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MicroEcon Exam #1

Chapters 1-5

QuestionAnswer
Which is a positive statement? (a) Rent control reduces new construction. (b) The government should raise the minimum wage. (c) It is unfair that some firms earn high profits. (d) Taxing sugar is wrong. A
Ceteris paribus means: (a) holding all else equal while one variable changes. (b) after the fact, therefore because of it. (c) assuming perfect information. (d) a normative fairness condition. A
The marginal decision rule tells a rational agent to choose the level where: (a) marginal benefit ≥marginal cost. (b) average benefit > average cost. (c) total revenue is maximized. (d) sunk cost is minimized. A
“Cities with more parks have lower crime; therefore, parks reduce crime.” Best critique: (a) correlation does not imply causation (b) the statement is normative. (c) it is a tautology. (d) correlation implies causation by definition. A
Tonight you can earn $40 tutoring or $30 babysitting. You choose tutoring. Your opportunity cost (in $) is: (a) 30 (b) 40 (c) 70 (d) 10 A
Choose the higher net benefit: A: benefit $120, cost $80; B: benefit $90, cost $20. (a) A (b) B (c) Equal (d) Cannot tell B
Alex (10 cookies or 5 cakes); Beth (12 cookies or 3 cakes). Comparative advantage: (a) Alex in cakes; Beth in cookies. (b) Alex in cookies; Beth in cakes. (c) Alex in both. (d) Beth in both. A
A $50 rebate on efficient appliances is a: (a) negative incentive; lowers adoption. (b) positive incentive; raises adoption. (c) sunk cost; no effect. (d) price control; creates a shortage. B
With Alex/Beth above, mutually beneficial terms for 1 cake (in cookies) include: (a) 1 (b) 3 (c) 5 (d) 6 B
A point inside the PPC is: (a) attainable but inefficient. (b) unattainable. (c) efficient. (d) at full employment. A
A bowed-out PPC is primarily due to: (a) increasing opportunity costs from specialized resources. (b) constant costs for all goods. (c) decreasing opportunity costs always. (d) fixed proportions production. A
Economic growth appears as: (a) outward shift of the PPC. (b) movement along the PPC. (c) inward shift of the PPC. (d) a flatter demand curve. A
In factor markets, who supplies inputs? (a) households (b) firms (c) government (d) banks A
A market economy is best described as: (a) decentralized decisions coordinated by prices. (b) government planning of production and prices. (c) only barter transactions. (d) production solely for subsistence. A
The law of demand states that, ceteris paribus: (a) as price rises, quantity demanded falls. (b) as price rises, demand shifts left. (c) as income rises, demand falls. (d) as population rises, supply shifts right. A
Ice cream’s price rises and people buy fewer cones. This is: (a) a movement along demand. (b) a shift of demand left. (c) a shift of supply left. (d) demand becomes less elastic. A
If the price of coffee rises, what happens to tea (a substitute)? (a) demand for tea increases (shifts right). (b) demand for tea decreases. (c) supply of tea increases. (d) quantity demanded of tea decreases. A
If income rises for an inferior good, then: (a) demand decreases (shifts left). (b) demand increases (shifts right). (c) supply decreases. (d) quantity demanded rises. A
QD = 100−2P, QS = 20 + 3P . Equilibrium is: (a) P ∗= 16, Q∗= 68 (b) P ∗= 14, Q∗= 64 (c) P ∗= 15, Q∗= 70 (d) P ∗= 18, Q∗= 60 A
If supply decreases (left shift), then (ceteris paribus): (a) P ∗ rises and Q∗ falls. (b) P ∗ falls and Q∗ rises. (c) both P ∗ and Q∗ fall. (d) both P ∗ and Q∗ rise. A
A price ceiling is binding only if: (a) it is set below P ∗. (b) it is set above P ∗. (c) demand is inelastic. (d) supply is elastic. A
Using the market in Q19, a ceiling Pc = 12 yields: (a) a shortage of 20 units. (b) a surplus of 20 units. (c) a shortage of 12 units. (d) no effect (nonbinding). A
Using the market in Q19, a floor Pf = 20 yields: (a) a surplus of 20 units. (b) a shortage of 20 units. (c) a surplus of 12 units. (d) no effect (nonbinding). A
Likely unintended consequence of a binding rent ceiling: (a) quality deterioration/long queues. (b) immediate market clearing. (c) surplus housing units. (d) higher landlord maintenance. A
What is a Positive Statement? fact-based not personal beliefs, testable statement
What is a Normative Statement? value-based, personal opinion
What are models used for? Simplify reality to clarify cause-effect and make predictions
What is Ceteris Paribus? "All other things held constant" ex. Prices
Correlation? when 2 events occur together
Causation? when 1 event directly brings about another
Testable hypothesis example? Students who exercise at least 3 hours/week score 10% higher on exams than those who don't
Economics? study of choices under scarcity
Scarcity? forces trade-offs - every choice has an opportunity cost
Self-interest & Incentives? People act to maximize satisfaction , respond predictably to incentives
Rational Behavior? purposeful decisions based on their values and information - do what they want not what they don't
Scarcity and Trade-off's? choices are costly, need to give up the next best option
Opportunity Costs? Giving up other opportunities to gain the value of another
Incentives? Positive and Negative Positive = reward Negative = penalty
Created by: beccaalvarado5
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