Microeconomics Exam 1 - Flashcards

Q: Any combination of goods lying outside of the budget line:

is unattainable, given the consumer\'s income.

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utility

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pleasure of satisfaction

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Opportunity costs exist because:

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the decision to engage in one activity means forgoing some other activity

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Which of the following terms implies the least degree of confidence in an economic generalization?

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hypothesis

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The process by which economists test hypotheses against facts to develop theories, principles, and models is called:

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the scientific method.

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Macroeconomics approaches the study of economics from the viewpoint of

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the entire economy

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what does macroeconomics focus on?

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Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

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The economizing problem is:

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the need to make choices because economic wants exceed economic means.

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Any combination of goods lying outside of the budget line:

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is unattainable, given the consumer's income.

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The four factors of production are:

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land, labor, capital, and entrepreneurial ability.

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The main function of the entrepreneur is to:

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innovate.

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Which of the following would not be classified as an economic resource by economists?

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Money in a business checking account.

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Which of the following is assumed in constructing a typical production possibilities curve?

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Production technology is fixed.

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The construction of a production possibilities curve assumes:

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technology is fixed.

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The law of increasing opportunity costs is reflected in a production possibilities curve that is:

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bowed out from the origin.

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The marginal cost curve is:

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upsloping because of increasing marginal opportunity costs.

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Through specialization and international trade, a nation:

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can attain some combination of goods lying outside its production possibilities curve.

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The "after this, therefore because of this" fallacy states that:

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because event A precedes event B, A is necessarily the cause of B.

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Which of the following statements is correct?

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a. The value of the independent variable is determined by the value of the dependent variable. B. The value of the dependent variable is determined by the value of the independent variable. c. The dependent variable designates the "cause" and the independent variable the "effect." d. Dependent variables graph as upsloping lines; independent variables graph as downsloping lines.

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The slope of a straight line can be determined by:

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comparing the absolute vertical change to the absolute horizontal change between two points on the line.

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The slope of a line parallel to the horizontal axis is:

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zero.

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Which of the following is a distinguishing feature of a command system?

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Central planning.

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The French term "laissez-faire" means:

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"let it be"

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Economic systems differ according to which two main characteristics?

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Who owns the factors of production and the methods used to coordinate economic activity.

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Which of the following is not a typical characteristic of a market system?

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a. Private property. b. Freedom of enterprise. C.Government ownership of most property resources. d. Competition in product and resource markets.

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Broadly defined, competition involves:

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independently acting buyers and sellers and freedom to enter or leave markets

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Barter:

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entails the exchange of goods for goods.

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The most efficient combination of resources in producing a given output is the combination that:

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Minimize the cost per unit of output

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Which of the following is not one of the five fundamental questions?

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A. What prices will be charged for goods and services? b. Who will get the goods and services? c. What goods and services will be produced? d. How will the system promote progress?

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Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:

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production targets were often increased when innovation occurred.

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In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

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Corporations.

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The two basic markets shown by the simple circular flow model are:

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product and resource

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In the simple circular flow model:

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businesses are sellers of final products.

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In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.

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product; resource

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Households and businesses are:

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sellers in the resource and product markets respectively.

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Flowchart between businesses and households. Refer to the diagram. Arrows (1) and (2) represent:

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resources and goods respectively.

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Flowchart between businesses and households Refer to the diagram. Arrows (3) and (4) represent:

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incomes and consumer expenditures respectively.

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Risk is a problem faced:

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in both market systems and command systems

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Since World War II:

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a. North Korea's command economy has significantly outperformed South Korea's market economy. b. South Korea's command economy has significantly outperformed North Korea's market economy. c. North Korea's market economy has significantly outperformed South Korea's command economy. D. South Korea's market economy has significantly outperformed North Korea's command economy.

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North Korea's command economy:

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A. is one of the few remaining command economies. b. has grown much faster than South Korea's economy since the two countries were divided after World War II. c. produces a per capita GDP of nearly $25,000. d. has undergone significant market reforms and is now one of the fastest-growing economies.

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A market:

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is an institution that brings together buyers and sellers.

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The law of demand states that, other things equal:

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price and quantity demanded are inversely related.

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Economists use the term "demand" to refer to:

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a schedule of various combinations of market prices and amounts/quantities demanded.

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When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes:

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the substitution effect.

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The demand for most products varies directly with changes in consumer incomes. Such products are known as:

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normal goods

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A normal good is one:

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for which the consumption varies directly with income.

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In constructing a demand curve for product X:

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the prices of other goods are assumed constant.

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An inferior good is:

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not accurately defined by any of these statements.

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In moving along a demand curve, which of the following is not held constant?

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The price of the product for which the demand curve is relevant.

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The supply curve shows the relationship between:

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price and quantity supplied.

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The rationing function of prices refers to the:

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capacity of a competitive market to equalize quantity demanded and quantity supplied.

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Productive efficiency refers to:

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the use of the least-cost method of production.

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Allocative efficiency is concerned with:

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producing the combination of goods most desired by society.

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Allocative efficiency involves determining:

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the mix of output that will maximize society's satisfaction.

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Allocative efficiency refers to:

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the production of the product mix most wanted by society.

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A price floor means that:

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government is imposing a minimum legal price that is typically above the equilibrium price.

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A price ceiling means that:

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government is imposing a legal price that is typically below the equilibrium price.

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Ticket scalping refers to:

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reselling a ticket at a price above its original purchase price.

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Market failure is said to occur whenever:

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private markets do not allocate resources in the most economically desirable way.

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Demand-side market failures occur when:

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the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.

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What two conditions must hold for a competitive market to produce efficient outcomes?

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Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

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Consumer surplus:

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is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

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Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:

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under the demand curve and above the actual price.

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A producer's minimum acceptable price for a particular unit of a good:

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equals the marginal cost of producing that particular unit.

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A public good:

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is available to all and cannot be denied to anyone.

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Nonexcludability describes a condition where:

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there is no effective way to keep people from using a good once it comes into being.

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Which of the following statements is not true?

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a. Some public goods are paid for by private philanthropy. b. Private provision of public goods is usually unprofitable. c. The free-rider problem results from the characteristics of nonrivalry and nonexcludability. D. Public goods are only provided by government.

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A demand curve for a public good is determined by:

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summing vertically the individual demand curves for the public good.

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According to the marginal-cost-marginal-benefit rule:

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the optimal project size is the one for which MB = MC.

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Economists consider governments to be "wasteful":

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whenever they over- or underallocate resources to a project.

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A positive externality or spillover benefit occurs when:

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the benefits associated with a product exceed those accruing to people who consume it.

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A negative externality or spillover cost occurs when:

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the total cost of producing a good exceeds the costs borne by the producer.

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The socially optimal amount of pollution abatement occurs where society's marginal:

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benefit of abatement equals its marginal cost of abatement.

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The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

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diminishing marginal utility.

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The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of:

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diminishing returns.

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According to the Coase theorem:

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private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.

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In a cap-and-trade program:

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government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.

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Which of the following is a key difference between the economic activities of government and those of private firms?

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Government has the legal right to force people to do things; private firms do not.

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In corporations, owners are __________________ and managers are ________________.

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principals; agents

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The pursuit through government of a "transfer of wealth" at someone else's expense refers to:

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rent-seeking behavior.

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Public choice economists hold that politicians will:

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favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs.

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A special-interest issue is one whose passage yields

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large economic gains to a small number of people and small economic losses to a large number of people.

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The U.S. federal government's largest unfunded liability is:

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Social Security.

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Government changes in interest rates to regulate the economy are part of:

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monetary policy.

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To curb the problem of voters wanting immediate benefits and deferred costs, many state governments in the United States have:

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passed the laws requiring balanced budgets

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The U.S. Federal Reserve, the Bank of Japan, the Bank of England, and the European Central Bank are all in charge of what for the countries they represent?

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Monetary policy

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According to some economists, the private sector is more efficient than the public sector mainly because:

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the private sector has a clear test of performance: profit and loss.

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Narrow, specifically designated expenditures that are included in more comprehensive legislation are known as:

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earmarks.

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Regulatory capture is said to have occurred when which of the following is true?

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A. Rules and enforcement in an industry are heavily influenced by the industry being regulated. b. One firm controls an entire market, having captured customers away from other firms. c. Government imposes excessive regulations in an industry, resulting in inefficiencies. d. Consumers make all the rules for an industry, forcing firms into inefficient production methods.

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Proponents of deregulation point to all of the following industries as examples of successful deregulation except for:

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pharmaceuticals.

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The unlawful misdirection of governmental resources for personal gain is known as:

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political corruption.

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The collective action problem refers to:

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difficulty in organizing and motivating large groups to achieve desired outcomes.

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The field of economics that analyzes government decision making, politics, and elections is called:

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public choice theory

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Which one of the following topics would be of the most interest to a public choice economist?

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Rent-seeking behavior.

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Public choice theory focuses on the economics of:

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government decision making, politics, and elections.

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The trading of votes by elected officials to secure favorable outcomes is called:

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logrolling.

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The principle that under some circumstances majority voting fails to make consistent choices reflecting the community's underlying preference is best demonstrated by the:

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paradox of voting

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The basic formula for the price elasticity of demand coefficient is:

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percentage change in quantity demanded/percentage change in price.

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Which of the following is not characteristic of the demand for a commodity that is elastic?

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The elasticity coefficient is less than one

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A perfectly inelastic demand schedule:

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can be represented by a line parallel to the vertical axis.

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The price elasticity of demand is generally:

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negative, but the minus sign is ignored.

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For a linear demand curve:

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demand is elastic at high prices

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If demand for a product is elastic, the value of the price elasticity coefficient is:

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greater than one.

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A perfectly inelastic demand curve:

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graphs as a line parallel to the vertical axis

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A demand curve that is parallel to the horizontal axis is:

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perfectly elastic

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The demand schedules for such products as eggs, bread, and electricity tend to be:

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relatively price inelastic

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The elasticity of demand for a product is likely to be greater:

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the greater the amount of time over which buyers adjust to a price change.

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The more time consumers have to adjust to a change in price:

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the greater will be the price elasticity of demand.

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The price elasticity of supply measures how:

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responsive the quantity supplied of X is to changes in the price of X.

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The main determinant of elasticity of supply is the:

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amount of time the producer has to adjust inputs in response to a price change.

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The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the: s3 is vertical, s2 is 1/1, s1 is .5/1

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long run, short run, and immediate market period respectively.

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Studies show that the demand for gasoline is:

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price inelastic in both the short and long run.

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The formula for cross elasticity of demand is percentage change in:

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quantity demanded of X/percentage change in price of Y.

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Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

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the price of some other product.

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Which type of goods is most adversely affected by recessions?

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Goods for which the income elasticity coefficient is relatively high and positive.

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The supply of higher education in the United States is:

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highly price inelastic.

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The utility of a good or service:

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is the satisfaction or pleasure one gets from consuming it.

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The ability of a good or service to satisfy wants is called:

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utility.

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The law of diminishing marginal utility states that:

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beyond some point, additional units of a product will yield less and extra satisfaction to a consumer

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Marginal utility is the:

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change in total utility obtained by consuming one more unit of a good.

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Utility refers to the:

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satisfaction that a consumer derives from a good or service.

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The theory of consumer behavior assumes that:

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consumers behave rationally, attempting to maximize their satisfaction.

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A consumer is maximizing her utility with a particular money income when:

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MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

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The theory of consumer behavior assumes that consumers attempt to maximize:

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total utility.

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Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?

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Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media.

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How did Apple overcome consumers' diminishing marginal utility for iPads?

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Apple introduced new features to entice previous buyers to purchase new models.

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Most economists contend that:

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noncash gifts are less efficient than cash gifts.

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Theft and burglary:

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can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.

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The budget line shows:

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all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

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A budget line shows the:

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alternative combinations of two goods that a consumer can purchase with a given money income.

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An indifference curve shows all:

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combinations of two products yielding the same total utility to a consumer.

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The marginal rate of substitution measures the:

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consumer's willingness to substitute one product for another so that total utility will remain constant.

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Which of the following is correct?

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a. Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. b. Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. C. Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin. d. Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.

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Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists?

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People have preferences that are unstable and vary by context.

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Neoclassical economics and behavioral economics:

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are generally viewed as complementary, together providing better understanding of economic behavior than each could on its own.

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Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?

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A majority of decisions are not made according to the neoclassical assumption of rational behavior.

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What are the two categories of cognitive biases identified by behavioral economists?

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Unevolved capacity for solving modern problems and faulty heuristics.

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When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions were incorrect, they suffer from:

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hindsight bias

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In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?

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People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally.

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According to the concept of framing effects:

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whether a new situation is viewed as a gain or a loss depends on one's starting position.

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The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as:

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mental accounting.

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According to prospect theory, people tend to favor default options. This is known as the:

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status quo bias.

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According to behavioral economists, people's preferences toward a particular outcome:

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depend heavily on the contextual information that defines whether that outcome is a gain or a loss.

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"Time inconsistency" refers to the

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tendency to regularly misjudge in the present what you will do in the future.

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Salary smoothing, automatic payroll deductions, and early withdrawal penalties are all examples of:

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precommitments

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The results of running the dictator game experiments thousands of times have revealed to behavioral economists that:

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individual feelings about fairness and generosity vary widely across the population.

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Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

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The ultimatum game tends to result in a more even split of the money.

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Results of the ultimatum game:

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affirm the metaphor of the invisible hand.

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The ultimatum game reveals that the threat of rejection

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helps align private interests with social interests.

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The threat of rejection in market transactions:

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leads to better products and lower prices for consumers.

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According to the piece "Wannamaker's Lament," how have firms responded to the evidence that most advertising campaigns have little impact on sales?

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Firms have conducted a lot of simple experiments to determine what might increase sales.

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The website Stickk.com appeals to what concept from behavioral economics to help people achieve goals?

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loss aversion

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"Nudges" refer to:

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subtle changes in policies or practices that result in large behavioral changes.

Microeconomics Exam 1 – Flashcards

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