Microeconomics final

Which of these is not a foundation of economics?

Market efficiency

What type of statement is this: “There is twice the amount of rainfall in Nevada than there is in Washington”?

Positive: it can be tested and validated

Which of the following causes a movement along a supply or demand curve as opposed to a shift in the supply or demand curve?

the price of the good increases

which of the following statements is true?

Producers should trade the good they have a comparative advantage in

Which of the following causes a surpul?

A binding price floor

What is the best way to define economics?

A study of how people make decisions with scarce resources

Using the PPF, which of the following statements is true?

Point C is an efficient point

Amber is wiling to pay $200 for an econ textbook. Leona is willing to pay $150. Ameen is willing to pay $100. If the price of the book is $120, what is the total consumer surplus?

$110

Suppose a firm is selling a product at a price on the inelastic portion of the demand line. This firm could increase revenue by doing what?

Increasing the price, selling more units

If the government determines that $600 is the highest amount an apartment can be rented at, is this a price floor or price ceiling? What is the amount of shortage or surplus?

Price ceiling, shortage of 460

If we assume that Kenny and Luke use the same amount of labor, capital, and resources, which producer has an absolute advantage in yogurt production? Which has an absolute advantage in notebook production?

Yogurt: Kenny

Notebooks: Luke

Which producer has a comparative advantage in yogurt production? Comparative advantage in notebook production?

CA in yogurt: Kenny

CA in notebook: Luke

What is behavioral economics? Why does it interest modern economists?

It is the study of how behavior and other social factors affect economic decision making. modern economists continue to find flaws in their models that don’t account for human behavior and operate under the assumption of rational behavior.

Why should a person invest? Why should they invest at a young age?

The interest rates of stocks and bonds is higher than the inflation rate. Savings accounts have a lower interest rate than the inflation rate, so solely having a savings account will result in a loss of purchasing power. Because of compound interest, people should invest at young ages. Investing helps grow wealth over time, combating inflation and increasing future purchasing power.

What is the invisible hand?

Adam Smith’s idea of a laissez-faire approach to economics, where individuals' self-interested actions can lead to positive societal outcomes without central planning. Self-interest guides market prices

what is the budget reconciliation act of 1990? Why is it significant?

An attempt to tax the wealthy though taxes on luxury items. It did not prove effective because wealthy consumers switched to purchasing substitutes, and instead, producers of the taxed products ran out of work.

How do U.S. pharmaceutical drug costs compare to other countries? What are three hidden benefits of that result from this?

Pharmaceutical drugs sold in the U.S. are often sold 3-4 time higher than other countries. The hidden benefits are drugs are more readily available in the U.S., more research and development happens in the U.S., and there is a greater variety of available drugs for consumers.

Which of the following would most likely create a negative externality?

Smoking a cigarette

Which of the following is true?

A market operates more efficiently when externalities are internalized

What is the tragedy of the commons?

The tragedy of the commons refers to the situation in which individuals, acting independently in their own self-interest, deplete shared resources, leading to negative consequences for the entire community.

What does not lead to dead weight loss?

Private property

What economic concept did the post-it note exercise illustrate?

Diminishing marginal product

Which of the following is true

The long run cost curve is an aggregation of short run cost curves

regardless of market structure, what is the profit-maximizing rule?

produce until MR=MC

When (1) begins to rise, it indicates that (2) and (3) will soon rise

1. MC, 2. ATC, 3. AVC

If someone is running a sandwhich shop where the output level is MR>MC, to increase profits, they should:

produce more output

What is false about monopolies?

Monopolies always earn profits because they dictate supply

What is not an example of a barrier to entry?

AMC theaters charge more for evening movies than afternoon movies

What is sunk cost fallacy?

The sunk cost fallacy occurs when individuals continue a behavior or endeavor based on previously invested resources (time, money, effort) rather than future potential outcomes, leading to irrational decision-making.

a general rule for price discriminating with two consumer groups is to charge a ___ price to the inelastic group and a ___ price to the elastic group

high, low

for price discrimination for be successful, what is one condition that must be met?

firms must be able to prevent resale

What market structure results in DWL?

single-price monopoly

What type of market structure advertises most frequently?

monopolistic competition

What is true about product differentiation?

More differentiation leads to greater differences in a price and a more inelastic demand curve

what is an example of a firm in a monopolistic comeptition?

a pizza hut selling pizza

what is not a characteristic of a perfect competition?

Differentiated products

what is not a characteristic of a monopolistic competition?

efficient levels of output

Common resource goods

rival and non-excludable

Public goods

non-rival and non-excludable

Club goods

non-rival and excludable

private goods

rival and excludable

determine the profit-maximizing level from the table

output of 6 (MR=MC)

determine the profit maximizing output from the table

output of 6; the table shows between 6 and 7, so choose where MR>MC

the ultimatum game shows that rationali8ty can be impeded by

fairness of payoffs

nate is taking a survey. Question 1 asks “what color is the school bus” and question 2 asks name three fruits”; he lists pineapples, bananas, and lemons. what is this an example of?

priming effect

explain what is occurring in the chart to the right:

taxes are inefficient; they reduce consumer surplus

what market structure consists of the following characteristics? Many sellers, differentiated product, easy entry and exit

monopolistic competition

what market structure consists of the following characteristics? A few sellers, differentiated product (most of the time), barriers to entry

oligopoly

why do cartels tend not to last?

Each firm in the cartel has an incentive to be uncooperative and defect from the cartel agreement

how is nash equilibrium best described?

it is an outcome in which neither player wants to change strategies, assuming the other player’s decision is unchanged

which of the following most accurately describes Dave Ramsey’s opinion on student loan debt?

If you choose to take on student loan debt, have a plan to pay it off quickly

Mason invests $1000 with an 8% interest rate. Have much money does he have after 3 years with simple interest? With interest that is compounded annually?

$1240; $1260

Using the tax bracket to the right, how much does someone with a salary of $50,000 pay in taxes?

$6307

A bat and a ball cost $1.10 in total. A bat costs more than the ball. how much does the bat cost?

$1.05

What is the term for the situation in which firms set a very low price (below the AVC) with the intent of driving rivals from the market in the long run?

Collusion

What term is used to describe the hypothetical person who behaves completely rationally?

Homo economicus

Based on the prospect theory graph, what is not true?

the value of gains is exponential

Someone is asked to choose between Gambel A and B and then between C and D. He chooses A and D, based on the payouts in the image, what type of risk taker is he?

Risk averse

Individual stocks tend to be riskier than ___

stock indecies

Student A asks Student B if he thinks the Fed should implement expansionary monetary policy. B answered yes because he saw a news headline that Denver unemployment rates are higher than last year. What is this an example of?

Question substitution

Companies will often advertise to “keep up” with competitors’ advertising. However this often results in a lower profit for both companies than if neither company had advertised. what principle in game theory does this illustrate?

prisoner’s dilema

based on the decision tree, what can we determine about celine?

Celine would rather spend time with bob than pick the activity

what is expected value?

a calculated average of all possible outcomes of a random variable, weighted by their probabilities. It represents the long-term average if the same random process is repeated multiple times.

How have tariffs impacted international economies in the last 4 months? How doe they contradict one of the 5 foundations of economics? (this is an essay question, know how to explain this in depth)

Economic uncertainty, people have pulled out of the Dow, leading to its plummet; free trade

How does oligopolist strategy relate to game theory? (this is an essay question, know how to explain this in depth)

Companies make decisions that affect consumers and other firms

why do the contribution game and cournot oligopoly tend to cause controversy? (this is an essay question, know how to explain this in depth)

players want to maximize their own payoffs at the expense of others, leading to suboptimal outcomes for the group.

why is behavioral economics gaining popularity in the field of economics? (this is an essay question, know how to explain this in depth)

It is more realistic and accurate

why is it better to start investing at a young age? (this is an essay question, know how to explain this in depth)

compound interest

what about inflation and interest rates encourage investing in stocks and bonds? (this is an essay question, know how to explain this in depth)

retaining monetary value, beating inflation, stability and reliability