ECON 101 (Microeconomics) - CHAPTERS 1-3

What is scarcity?

Limited quantities of resources to meet unlimited wants

Under what conditions does scarcity exist?
a. If there is much less than an infinite quantity of a good or resource
b. If society can satisfy the desires of every person
c. If there is less of a resource or good available than individuals desire
d. If the government fails to supply goods and resources

C

What is opportunity cost?

What you are giving up to do something or get something

Charley spends an hour studying rather than playing dodgeball. What would be the opportunity cost of studying?
a. The increase in their marks from the hour of studying
b. The difference between the increase in their marks from the hour of studying less the enjoyment from dodgeball
c. The exercise and pleasure they would have enjoyed had they played dodgeball
d. Nothing, because Charley decided to study instead of playing dodgeball; the benefit from studying must have been higher than the benefit from dodgeball

C

Which best represents scarcity: air, fresh water in a town, fire or lumber in a forest

Fresh water in a town

Marley decides to watch a movie at a theatre with her friends instead of working for four hours where she would have earned $15 an hour. The movie ticket cost $10. What was her opportunity cost of going to the movie?

$70

What is thinking on the margin?

comparing the costs and benefits of doing a little more of an activity versus doing a little less (a "how much" decision)

Drew is happy because they have finished paying off the mortgage on their home. Drew now believes that the cost of housing is zero. An economist would respond by explaining that:
a. if the extra cost of owning is zero, then her extra benefit is also zero (marginal analysis)
b. by owning the house, they are giving up the opportunity to sell their home, buy a cheaper one, and keeping the left over money (opportunity cost)

B

You are deciding where to eat dinner tonight. Eating at Boston Pizza costs $16 and it gives you $22 worth of benefit. Eating at Subway costs $7 and gives you $9 worth of value. What is the opportunity cost of eating at Boston Pizza?

$18

Ali has 14 hours each day to divide between working and relaxing. They currently have a job working at Starbucks, where they earn $15/hour. For Ali, the opportunity cost of spending 1 hour relaxing is:

$15

Jerry is planning to invite friends over and is trying to choose between buying Coke or Pepsi for drinks. Coke costs $2 per liter and Pepsi costs $1 per liter. If Jerry decides to buy 5 liters of Coke then, their opportunity cost of choosing Coke would be:

10 liters of Pepsi

One of your friends offers you a free ticket to a hockey game that night and you decide to accept the offer. The game lasts three hours and costs you $18 for transportation. If you had not attended the hockey game, you would have worked at your job for $14 an hour. What is the cost to you in dollars of attending the hockey game?

$60

For which of the below decisions would marginal analysis be MOST suitable?
a. Should I go on a trip or buy new furniture?
b. Should I drink another beer?
c. Should I use $2,000 to pay off student loans or to buy a new computer?
d. Should I get married?

B

Some soccer fans decide to leave the game in the middle of the second half to avoid the traffic after the game. In this case, these fans are:
a. Using marginal analysis since they are comparing the cost of leaving early to the benefit of leaving early
b. Only considering the advantage of leaving early and avoiding traffic
c. Underestimating the value of watching the rest of the game

A

Jordan runs several butcher shops around Canada. They are trying to decide if they should open another shop. They calculate that opening another butcher shop will increase revenue by $2,500 to his revenue but that the new shop will also increase costs by $1,250. Using marginal analysis, Jordan should:
a. not open another shop since the costs exceed the benefits
b. open another shop since the benefits exceed the costs
c. open another shop because their profits will rise by $1250

C

Suppose that flying a 200-seat plane from Edmonton to Toronto costs $100,000 therefore the average cost of each seat is $500. If the plane is about to leave and someone is willing to pay $300 for one of the few remaining seat should they sell it for $300? (Yes or No?)

Yes

What is the scientific method?

Making an observation about the world and then developing a theory to explain it

What is another name for resources used to produce goods and services?

Factors of production

What is capital?

Anything human-made that is used to produce a good or service

In the circular flow diagram, households and businesses interact in what two markets?

The market for goods and services and the market for factors of production

In the market for factors of production who is the buyer and who is the seller?

Businesses are buyers and households are sellers

What happens in the factors of production markets?

Households supply businesses with labour, capital & land

What happens in the goods and services markets?

Businesses supply households with goods and services

What is the slope of a PPF model equivalent to?

Opportunity cost

What is a positive statement?

A statement that describes how to world actually works

What is a normative statement?

A statement that suggests how the world should work

Which of the below phrases is the best example of a positive statement?
a. Unemployment falls when the government lowers taxes
b. If the minimum wage increases, the world would be more fair
c. Pollution is more harmful to society than economic recessions

A

Why do the production possibilities frontiers often bow outward?

Opportunity costs are rarely constant (resources are usually specialized, some resources are better at making one type of good over another type of good)

Which of the following is a topic that would be studied in macroeconomics?
a. The impact of production limits on Canadian dairy farmers
b. The impact of a price increase for imported cheese on a pizza restaurant
c. The effect on the Canadian aircraft manufacturing industry from tariffs placed on foreign aircraft
d. The effect of tariffs placed on foreign aircraft on the Canadian unemployment rate

D

What is NOT an example of a factor of production?

Money

Any point under the PPF line is _____________, any point on the PPF line is _____________, and any point above the PPF line is ________________.

inefficient, efficient, not possible

Use the Production Possibilities Frontier for Pens and Paper information when answering this question:

When 1 pen is made, 14 pieces of paper can be made
When 2 pens are made, 12 pieces of paper can be made
When 3 pens are made, 9 pieces of paper can be made

The opportunity cost of producing the third pen is ____ units of paper

3

Use the Production Possibilities Frontier for Pens and Paper information when answering this question:

When 0 pens are made, 15 pieces of paper can be made
When 1 pen is made, 14 pieces of paper can be made
When 2 pens are made, 12 pieces of paper can be made

The opportunity cost of producing the 14th piece of paper is ______ pens

0.5

Imagine Edmonton only produces two goods: green onion cakes and hockey sticks. Assume that Edmonton is producing on its production possibility frontier. As hockey stick production rises, the production of green onion cakes __________.

Falls

Robin's factory can produce 1000 units of ice cream or 750 units of cheese in a week. Now Robin has less machines and equipment. How does this affect their factory production possibility frontier?

It shifts their production possibility frontier in

Apple's factory can produce 1000 iMacs and no iPhones or no iMacs and 2000 iPhones. If Apple has a linear production possibility frontier, the opportunity cost of producing an additional iMac is ____ iPhone(s)

2

Economic growth shifts a PPF curve ______________.

Outward

Landry is being paid a wage of $15.25 per hour to work at a retail store. In the circular flow model, this is an example of:

A household selling labour in the factor market

Oakley's average maintenance spending on their car is $150 each month. In the circular flow model, this is an example of:

A household buying a product in the goods and services market

Austen can produce 3 units of good A per hour or 5 units of good B per hour and they face a linear production possibilities frontier. Suppose they have 120 hours of labour and distributes these hours equally between the production of goods A and B. What is the MAXIMUM units of good A they can produce given how the labour hours are distributed?

180

What is absolute advantage?

the ability to produce a good or service using fewer inputs than another producer

If two countries have an absolute advantage in a different good and specializes in that good, both countries would gain from ___________.

Trade

What is comparative advantage?

the ability to produce a good or service at a lower opportunity cost than another producer

Suppose Mel can produce 3 donairs or 6 beers in an hour, while Todd can produce 2 donairs or 5 beers in an hour. The opportunity cost of producing one donair is __________ for Mel and __________ for Todd

2.0 beers for Mel, 2.5 beers for Todd

A country that does not have an absolute advantage in producing any good or service:
a. Cannot gain from trade under any circumstances
b. Can specialize but will not benefit from trade
c. Can benefit from trade if another country specializes in its absolute advantage
d. Can benefit from trade by specializing in its comparative advantage

D

Suppose Lauren can produce 6 pizzas or 2 cakes in an hour, while Patrick can produce 5 pizzas or 3 cakes in an hour. The opportunity cost of producing one cake is __________ for Lauren and __________ for Patrick

3.0 pizzas for Lauren, 1.7 pizzas for Patrick

Suppose the opportunity cost of manufacturing a car is lower in Japan than in China and the opportunity cost of manufacturing motorcycles is higher in Japan than in China. Therefore, Japan will:

Import motorcycles from China and export cars to China

Russel and Sherri are co-workers and must divide the tasks of cooking and serving food to customers. They know that they are faster if each of them focuses on one thing but do not know how to assign the tasks. Russel and Sherri should figure out who has the:
a. absolute advantage in both cooking and serving
b. comparative advantage in cooking

B