Econ 100 Quiz 1 (week 1- week 3)

What fundamental problem makes the study of economics necessary?

Scarcity

In the context of resource allocation, what is the primary role of price?

Serves as an allocation method for scarce resources

True or False: The study of economics is primarily about money and the stock market

False

State the formula for Opportunity Cost using Accounting and Implicit costs

Opportunity Cost= Accounting Cost + Implicit Cost

Accounting Cost

The actual expenditure (cash) for a good or resource

Implicit Cost

The value of the next alternative use of resources

When calculating opportunity cost, how many foregone options should be considered?

Only the single next best use of the resources

According to marginal thinking, how is the Marginal Benefit (MB), defined for a consumer?

The additional benefit or satisfaction gained from buying one more unit

In economics, what does the term ‘cost’ specific refer to?

Cost of production

Rational Rule for Buyers: A consumer should continue to buy units of good until _______.

Marginal Benefit= Price

Rational Rule for Sellers: A producer should continue to sell units of good until ____________.:

Marginal Cost=Price

What is the condition for market efficiency regarding marginal benefit and marginal cost?

Marginal Benefit = Marginal Cost

Invisible Hand

The price mechanism used to efficiently allocate scarce resources to maximize benefits and minimize costs.

What does a straight line Production Possibility Frontier (PPF) indicate about opportunity cost?

Opportunity costs are constant

A curved or ‘bowed out’ PPF indicates that opportunity costs are ________.

Increasing

Why do markets typically face increasing opportunity costs?

Resources (labor and equipment) are specialized and better suited for certain tasks over others

True or False: In a PPF model, it is possible to have a decreasing opportunity cost

False

When are straight-line PPFs used as an accurate model?

When the resources involved are homogenous

Budget Line

A graph showing all possible combinations of two goods a consumer can buy given their income and prices

How does increase in a consumer’s income affect their budget line?

The budget line shifts outward parallel to the original line

What specific change causes the slope of a budget line to change?

A change in the relative prices of the goods

State the principle of Diminishing Marginal Utility

As consumption of a good increases, the additional satisfaction from each new unit decreases

The formula for. Marginal Utility (MU) is the change in total utility divided by ____________.

Change in quantity consumer

Marginal Rate of Substitution (MRS)

The rate at which a person will give up one good to get an additional unit of another good while remaining indifferent

What does the slope of an indifference curve represent?

The marginal rate of substitution (MRS)

Calculate the MRS for Lisa id she is choosing between movie (m) and soda (s)

MRS= MU_movies/MU_soda

Where does a consumer achieve the ‘best combination’ or utility maximization of a graph?

At the point where the budget line is tangent to the highest possible indifference curve

Quantity Demanded vs. Demand

Quantity Demand:

• Specific amount at a specific price

Demand:

• Entire relationship between price and quantity

If a consumer buys more of a good when their income increases, that good is categorized as an ______

Normal good

Inferior good

A good for which demand decreases as consumer income increases

What is the price relationship between two goods that are substitutes?

Positive (when the price of one rises, demand for the other rises)

What is the price of a relationship between two goods that are complements?

Negative (when the price of one rises, demand for the other falls)

Identify the relationship between coffee and sugar in economic terms

Complements

Identify the relationship between coffee and tea in economic terms

Substitutes

List four determinants of market demand for a good excluding price

• Consumer preferences

• income

• prices of related goods

• market size

How do ‘Expectation about the future’ affect a current demand curve?

A change in expectations causes the entire demand curve to shift

Network effects

A determinant of demand where the value of a good increases as more people use it

In a demand graph, what is represented by a movement along the curve rather than a shift of the curve?

A change in quantity demanded caused by by a change in the price of the good itself

The Production Possibility Frontier (PPF) is used to illustrate trade-offs when resources are ___________.

Limited at one point in time

When does ‘Thinking at the Margin’ entail for an economic producer

Considering the additional cost making one more unit (MC)

On an indifference curve graph, points C and G are the same line. What does this imply about the consumer’s preference?

The consumer is indifferent between them because they provide the same level of utility

When the price of a good falls, what happens to the Quantity Demanded according to the Law of Demand?

The Quantity Demanded increases

If the price of a complement rises, what happens to the demand for the primary good?

Demand for the primary good decreases

A set prices and quantities that consumers are willing and able to buy is called _________.

Demand

Which determinant of the demand is associated with ‘Congestion’.

Network Effects

Utility is defined as the ___________ and satisfaction gained from an item.

Usefulness

What happens to the Budget Line if a consumer loses money (income decrease)?

The budget line shift inward toward the origin

In simple economy producing only two goods, if resources are perfectly adaptable to both, the PPF is a ______.

Straight line

Why is ‘Money’ not considered a primary focus of economic theory according to the source of material?

Economics is fundamentally about the allocation of scarce resources, not just currency.

The ‘Rational Rule’ suggests consumers buy until MB equals price because MB represents the __________ of consumption

Marginal Benefit