Microeconomics Rutgers New Brunswick Exams 1

Microeconomics

The study of the choices that individuals and businesses make

Positive statement

Fact based statement

Example of positive statement

Online shopping increased by 50% this Christmas season

Name a real flow of a factor of production from the circular flow model

Labor

Social security is a tax deducted from your paycheck. In the circular flow model this is shown as

Taxes flowing from households to governments

Moving from one point to another on a production possibilities frontier implies

Increasing the production of one good and decreasing the production of another

If an economy cannot produce more of one good without producing less of another good , what does this imply?

Production efficiency has been achieved

Why is a production possibilities frontier bowed out (concave)?

The bowed shape reflects increasing opportunity cost

Consider a PPF with consumption goods on the horizontal axis and capital goods on the vertical axis. If the country operates on its PPF near its ___________ axis, this country ___________.

Vertical; will experience economic growth

A country has a comparative advantage in the production of a good if it can

Produce the good at the lowest opportunity cost

What do specialization and trade allow nations to do?

Allows nations to consume combinations of products that are outside their individual production possibilities frontier

What is a competitive market?

A market that has so many buyers and sellers that no one can influence the price

Gasoline prices increase by 50% and other things remain the same. As a result, there is

A decrease in the quantity of gasoline demanded

Hot dogs and buns are compliments. What will happen if the price of a hotdog falls?

The demand for hot dog buns will increase

What happens when the price of oranges increase

The quantity of oranges supplied increases

Oil refiners can refine a barrel of petroleum so that it yields either more home heating oil or more diesel fuel. If the price of diesel fuel falls, there is

An increase in the supply of home heating oil

Suppose over the next few years the productivity of firms producing electric cars improved dramatically. The advance in productivity leads to

An increase in the supply of electric cars so that the supply curve shifts rightward

The initial equilibrium price in the market for web pages is $200 per page and 1000 web pages are created a month. Many new web page design firms enter the market. As a result,

The supply of web pages increase and the price falls

If the demand curve for desktop computers shifts rightward and at the same time the supply curve shifts leftward, then

The equilibrium price definitely rises

If both producers and consumers believe that a products price will rise in the future, then at the present, demand _______________ and supply _________________

Increases, decreases

Suppose improvements in technology cause the supply of natural gas to increase and at the same time the demand for natural gas increases. What are we sure of?

Equilibrium quantity increases

If the percentage change in price is 10% and the demand is elastic, then the percentage change in the quantity demanded is

Larger than 10%

Suppose the demand for rescue services in our national parks is perfectly inelastic. This fact would mean that a 31% increase in rescue fees leads to

No change in the quantity demanded

If a product is narrowly defined it is likely to

Have many substitutes and therefore demand is elastic

You own a small store, your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ______________ and the customer believes the price elasticity of demand is _______________

Inelastic, elastic

What does the supply curve look like for a good with a perfectly elastic supply?

A horizontal line with a slope of zero

If a 1% increase in the price of X increases the quantity demanded of Y by 2%, then X and Y are

Substitutes and the cross elasticity of demand equals 2

People eat at restaurants less often when their incomes fall because of a recession. Eating at restaurants must be

A normal good

The phrase "decreasing marginal benefit" means thag

Each additional unit of a good you consume gives you less additional benefit than the previous unit

A point on the demand curve shows the

Maximum price that people are willing to pay for another unit of a good

Jake just bought a new hockey stick. When he was leaving the shop, he thought that he got such a great deal and would have otherwise paid $50 more dollars for the stick. Jack received

Consumer surplus

What does the supply curve show

The minimum price that firms must receive to supply a certain quantity of a good

The supply curve is the same as a

Marginal cost curve

Hester owns an ice cream shop. It costs her $2 per cone to make 10 ice cream cones. If she sells 10 cones for $4 each, her producer surplus on the 10 cones is equal to

$20

Efficiency occurs in a market when

The same of consumer surplus and producer surplus is maximized

At a competitive equilibrium, if there are no taxes, subsidies, price regulation, quantity regulations, or externalities, then

Resource use is efficient

The incidence of a tax refers to

The division of the burden of a tax between buyers and sellers

If the average tax rate increases as income increase, then what type of tax is this?

Progressive tax

The sales tax in Dutches County, NY is 7.5%. This sales tax is

Regressive

Using fuel taxes to pay for maintaining public highways is an example of

The benefits principle of fair taxation

Economics studies how

We make choices in the face of scarcity

Example of a microeconomic topic

Northwest airlines analyzing the benefits of adding one more flight to Salk Lake City

Mary is currently buying apples and oranges such that the last unit of apples has 30 units of utility and the last unit of oranges has 40 units of utility. She has allocated her entire budget. If the price of an apple is 10 cents and the price of an orange is 20 cents, to ,animists her utility, what should Mary do?

Buy more apples and fewer oranges

The demand curve for macadamia nuts is downward sloping. This slope is because consumers maximize their utility and an increase in price of macadamia nuts leads to

A decrease in the marginal utility per dollar from macadamia nuts

When economist uses the term "cost" referring to a firm, the con omits refers to the

Opportunity cost of producing a good or service, which includes both implicit and explicit cost

What are these
- the salary Jim could earn at another job
- the it wrest Jim lost when he used his savings to help open his business

Implicit costs of jims business venture

Define a normal profit

The return to entrepreneurship

Suppose that a firm earned 500,000 in total revenue. At the same time, isn't incurred labor costs of 200,000, economic depreciation of 50,000, normal profit of 75,000, interest paid to the bank of 25,000, and used other factors of production that cost 100,000. The economic profit earned by the firm equals

50,000

True or false
When the marginal product exceeds the average product, the average product must be increasing

True

A firm decrease its scale of operation and discovers that it's long- run average costs decrease. What does this indicate?

The firms scale initially was so large that it experienced diseconomies of scale

How does the demand for any one sellers product in perfect competition compare to the market demand for that product?

The demand for any one sellers product is perfectly elastic while the market demand curve is downward sloping

In perfect competition, what does marginal revenue equal?

Marginal revenue is equal to the market price

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will ___________ and eventually there will be ________

Fall, exit by existing firms

Suppose the cost of a CD is $20. As o line retailers enter the market with new technology, the price of CDS ____________, and traditional music stores find that _______________

Decreases, their AVC exceeds the new lower price and th exit the industry

Excess capacity exists when a firm produces

Less than the quantity that minimizes average total cost

Advertising costs and other selling costs are

Fixed costs

What market structure results in allocative efficiency

Perfect competition