question
Scarcity is caused by:
answer
Unlimited wants and limited resources
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The three questions every society must answer are:
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What, for whom, and how to produce
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Microeconomics is about:
answer
relative changes and studies how individual units make choices in the face of scarcity.
question
We can think of microeconomics as focusing on the _____ while macroeconomics focuses on the _____.
answer
details; big picture
question
Models that are very simplistic have almost no value.
answer
False
question
Models can be used to explain things but they cannot be used to predict things.
answer
False
question
Models with lots of details are always the best.
answer
False
question
The following model shows how resources in an economy move between households, businesses, and government.
answer
The Circular Flow Model
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The following model shows how different combinations of goods can be produced in an economy with available resources/technology.
answer
Production Possibilities Model (or PPF)
question
The following model shows the relationship of price of a good or services and the quantity supplied and demanded.
answer
Supply and Demand Model
question
The following model shows how firms behave under highly competitive conditions.
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Perfect Competition Model
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The following model shows the price and output behavior of a firm that dominates a market.
answer
Monopoly Firm Model
question
The ceteris paribus assumption is important because it:
answer
allows variables of interest to be isolated
question
An economist wants to study how the price of coffee impacts the sale of coffee. The economist should use ceteris paribus to:
answer
hold income and the price of tea constant
question
A "market" is:
answer
anything that brings together buyers and sellers
question
Factors of production are:
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land, labor, capital, and entrepreneurship; they are often owned and sold by households
question
The arrow labeled A indicates the flow of the:
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goods and services bought
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The arrow labeled C indicates the flow of the:
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public goods and laws received by households from the government
question
The flow of wages to households is shown by arrow:
answer
B
question
In both market systems and command systems, the interaction between household and business determines what will be produced.
answer
False
question
Opportunity cost is:
answer
greater than accounting costs because it measures the cost from giving up the next best alternative
question
You go to watch a 2-hour play. Tickets are $30. The opportunity cost of going to the play is:
answer
the $30 that could have been spent on the next best thing plus the two hours spent at the theatre that could have been spent doing the next best thing.
question
A rational decision means that what you chose was chosen because it was preferred over the next best alternative.
answer
True
question
Recall the article about the cost to open a coffee shop; did the article fully address the costs?
answer
No, this article only addresses accounting (explicit) costs. The article did not account for the time of the entrepreneur who has given up the opportunity to work somewhere else.
question
Suppose you owned a coffee shop. Would you consider your coffee shop to be profitable if you made $30,000 accounting profit per year but turned down a job that paid $40,000 to open up your shop?
answer
No, the shop is not profitable because the opportunity cost exceeds the accounting profit.
question
Marginal benefit is:
answer
the benefit received from one more unit of a good/service
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Economic choice is based on a comparison of the expected:
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marginal cost and the expected marginal benefit
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The marginal cost of an additional year of school is increasing because:
answer
Both of the above are true
question
Recall the graph showing the marginal benefit of additional school. Does the marginal benefit of additional years of schooling decrease?
answer
Yes. The basics learned during elementary school are extremely valuable and necessary. There is a lot of benefit from going to college, but the benefit still less than learning the foundational skills one learns elementary school.
question
Marginal analysis tells us that:
answer
How much education a person gets depends on where the marginal benefit of going to school is equal to the marginal cost of going to school. This point is different for different people.
question
You've got data on Rainfall and Coffee Production. What should we use for the X-axis and the Y-axis?
answer
X-axis: Rainfall Y-axis: Coffee Production
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What scales should we use for Rainfall and Coffee Production?
answer
Rainfall: 0-10 inches; 1 inch per tick mark, Coffee Production: 0-10 tons; 1 ton per tick mark
question
How much coffee is produced for 1 inch of rain?
answer
2 tons of coffee
question
How would you describe the relationship in the graph?
answer
More rainfall, more coffee
question
How much does coffee production increase if rainfall increases by one inch?
answer
2 tons of coffee
question
What is the y-intercept for your line?
answer
0 tons of coffee
question
If you had 4 inches of rain, how much coffee production is predicted by our line?
answer
8 tons of coffee
question
How can we compare coffee production with OldTech and NewTech fertilizers?
answer
Plot the data for NewTech fertilizer on a completely new line
question
What is the slope of the line for NewTech fertilizer?
answer
3 tons/inch
question
How would you describe the effect of the NewTech fertilizer?
answer
NewTech fertilizer increases the coffee yield from 2 tons per inch to 3 tons per inch of rainfall.
question
How would you describe the relationship between temperature and coffee production?
answer
It's positive, but at a decreasing rate!
question
What's the best temperature for growing coffee?
answer
75°F: This is just right.
question
How much does NewTech fertilizer add to your coffee production at the optimal temperature?
answer
2 tons
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