SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST
BUSINESS BMAL 590 ALC11 Microeconomics
SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST
SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST
-People respond to incentives blank_______.
by ignoring negative incentives and responding to positive incentives only
only when they are irrational
by calculating their individual costs and benefits and determining which is greater
when they have low incomes
-After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break 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 Cancun increases.
The marginal cost of going to Cancun decreases.
The marginal benefit of going to Ft. Lauderdale decreases.
The marginal cost of going to Ft. Lauderdale decreases.
-A tradeoff exists between a clean environment and a higher level of income in that blank_______.
studies show that individuals with higher levels of income pollute less than low-income individuals
efforts to reduce pollution typically are not completely successful
laws that reduce pollution raise costs of production and reduce incomes
employing individuals to clean up pollution causes increases in employment and income
-An incentive blank_______.
is the opposite of a tradeoff
could be a reward but could not be a penalty
could be either a reward or a penalty
could be a penalty but could not be a reward
-Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?
He should sell the car now for $3800.
He should keep the car since it wouldn’t be rational to spend $6400 restoring a car and then sell it for only $5800.
He should complete the additional work and sell the car for $5800.
It does not matter which action he takes since the outcome will be the same either way.
-Economists assume that people are motivated by blank_______.
altruism
rational self-interest
benevolence
greed
-The fundamental reason people must choose between goods to buy and consume is because of blank______.
people engaging in exchange
specialization
scarcity
great abundance of free resources
-A rational student will continue studying in a given study session until blank______.
the expected grade is an A
the expected grade is a B
the marginal value of the last unit studied equals the marginal cost of the last unit
the expected grade is passing
-In economics, the cost of doing something is blank_______.
the opportunity cost only
the money, out-of-pocket expenditure
the value of the next best opportunity not taken
the value that you place on the opportunity taken
-The optimal amount of studying is determined by comparing the blank_______.
marginal benefit and the total cost of studying
marginal benefit and the total benefit of studying
marginal benefit and the marginal cost of studying
total benefit and the total cost of studying
SECTION 2 SUPPLY AND DEMAND
-A shift in the demand curve denotesblank_______.
a shift in the supply curve
a change in the price
a movement
a change in demand
-Consider inferior goods. As real incomes rise, consumers tend to buy inferior goods inblank________.
unchanged quantity
higher quantity
a manner to start looking for other inferior goods
less quantity
-The law of supply states that, holding other factors constant, as price increases blank_______.
quantity supplied increases
quantity supplied decreases
quantity demanded increases
quantity demanded decreases
-A restriction on the number of people allowed to be medical doctors in the United States would most likely blank_______.
increase doctors’ fees
decrease the demand for doctors
decrease the demand for nurses
decrease the number of people who get sick
-Suppose the price of hamburgers rises, and you observe that as a result, the demand for hotdogs rises. This makes hotdogs and hamburgers blank_______.
normal goods
complements
substitutes
inferior goods
-March was unusually rainy and windy, leading more car owners to take their cars to the car wash. Prices at local car washes did not change. Economists might describe that change in consumer behavior this way?
The weather caused an increase in the demand for car washes.
The weather caused a shift in both the supply and demand for car washes.
The demand for car washes increased while the supply of car washes fell.
The weather caused an increase in the supply of car washes.
-Movement down along a demand curve could be caused by blank_______.
an increase in the price of a substitute good
a decrease in consumer incomes
an increase in consumer’s desire or taste for the good
a decrease in the price
-IfA and B are complements, an increase in the price of good A would blank_______.
lead to an increase in demand for B
have no effect on the quantity demanded of B
lead to a decrease in demand for B
lead to a decrease in supply for B
-A drought in the Midwest will raise the price of wheat because of a blank_______.
leftward shift in the demand curve
rightward shift in the supply curve
rightward shift in the demand curve
leftward shift in the supply curve
-For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to blank_______.
become parallel to the price axis
shift to the left
shift to the right
become flatter
SECTION 3 ELASTICITY
-If, for a certain good, the percent change in the quantity demanded is less than the percent change in price that caused the changeblank_______.
we can say that the demand is elastic
we can say that the demand is inelastic
we can say that the demand is unit elastic
we can say that the demand is zero elastic
-The price elasticity of demand refers to the extent to which the quantity demanded changes as a result of a change inblank_______.
quantity demanded
quantity supplied
price
elasticity
-Suppose the demand is perfectly inelastic. The implication would be that the smallest change in price would result inblank________.
no change in quantity
a small change in quantity
no change in price
a small change in price
-For goods and services that have an inelastic demand, if price is increased, total revenueblank_______.
does not change
is not a function of price
decreases
increases
-Goods and services that are independent of each other have a cross elasticity of demand that is blank________.
negative
positive
0
positive infinity
-Goods and services that are perceived to be close substitutes have a cross elasticity of demand that isblank________.
negative
positive
0
positive infinity
-A perfectly elastic demand is a blank___________curve.
vertical
horizontal
negative
positive
-Income elasticity of demand is the extent to which the demand in quantity of goods responds to changes inblank________________.
price
real income
the resources
supply
-The cross-price elasticity between two products is estimated to be 2. If the price of the first product is increased by 8%, demand for the second product will blank_______.
increase by 8%
decrease by 4%
increase by 4%
increase by 16%
-Which of the following products is likely to have the most elastic demand?
Cigarettes
Coca Cola.
Life-saving medicine
Gasoline.
SECTION 4 PRODUCTION AND COST
-Which one of the following represents factors of production?
The output of a production function.
Productivity.
Efficiency.
Land, labor, capital, technology, and entrepreneurship.
-All these curves are U-shaped except blank_______.
average fixed cost curve
average variable cost curve
average total cost curve
marginal cost curve
-Economies of scale occurs when the average total cost of production blank_______ as output _______.
decreases; increases
decreases; decreases
remains constant; increases
increases; increases
-A legal entity, in its own right, that can be closely held (with few shareholders) or widely held (with hundreds of thousands of shareholders is calledblank________.
sole proprietorship
partnership
cooperative
corporation
-Typically, a production functionblank_________.
demonstrates the ability of a firm to produce various combinations of goods and services, utilizing all of its resources
represents a technical relationship between the factors of production and the output
gives us insights about the least cost method of producing a given level of output
shows production costs at any level of output
-Suppose the marginal product of labor is 8 and the marginal product of labor is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use blank_______.
more labor and less capital
two times more capital than labor
three times more capital than labor
more capital and less labor
-Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 60 employees and served 120 customers. This year, it had 70 employees and served 140 customers. What is the marginal product of labor?
4
3
2
5
-Fred works 40 hours a week managing Fred’s Convenience Store, without drawing a salary. He could earn $600 a week doing the same work for Bob. Fred’s Convenience Store owes its bank $100,000, and Fred has invested $100,000 of his own money. If Fred’s accounting profits are $1,000 per week while the interest on his bank debt is $200 per week and savings account interest and loan interest are equal, his economic profits are blank_______.
$1000 per week
$400 per week
$200 per week
$0 per week
-To maximize profit, the firm should set output at the level where blank_______.
the average cost per unit is minimized
average revenue just equals average cost
marginal cost equals zero
marginal revenue is equal to marginal cost
-A firm should build an additional distribution center if blank_______.
the revenue generated from building the distribution center is big
the cost of building the distribution center is not too big
the marginal revenue of building the distribution center is larger than the marginal cost of building it
the revenue generated from building the distribution center is small
