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According to the text, economics is the study of how:
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is the study of how human beings coordinate their wants and desires given a society's decision-making mechanisms, social customs, and political realities.
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microeconomic problems
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marketing strategy and work/leisure choice
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macroeconomic problems
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business cycles and Cyclical unemployment
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macro problems
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unemployment and inflation
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micro problems
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price policies of firms and how wages are determined in labor markets
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Any economic system:
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addresses the questions what is produced, how it is produced, and for whom it is produced.
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An economic model is:
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applies economic theory to understand real-world events.
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Sunk costs
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are irrelevant to economic decisions.
-already have been incurred and can't be recaptured
-already have been incurred and can't be recaptured
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You bought one share of McDonald's stock for $10, one share of Coca-Cola for $15, and one share of Pepto-Bismol for $20. Currently, each stock is priced at $15. Assuming that there are no tax issues and that you cannot predict the future price of any of the stocks, if you needed $15, which stock would you sell?
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Any one of them
-Since the purchase price is a sunk cost, it will not enter into your decision
-Since the purchase price is a sunk cost, it will not enter into your decision
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1 dinner// $4.00 marginal benefit per dinner
Suppose the price per dinner is $4.99 and accurately reflects the marginal cost of the dinners to Luigi. Assuming that Luigi is rational, he will:
Suppose the price per dinner is $4.99 and accurately reflects the marginal cost of the dinners to Luigi. Assuming that Luigi is rational, he will:
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not consume any pizza dinners this month.
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Brooke and Sandy both attend the same college and have the same expenses for tuition, books, and supplies. However, Brooke is a famous actress who could earn $2 million per year if she were not attending college whereas Sandy could earn $10,000 a year serving hamburgers if he were not attending college. It follows that the opportunity cost of attending college:
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is greater for Brooke than for Sandy
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Which of the following is a normative statement?
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The governments should spend more to aid the poor.
(is a statement about what should be.)
(is a statement about what should be.)
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John and Jane Smith are both economists who are deciding how to split household chores of cooking and cleaning. They discover that John has a comparative advantage in cooking. Does this discovery tell them anything about comparative advantage in cleaning?
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Yes; Jane must have a comparative advantage in cleaning.
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You rent a car for $30.25. The first 135 miles are free, but each mile thereafter costs $0.14. You plan to drive it 250 miles. What is the marginal cost of driving the car?
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The marginal cost is $16.10 plus the cost of gas.
(The marginal costs are the additional costs.)
(The marginal costs are the additional costs.)
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Suppose you currently earn $22,000 a year. You are considering a job that will increase your lifetime earnings by $220,000 but that requires an MBA. The job will mean also attending business school for two years at an annual cost of $30,000. You already have a bachelor's degree, for which you spent $65,000 in tuition and books.
Which of the above information is relevant to your decision on whether to take the job?
Which of the above information is relevant to your decision on whether to take the job?
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The relevant costs are the opportunity cost of taking the job (forgone earnings from your current job) and other things you could have done with the money you need to pay for business school. The tuition for the bachelor's degree is a sunk cost and is not relevant. The relevant benefit is the increased lifetime earnings of $220,000.
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State the law of demand.
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Quantity demanded rises as price falls, other things constant. Quantity demanded falls as price rises, other things constant.
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Why is price inversely related to quantity demanded?
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Because as price rises, consumers substitute other goods whose price has not risen.
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A change in price causes a movement where?
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-along the demand curve
-When price increases, the movement is upward and to the left.
-When price increases, the movement is upward and to the left.
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Identify four shift factors of supply with the correct explanation of how each affects supply.
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-Producers expect prices of their products to change in the future. As the price that producers expect to sell their products for increases, supply decreases.
-Change in taxes paid by producers. As the amount of taxes that producers pay increases, supply decreases.
-The price of inputs changes. As the price of inputs rises, supply decreases.
-When new production technologies are introduced the cost of production falls and supply increases.
-Change in taxes paid by producers. As the amount of taxes that producers pay increases, supply decreases.
-The price of inputs changes. As the price of inputs rises, supply decreases.
-When new production technologies are introduced the cost of production falls and supply increases.
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In the United States, say gasoline costs consumers about $2.50 per gallon. In Italy, say it costs consumers about $6 per gallon. What effect does this price differential likely have on the size of cars in the United States compared to Italy?
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The cars in Italy are most likely much smaller than in the United States.
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Mary has just stated that normally, as price rises, supply will increase. Her teacher grimaces. Why?
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As price rises, quantity supplied will increase.
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If X is a normal good, a rise in money income will shift the:
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demand curve for X to the right.
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(Consider This) Suppose that salsa manufacturers sell 2 million bottles at $3.50 in one year, and 3 million bottles at $3 in the next year. Based on this information we can conclude that the:
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supply of salsa has increased.
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A poor harvest would shift the supply curve which way?
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to the left
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Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by:
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the development of more efficient machinery for producing this commodity.
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To derive a market demand curve from individual demand curves, it would be necessary to:
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sum the curves horizontally, adding quantities demanded at each price.
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Sometimes price cuts can have an unintended result of consumers waiting for deeper discounts. What does this waiting suggest about supply and demand?
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Price cuts have changed buyers' expectations, and the change in expectations has moved the demand curve left.
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Say that the equilibrium price and quantity both fell. What would you say was the most likely cause?
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There was a decrease in demand and no change in supply.
(If the equilibrium price and quantity both fell, the simplest cause would be a shift of the demand curve to the left.)
(If the equilibrium price and quantity both fell, the simplest cause would be a shift of the demand curve to the left.)
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Say that equilibrium price remained constant and quantity fell. What would you say was the most likely cause?
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There was a decrease in demand and a decrease in supply.
(When both curves shift, the effect on either price or quantity depends on the relative size of the shifts. If equilibrium price remained constant and quantity fell, a possible cause would be a shift in of both the demand and supply curves to the left.)
(When both curves shift, the effect on either price or quantity depends on the relative size of the shifts. If equilibrium price remained constant and quantity fell, a possible cause would be a shift in of both the demand and supply curves to the left.)
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Technology is now being developed so that road use can be priced by computer. A computer in the surface of the road picks up a signal from your car and automatically charges you for the use of the road. How would this affect bottlenecks and rush-hour congestion?
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It would decrease bottlenecks and rush-hour congestion.
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If X is a normal good, a rise in money income will shift the:
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demand curve for X to the right.
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Suppose that there is a renewed interest in eating caviar at the same time that the supply of Russian caviar shrinks. What would be the most likely effect of these events on the price and quantity of caviar sold?
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Price rose and the effect on the quantity of caviar sold is ambiguous
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Suppose a price floor is imposed on eggs above their equilibrium price. The likely result will be:
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a decrease in the quantity of eggs demanded.
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When the polio vaccine first became available in the United States, the government controlled the price with an effective price ceiling. Production of the vaccine was not sufficient to fill all orders and the government had to regulate its distribution. Had the vaccine been sold without government intervention, the shortage would have been eliminated by price:
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rising, quantity demanded decreasing, and quantity supplied increasing.
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