Foundations of Microeconomics Scarcity, Choice, and Opportunity Cost. 25 Questions and Answers.

Foundations of Microeconomics Scarcity, Choice, and Opportunity Cost People respond to incentives blank_______. by ignoring negative incentives and responding to positive incentives only

B

only when they are irrational

C

by calculating their individual costs and benefits and determining which is greater

D

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

A

when they have low incomes

Because the resources immediately available for use are limited, blank_______.

B

C

D

only the wealthiest people will get everything they want

people must make choices about resource use

eventually population growth will exceed resource availability, leading to famine and starvation

markets can become arenas for vicious competition between producers and consumers

Th

A

A

sh

An incentive blank_______.

is the opposite of a tradeoff

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B

could be a reward but could not be a punishment

C

could be either a reward or a punishment

D

could be a punishment but could not be a reward

A

B

C

D

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

In economics, the opportunity cost of doing something is blank_______. total costs

the money, out-of-pocket expenditure

the value of the next best opportunity not taken

the value that you place on the opportunity taken

The optimal amount of studying is determined by comparing the blank_______.

C

marginal benefit and the total benefit of studying

sh

B

marginal benefit and the total cost of studying

Th

A

marginal benefit and the marginal cost of studying

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D

total benefit and marginal cost of studying

Supply and Demand

A

B

C

D

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

For any good or service, we can represent the quantity demanded under various prices by blank_________. a demand curve

a point on a demand curve

the value of goods and services purchased and held by consumers

the intercept on the Y-axis

Potatoes are used in the production of potato chips. Suppose the price of potatoes falls. Then,_______.

C

it is likely that a movement along the supply curve of potato chips will occur

sh

B

it is likely that the demand for potato chips will fall

Th

A

it is unlikely that there will be a change in demand or supply

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D

it is likely an outward shift in the supply curve of potato chips

Given that digital music players are used to play music downloaded from the Internet, a fall in the price of digital music players will lead to blank_______. an increase in the price of broadband plans

B

an increase in the price of personal laptops

C

D

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

A

an increase in the demand for downloaded songs

a decrease in the price of a song download

Which of the following would necessarily cause a decrease in the price of a product?

B

C

An increase in the number of buyers and a decrease in the number of firms producing the product.

A decrease in the price of a substitute product and an improvement in production technology.

An increase in average income and an improvement in production technology.

sh

D

An increase in the number of buyers and a decrease in the price of an input.

Th

A

Suppose the price of hamburgers rises, and you observe that as a result, the demand for hotdogs rises. This makes hotdogs and hamburgers blank_______.

A

normal goods

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complements

C

substitutes

D

inferior goods

Elasticity

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

B

Suppose the demand is perfectly inelastic. The implication would be that the smallest change in price would result in________.

A

B

C

a small change in quantity

no change in price

a small change in price

Th

D

no change in quantity

A

sh

For goods and services that have an elastic demand, if price is increased, total revenue_______.

B

is not a function of price

does not change

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C

decreases

D

increases

A

negative

B

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

Goods and services that are independent of each other have a cross elasticity of demand that is ________.

C

D

positive

0

positive infinity

A perfectly elastic demand is a ___________curve.

C

D

horizontal

negative

sh

B

vertical

Th

A

positive

Which of the following products is likely to have the most elastic demand?

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Cigarettes

B

Coca Cola

C

Life-saving medicine

D

Gasoline

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

A

Production and Costs

What of the following statements best summarizes the law of diminishing marginal returns?

C

In the short run, as more labor is hired, output diminishes.

sh

B

As more labor is hired, the length of time that defines the short run diminishes.

Th

A

In the short run, the amount of labor a firm will hire diminishes as output increases.

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D

In the short run, as more labor is hired, output increases at a diminishing rate.

A legal entity, in its own right, that can be closely held (with few shareholders) or widely held (with hundreds of thousands of shareholders is called________. sole proprietorship

B

partnership

C

D

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

A

cooperative

corporation

All other inputs remaining the same, the additional output that may result from an additional unit of labor is________.

A

B

marginal product

marginal revenue

Th

C

marginal cost

marginal utility

sh

D

Average total costs is equal to which of the following?

A

The sum of average variable costs, average fixed costs, and marginal costs

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B

The product of average variable costs and quantity produced

C

Total variable costs divided by total marginal costs

D

The sum of average variable costs and average fixed costs

A

B

C

firm expands output until marginal revenue is exceeded by marginal cost

a firm expands output until marginal revenue is equal to marginal cost

the price in the market is equal to the firm’s marginal revenue

total costs equal total revenue

sh

Th

D

is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m

Profit maximization occurs when_____________.

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