ECO 201: Microeconomics, Unit 1 – Flashcards
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The term "factors of production" refers to:
a. The ability of firms to outsource production
b. Resources used to make goods and services
c. Scarcity of time to make goods
d. A firm's profit from producing goods and services
answer
B (Think of factors as necessary inputs into a production process, they are the resources used in goods production)
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True or False: Households supply the factors of production.
answer
True (It may sound strange, but households generally supply the factors of production. Household is a broad term for non-business entities. Households provide labor, they rent/sell land and capital and provide entrepreneurship to businesses.)
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The factors of production are best characterized as:
a. Software and hardware used in the production process
b. Natural resources, capital resources and human resources
c. The cost of production
d. Efficient use of plant and equipment in the development of goods and services
answer
B (The factors of production are CELL - Capital, Entrepreneurship, Labor and Land, they include natural resources, such as land, capital resources, such as plant and equipment, and human resources, such as labor and entrepreneurship.)
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Which statement is incorrect when considering the flow of the factors of production?
a. Households sell factors of production to firms
b. Firms sell goods and services to households
c. Firms provide entrepreneurship to households
d. Both firms and households participate in the factor AND goods markets
e. Remuneration in the factor markets is with rent, wages, interest and/or profit
answer
C (All the statements are true except that HOUSEHOLDS provide entrepreneurship to FIRMS, and not the other way around. Firms are not entrepreneurs per se, it is the human capital in households that supply the entrepreneurship to firms. See circular flow diagram. )
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Economics considers all of the following except:
a. Tradeoffs
b. Aesthetics
c. Rationality
d. Incentives
e. Margin
answer
B (Economics studies behavior, so it evaluates how rational consumers respond to incentives and make trade-off decisions on the margin.)
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Marginal analysis implies that people make choices
a. by comparing the total benefit to the total cost
b. by comparing the average benefit against the average cost
c. by comparing the additional benefit against the additional cost
d. by considering the opportunity cost
answer
C (Marginal analysis does not look at the total or average cost/benefit. It evaluates the incremental or additional cost and benefit, such as the additional cost/benefit of an hour of studying.)
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Opportunity cost refers to
a. The value associated with a good or service
b. The value associated with the next best alternative to a good or service
c. The value associated with the time spent to research a good or service
d. The value associated with the opportunity to sell goods and services
answer
B (Opportunity cost is the value associated with the NBA - Next Best Alternative. For example, going to college costs money for tuition/fees, but it also costs you the opportunity to work and make money - your next best alternative to UNCG. Therefore, your opportunity cost of going to UNCG is the tuition paid PLUS the income you give up by not working.)
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8) True or False: It is possible to show both positive and negative relationships on one graph.
answer
True
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Scarcity results from:
a. Unlimited resources
b. Unlimited wants
c. Limited needs
d. Limited government
answer
B (There are unlimited wants in this world, but limited resources. This is scarcity)
question
Ben works part-time as a waiter and makes $80 a day. He is considering flying to Florida to visit his brother, but he would have to take two days off from work. The price of the flight is $240. What is Ben's total economic cost of the trip?
a. $160
b. $240
c. $320
d. $400
answer
D ($240 explicit cost + $80x2=$160 implicit cost)
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Microeconomics studies the choices that ________________ make and how they are influenced
by _____________.
a. Firms, markets
b. Individuals and firms, governments
c. Governments, individuals and firms
d. Markets, firms
answer
B (Microeconomics focuses on individual and firm choice that are influenced by government [and policy]. Alternatively, macroeconomics focuses on broader, market related questions. Each though considers the choices that households and firms make.)
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The opportunity cost of financing a home with a mortgage includes all of the following except:
a. Food costs
b. Less money to spend on vacation
c. The rate of return on the money used for a mortgage payment
d. The flexibility to move to another city
e. Maintenance costs of the home
answer
A (The opportunity cost is the cost of the next best alternative (NBA) that is given up to purchase a home. If you are obligated to make a monthly mortgage payment plus taxes and insurance (which together are likely more than a rental payment), you give up the ability to spend that money on other things, such as vacations and investments. Further, purchasing a home requires upkeep and maintenance, which is money that would otherwise be spent on non-house items. Plus, the cost of moving increases significantly and takes away the optionality of quickly changing jobs or moving to a better space. You have to eat whether or not a mortgage is taken out, so that is incorrect)
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Which statement is incorrect when considering the flow of the factors of production?
a. Households rent/sell/lease factors of production to firms
b. Firms sell goods and services to households
c. Households make expenditures on goods and services
d. Firms pay rents, wages and profits to receive factors of production
e. Households create goods and services to sell in the goods markets
answer
E (The circular flow diagram shows that households supply/sell factors of production to firms and receive rent, wages, interest and profits in return. With that income, households purchase goods and services produced by firms with those factors of production. )
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Scarcity results from:
a. Limited needs
b. Unlimited wants
c. Unlimited resources
d. Limited government
answer
B (There are unlimited wants in this world, but limited resources. This is scarcity.)
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Donald works as a real estate developer and makes $10,000 per day. He is considering flying to Washington DC to visit his friend Hillary, but he would have to take two days off from work (it would be tremendous, but instead it is sad ). The round trip price of the flight aboard his jet is $15,000. What is Donald's total economic cost of the trip?
a. $15,000
b. $20,000
c. $27,500
d. $35,000
answer
D ([$15,000 explicit cost + $10,000 x 2 days=$20,000 implicit cost] The accounting [or explicit] cost is the $15,000 cost of the plane. The implicit cost is missing 2 days of work, foregoing $20,000 in potential income. The total opportunity [or economic] cost includes the price of the ticket as well as the cost of Ben's time, or $35,000.)
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Which of the following answers most accurately reflects the role played by households in the circular flow model?
a. Households own the factors of production and buy goods and services
b. Households buy the factors of production and sell goods and services
c. Households buy the factors of production and buy goods and services
d. Households own the factors of production and sell goods and services
answer
A (Households own the factors of production and use the proceeds from the rent/sale of the factors of production to buy goods and services from firms. It may sound strange that households supply the factors of production, but "household" is a broad term for non-business entities. Households provide labor, they rent/sell land and capital and provide entrepreneurship to businesses.)
question
The term "factors of production" refers to:
a. Scarcity of time to make goods
b. Factors need to outsource production
c. Resources used to make goods and services
d. A firm's output from its production process
answer
C (Think of factors as necessary inputs into a production process, they are the resources used in goods production)
question
The factors of production are best characterized as:
a. Natural resources, capital resources and human resources
b. Efficient use of plant and equipment in the development of goods and services
c. Software and hardware used in the production process
d. The output associated with producing goods and services
answer
A (The factors of production are CELL - Capital, Entrepreneurship, Labor and Land, they include natural resources, such as land, capital resources, such as plant and equipment, and human resources, such as labor and entrepreneurship.)
question
Which statement is incorrect when considering the flow of the factors of production?
a. Households sell factors of production to firms
b. Firms provide entrepreneurship to households
c. Firms sell goods and services to households
d. Both firms and households participate in the factor AND goods markets
e. Remuneration in the factor markets is with rent, wages, interest and/or profit
answer
B (All the statements are true except that HOUSEHOLDS provide entrepreneurship to FIRMS, and not the other way around. Firms are not entrepreneurs per se, it is the human capital in households that supply the entrepreneurship to firms. See circular flow diagram.)
question
Microeconomics studies all of the following except:
a. Tradeoffs
b. Rationality
c. Incentives
d. Politics
e. Margin
answer
D (Economics studies behavior, so it evaluates how rational consumers respond to incentives and make trade-off decisions on the margin. Political Science studies politics.)
question
Marginal analysis implies that people make choices
a. by comparing the additional benefit against the additional cost
b. by comparing the total benefit to the total cost
c. by comparing the average benefit against the average cost
d. by considering the opportunity cost
answer
A (Marginal analysis does not look at the total or average cost/benefit. It evaluates the incremental or additional cost and benefit, such as the additional cost/benefit of an hour of studying.)
question
Opportunity cost refers to
a. The value associated with a good or service
b. The value associated with the time spent to research a good or service
c. The value associated with the opportunity to sell goods and services
d. The value associated with the next best alternative to a good or service
answer
D (Opportunity cost is the value associated with the NBA - Next Best Alternative. For example, going to college costs money for tuition/fees, but it also costs you the opportunity to work and make money - your next best alternative to UNCG. Therefore, your opportunity cost of going to UNCG is the tuition paid PLUS the income you give up by not working.)
