Micro Midterm (Chapter 1 - 6)

The word "economy" comes from the Greek word oikonomos, which means
"one who manages a household"

Economics is defined as the study of
how society manages its scarce resources 

Economics deals primarily with the concept of:
scarcity

Which of the following is an example of something economists study?
all of the above are correct 

Scarcity exists when
there is less of a good or resource available than people wish to have 

In most societies, resources are allocated by
the combined actions of millions of households and firms 

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
people face tradeoffs

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?
Andrew must decide between going to Florida or Brazil for spring break 

When the government implements welfare programs, which of the following is likely to occur?
equity is increased and efficiency is decreased 

A tradeoff exists between a clean environment and a higher level of income in that
laws that reduce pollution raise costs of production and reduce incomes 

The opportunity cost of an item is
what you give up to get that item 

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your graduate program cost?
the $45,000 salary that you will be able to earn after having completed the program 

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank for a year and earn 5 percent interest. The opportunity cost of spending the money today is
$315

A marginal change is a
small, incremental change 

A construction company has built 50 houses so far this year at a total cost to the company of $8 million. If the company builds a 51st house, its total cost will increase to $8.18 million. Which of the following statements is correct?
all of the above 

A rational decision maker takes an action only if the
marginal benefit is greater than the marginal cost 

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?
the marginal benefit of going to Spain increases 

According to Adam Smith, the success of decentralized market economies is primarily due to
Individuals' pursuit of self-interest 

The term "market failure" refers to
a situation in which the market on its own fails to allocate resources efficiently 

Market failure can be cause by
externalities and market power 

The fact that different countries experience different standards of living is largely explained by differences in those countries'
productivity levels 

To raise productivity, policymakers could
all of the above 

Large or persistent inflation is almost always caused by
government printing too much money 

The business cycle is the
irregular fluctuations in economic activity

Which of the following statements about economic models is correct?
models assume away irrelevant details

Economists make assumptions
to make the world easier to understand

Just like models constructed in other areas of science, economic models incorporate assumption that may contradict reality 

The circular-flow diagram is a
visual model of how the economy is organized 

In a circular flow diagram, if Michelle is a worker who delivers flowers, she participates
in the market for factors of production exchanging labor for income 

Production possibilities frontiers are usually bowed outward. This is because recourses are specialized; that is some are better at producing particular good rather than other goods 

The two loops in the circular-flow diagram represent the flow of
inputs and outputs and the flow of dollars 

The production possibilities frontier is a
graph that shows the various combinations of output the economy can possibly produce given the available resources and technology

Given the table shown above, which of the following statements accurately describes the production possibilities for Toyland?
the opportunity cost of an additional 100 dolls increases as more dolls are produced 

If a nation has an absolute advantage in the production of a good,
it can produce that good using fewer resources then its trading partner. 

According to the principle of comparative advantage,
countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners 

Canada and the U.S. both produce wheat and computer software. Canada is said to have comparative advantage in producing wheat if
the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.

Please use the data provided below to answer this and the following question:

Which of the statements is true?
Australia has an absolute advantage in the production of both food and electronics 
[Or]
Australia has an absolute advantage in the production of electronics, while Korea has comparative advantage in the production of electronics 

Korea should
specialize in electronics production, export electronics, and import food 

In a competitive market, the price of the product
none of the above 

A market is a
group of demanders and suppliers of a particular good or service 

Each of the following are determinants of demand except
technology 

If John receives an increase in his pay, we would expect
his demand for normal goods to increase 

An example of substitute goods would be
butter and margarine 

Suppose that scientists find evidence that proves chocolate pudding lowers cholesterol. We would expect to see
an increase in the demand for chocolate pudding 

John rents 5 movies per month when the price is $3.00 each and 7 movies per month when the price is $2.50. He demonstrates the
law of demand 

Which of the following statements is true about the impact of an increase in the price of lettuce?
the equilibrium price and quantity of salad dressing will fall

The law of supply clearly states that
an increase in price of the product leads to an increase in quantity supplied, other things equal 

Suppose you make gold jewelry. An increase in the price of gold will cause
supply of gold jewelry to decrease

Which of the following events would definitely result in a higher price in the market for oranges?
demand for oranges increases and supply of oranges decreases 

Suppose roses are currently selling for $40.00 per dozen. The equilibrium price of roses is $30.00 per dozen. We would expect a
surplus to exist and the market price of roses to decrease 

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
price will fall and the effect on quantity is ambiguous 

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises and the price of steel rises?
quantity will fall and the effect on price is ambiguous

The concept of elasticity is used to
analyze supply and demand with greater precision 

Price elasticity of demand measures
the responsiveness in quantity demanded to a change in price 

In general, a flatter demand curve is more likely to be
price elastic 

If the price elasticity of demand for a good is 4.0, then a 10% increase in price will result in a
40% decreased in quantity demanded 

The midpoint method is used to compute elasticity because it
gives the same answer regardless of the direction of change 

When the local used bookstore prices economics books at $15.00 each, they generally sell 70 per month. If they lower the price to $7.00 each they sell 90. Given this, the price elasticity of demand for economics books, calculated using the midpoint method is
0.34 

When demand is inelastic, a decrease in price will cause
a decrease in total revenue 

In which of the following situations will total revenue increase?
all of the above 

Price controls are
usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers 

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that
the U.S. government imposed a price ceiling on gasoline