ECO 2314 Exam 1

Microeconomics is the study of

the study of choices that households and firms make and the way these choices interact in the markets and the influence of government

Macroeconomics is the study of

the study of the performance of national and global economics

What are the factors of production?

labor: wage

land: rent

capital: physical or human

entrepreneurship: profit

Scarcity is

our inability to satisfy our wants.

The problem with "scarcity" applies

to all economic systems, regardless of their level of development.

Entrepreneurs do all of the following EXCEPT

own all the other resources used in the production process.

Opportunity cost means the

highest-valued alternative forgone.

On a Saturday morning, you rank your choices for activities in the following order: go to the library, workout at the gym, have breakfast with friends, and sleep late. Suppose you decided to go to the library. Your opportunity cost is

working out at the gym.

In terms of dollars, the marginal benefit of working 5 days a week instead of 4 days a week is

the wages received for the fifth day of work.

Making a choice at the margin means

deciding to do a little more or a little bit less of an activity.

The statement "Unemployment should be below 6%" is a normative or positive statement?

a normative statement.

Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is _______ his production possibilities frontier.

producing on

A society that is producing on its production possibilities frontier is

fully utilizing all of its productive resources.

At one point along a PPF, 10 pizzas and 7 sandwiches can be produced. At some point along the same PPF, 9 pizzas and 12 sandwiches can be produced. The opportunity cost of a pizza between these points is ______ per pizza.

5 sandwiches.

Increasing opportunity cost while moving along a production possibilities frontier is the result of

the fact that resources are not equally productive in alternative uses.

Marginal cost curve slopes

upward because of increasing opportunity cost.

Marginal benefit curve slopes _________ and marginal cost curve slopes _________.

downward; upward.

Resource use is allocatively efficient

when marginal benefit equals marginal cost.

In one week Alice can produce 5 pairs of shoes and 4 bookshelves while Roger can produce 10 pairs of shoes or 6 bookshelves. Alice has ___________ advantage in producing ___________.

comparative; bookshelves

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch a fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following is CORRECT?

Homer has a comparative advantage in catching fish and Teddy has a comparative advantage in picking fruit.

The "law of demand" is illustrated by a

movement along the demand curve.

For normal goods which of the following explains why demand curves slope downward?

substitution effect and income effect.

Oatmeal is a normal good and cold cereal is a substitute for oatmeal. Raisins are a complement for oatmeal. Which of the following increases the demand for oatmeal?

an increase in the price of cold cereal.

Which of the following shifts the demand curve for hot dogs leftward?

an increase in the price of hot dog buns.

A decrease in the expected future price of cars

decreases the current demand for cars, that is, there is a leftward shift of demand curve for cars.

If macaroni and cheese are inferior good, an increase in income will increase or decrease the demand?

decrease the demand for macaroni and cheese.

Which of the following leads to a movement along the demand cure for spinach but does not shift the demand curve for spinach?

a rise in the price of spinach

If the price of lumber rises, then, in the market for sawdust

the supply curve of sawdust shifts rightward.

If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 8,000 per year, there is a ___________ in the market and the price will ___________.

surplus; fall.

Suppose the quantity demanded is 5 units when the price is $1.00. If the price rises to $2.00, the quantity demanded falls to 3 units. The price elasticity of demand is

0.75

Last year the price of corn was $3 per bushel and the quantity of corn demanded was 8 million bushels. This year the price of corn is $4 per bushel and the quantity of corn demanded is 7 million bushels. Assuming that the demand curve has not shifted, what is the price of elasticity of demand for corn? (Use the midpoint formula.)

0.47

If the price elasticity of demand for gasoline is 0.8 and the price elasticity of demand for plane tickets us 2.2 then the demand for gasoline is __________ and the demand for plane tickets is _________.

inelastic; elastic

The demand for a good is less price elastic

if the share of the good in the average consumer's budget is smaller.

A product is likely to have a price elasticity of demand that exceeds 1 when

it has close substitutes.

Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is ___________.

cross; negative

Based on the following pieces of information, which fast food product do consumers see as the closest substitute for Wendy's Hamburgers?

Pizza Hut pizza, which has a cross elasticity of 2.05 with Wendy's.

Goods whose income elasticities are negative are called

inferior goods.

Why is there an increasing opportunity cost on the PPF?

because resources are not equally productive in all activities

What is absolute advantage?

the party with the greater productivity of a certain product

What is comparative advantage?

a party can perform the activity at a lower opportunity cost