Microeconomics - Midterm Review Guide (Jaeckel)

Section I: Multiple-Choice Questions

1. Tradeoffs and Production Levels

• Economic Concept: Tradeoffs between possible production levels for two goods are illustrated by:

  • (b) a production possibilities frontier.

2. Opportunity Cost of Bread

• Definition: The opportunity cost of some bread consumed is defined by:

  • (c) the most desired goods or services that are forgone in order to get the bread.

3. Economic Actors in Circular Flow Model

• Actors: The economic actors in the traditional circular flow model are:

  • (b) Firms and households.

4. Definition of Efficiency in Economics

• Meaning: In economics, efficiency means:

  • (d) using the minimum amount of resources to achieve a desired result.

5. Normative Question

• Identification: A normative question is:

  • (d) How much more money should managers earn than workers?

6. Characteristics of a Public Good

• Distinguishing Features: The two distinguishing characteristics of a public good are:

  • (d) It is freely available to anyone; use by one person does not diminish the ability of another person to use it.

7. Market Definition

• Market Type: A market in the sense of an economic system refers to:

  • (c) The market for stocks in U.S. companies.

8. Definition of a Market

• Market Definition: A market:

  • (d) (a), (b), and (c) is a place where buyers and sellers interact, can be defined by broad product categories, and is an economic system that relies on market institutions to conduct economic activities.

9. Factors Shifting Supply Curve of Shoes

• Non-Cause: The following will not cause a shift in the supply curve for shoes:

  • (d) More consumers prefer to go barefoot.

10. Factors Shifting Demand Curve

• Non-Cause: The following will not cause a good’s entire demand curve to shift:

  • (b) A change in the current price of the good.

Section II: Market Reactions and Graphing

11. Effect of Increased Milk Price on Cereal Market

• Expected Market Reaction: If the price of milk goes up, we expect:

  • (a) Price will increase and quantity will decrease in the cereal market.

12. Meaning of Ceteris Paribus

• Definition: The term ceteris paribus means:

  • (c) "holding all else constant."

13. Factors Shifting Supply Curve

• Shifting Factors: The following factors can shift a supply curve:

  • (a) A change in the number of sellers.

  • (b) A change in the technology of production.

14. Effect of Increase in Both Supply and Demand on Equilibrium

• Expected Outcome: An increase in both supply and demand typically results in:

  • (b) An ambiguous effect on equilibrium price and an increase in equilibrium quantity.

15. Effect of Inelastic Demand on Total Revenue

• Total Revenue Expectation: If the demand for coffee beans is inelastic, a rise in the price of those beans will:

  • (a) rise total revenue.

16. Demand Curve Elasticity

• Shape: A demand curve with an extremely high price elasticity of demand would be:

  • (b) horizontal.

17. Price Elasticity of Organic Carrots Demand

• Expected Quantity Effect: If price elasticity of demand for organic carrots is -1.5 and price decreases by 12%, the quantity bought will:

  • (e) Increase by 18%.

18. Inelastic Supply of Salt and Demand Increase

• Equilibrium Reaction: If the supply of salt is perfectly inelastic and demand increases, then equilibrium price:

  • (c) will increase but equilibrium quantity will be unchanged.

19. Unit Elastic Demand

• Definition: Demand is unit elastic if:

  • (a) a 1% increase in price results in a 1% decrease in quantity demanded.

Section III: Consumer Surplus and Market Demand

20. Consumer Surplus Calculation

• Consumer Surplus Example: If Amon’s maximum willingness to pay for jeans is $35 and the price is $45, his consumer surplus is:

  • (e) $0.

21. Market Demand Curve Analysis

• Limitation of Demand Curve: A market demand curve does not illustrate:

  • (c) the price and quantity of the good that maximize the net benefits to society.

22. Ice Cream Parlor Price Change Analysis

• False Statement Identification: From the increase in ice cream cone price from $3 to $4, the false statement is:

  • (e) Ice cream cones provide declining marginal benefits.

Section IV: Minimum Wage and Price Controls

23. Minimum Wage Hike and Worker Surplus

• Conditions for Increase: Raising the minimum wage is likely to increase workers’ surplus if:

  • (c) the demand for labor is very inelastic.

24. Price Ceiling Effects

• Implications of Price Ceiling: A price ceiling below the equilibrium price implies that:

  • (d) quantity demanded is greater than quantity supplied, and a dead-weight loss is created.

25. Market Preferences Principle

• Principle in Markets: Markets operate according to the principle that:

  • (b) one dollar one vote.

Section V: Graphing and Calculations

1. Supply and Demand Curves

• Graphical Representation: Draw supply and demand curves, label equilibrium P1 and Q1, show new equilibrium post-supply increase as P2 and Q2.

• Market Adjustment Explanation: Detail market adjustment leading to the new equilibrium with the necessary graph annotations.

2. Effects of Supply and Demand Changes

• Graphical Representation: Draw supply and demand curves, label original equilibrium P1 and Q1, show simultaneous shifts of increased supply and decreased demand to obtain new equilibrium values P2 and Q2.

3. Labor Market and Minimum Wage Illustration

• Welfare Effects: Illustrate welfare effects in the labor market regarding minimum wage policy, show surplus changes and unemployment effects.

4. Market Calculations with Demand and Supply Functions

• Demand Function Example: Given QD = 30 - 3P and QS = 2P:

  • Calculate equilibrium (P1, Q1), consumer surplus (CS1), producer surplus (PS1), total surplus (TS1).

  • Analyze effects of price floor Pfloor = $8, excess demand/supply, and deadweight losses with calculations for consumer surplus, producer surplus, and total surplus post-price floor.

5. Price Elasticity Calculations

• Demand Calculations: Given QD = 18 - 3P:

  • Calculate price elasticity of demand, point elasticity at specific quantities, unit elastic prices, etc.

6. Production Possibility Tables and Trade Implications

• Opportunity Cost Calculations: Analyze production possibilities for China and Russia, summarize findings in tables, implications for trade, and recalculations post-productivity changes.