiling is set below the equilibrium price:
The quantity demanded exceeds the quantity supplied
Which of the following “other things” are not held constant along a demand curve?
a) preferences
b) the price of the good itself
c) income
d) prices of related goods
e) expected future income and credit
b) the price of the good itself
A turnip is an inferior good if an ________ in income _______ the demand for turnips.
Increase; decreases
What is a subsidy?
Payment made by the government to a producer
Farm land can be used to produce either cattle or corn. If the demand for cattle increases, then the ________ of corn ________.
Supply; decreases
The tax on each frisbee is:
$1.00
True or False: the price of a good will rise if supply of the good increases.
False, the price will rise if supply decreases
True or False: If the demand curve is D2, the equilibrium price is P2 and the equilibrium quantity is Q2
This is true
At price P3:
a) this market is in equilibrium
b) there is a tendency for the price to rise.
c) there is a surplus in the amount of Q5 - Q1.
d) equilibrium quantity is Q5
e) there is a shortage in the amount of Q5 - Q1.
c) there is a surplus in the amount of Q5 - Q1
Apples and oranges are pretty good. What event might lead to oranges having a price rise.
a) A rise in the price of apples
b) a decrease in income if oranges are a normal good
c) good growing weather in Florida
a)
A shortage is the amount by which quantity demanded ________ quantity supplied.
Exceeds
The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences on buying plans remain the same.
Quantity demanded of a good to a change in its price
If we observe a rise in the equilibrium price of good A, we know that either the demand for A has:
Increased or the supply of A has decreased or both
The demand for good A is unit elastic if:
A 5 percent rise in the price of A results in a 5 percent decrease in the quantity of A demanded
Supply is elastic if:
A small percentage change in price results in a large percentage change in quantity supplied
A price elasticity of demand of 2 means that a 10 percent increase in price will result in a ____ percent decrease in quantity demanded
20
“A price cut won’t help me. It won’t increase sales, and I’ll just get less money for each unit.” This statement refers to:
Inelastic demand of a good
Consider the market for housing illustrated in Figure 6.1.1 when the demand curve is D0 . The equilibrium in an unregulated market is:
1500 rooms rented at $150 a month
If a large percentage drop in the price level results in a small percentage increase in the quantity demanded, demand is ________.
Inelastic
A perfectly vertical demand curve indicates that the price elasticity of demand for the good is ____.
Zero
When a market price allocates a scarce resource:
Only those who are willing and able to pay get the resource
If the price is above the equilibrium price, then a _______ exists.
Surplus
