SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST

BUSINESS BMAL 590 ALC11 Microeconomics SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST -People respond to incentives blank_______. by ignoring negative incentive ...

BUSINESS BMAL 590 ALC11 Microeconomics SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST SECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST -People respond to incentives blank_______. by ignoring negative incentives and responding to positive incentives only only when they are irrational by calculating their individual costs and benefits and determining which is greater when they have low incomes -After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision? The marginal benefit of going to Cancun increases. The marginal cost of going to Cancun decreases. The marginal benefit of going to Ft. Lauderdale decreases. The marginal cost of going to Ft. Lauderdale decreases. -A tradeoff exists between a clean environment and a higher level of income in that blank_______. studies show that individuals with higher levels of income pollute less than low-income individuals efforts to reduce pollution typically are not completely successful laws that reduce pollution raise costs of production and reduce incomes employing individuals to clean up pollution causes increases in employment and income -An incentive blank_______. is the opposite of a tradeoff could be a reward but could not be a penalty could be either a reward or a penalty could be a penalty but could not be a reward -Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do? He should sell the car now for $3800. He should keep the car since it wouldn’t be rational to spend $6400 restoring a car and then sell it for only $5800. He should complete the additional work and sell the car for $5800. It does not matter which action he takes since the outcome will be the same either way. -Economists assume that people are motivated by blank_______. altruism rational self-interest benevolence greed -The fundamental reason people must choose between goods to buy and consume is because of blank______. people engaging in exchange specialization scarcity great abundance of free resources -A rational student will continue studying in a given study session until blank______. the expected grade is an A the expected grade is a B the marginal value of the last unit studied equals the marginal cost of the last unit the expected grade is passing -In economics, the cost of doing something is blank_______. the opportunity cost only 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_______. marginal benefit and the total cost of studying marginal benefit and the total benefit of studying marginal benefit and the marginal cost of studying total benefit and the total cost of studying SECTION 2 SUPPLY AND DEMAND -A shift in the demand curve denotesblank_______. a shift in the supply curve a change in the price a movement a change in demand -Consider inferior goods. As real incomes rise, consumers tend to buy inferior goods inblank________. unchanged quantity higher quantity a manner to start looking for other inferior goods less quantity -The law of supply states that, holding other factors constant, as price increases blank_______. quantity supplied increases quantity supplied decreases quantity demanded increases quantity demanded decreases -A restriction on the number of people allowed to be medical doctors in the United States would most likely blank_______. increase doctors' fees decrease the demand for doctors decrease the demand for nurses decrease the number of people who get sick -Suppose the price of hamburgers rises, and you observe that as a result, the demand for hotdogs rises. This makes hotdogs and hamburgers blank_______. normal goods complements substitutes inferior goods -March was unusually rainy and windy, leading more car owners to take their cars to the car wash. Prices at local car washes did not change. Economists might describe that change in consumer behavior this way? The weather caused an increase in the demand for car washes. The weather caused a shift in both the supply and demand for car washes. The demand for car washes increased while the supply of car washes fell. The weather caused an increase in the supply of car washes. -Movement down along a demand curve could be caused by blank_______. an increase in the price of a substitute good a decrease in consumer incomes an increase in consumer's desire or taste for the good a decrease in the price -IfA and B are complements, an increase in the price of good A would blank_______. lead to an increase in demand for B have no effect on the quantity demanded of B lead to a decrease in demand for B lead to a decrease in supply for B -A drought in the Midwest will raise the price of wheat because of a blank_______. leftward shift in the demand curve rightward shift in the supply curve rightward shift in the demand curve leftward shift in the supply curve -For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to blank_______. become parallel to the price axis shift to the left shift to the right become flatter SECTION 3 ELASTICITY -If, for a certain good, the percent change in the quantity demanded is less than the percent change in price that caused the changeblank_______. we can say that the demand is elastic we can say that the demand is inelastic we can say that the demand is unit elastic we can say that the demand is zero elastic -The price elasticity of demand refers to the extent to which the quantity demanded changes as a result of a change inblank_______. quantity demanded quantity supplied price elasticity -Suppose the demand is perfectly inelastic. The implication would be that the smallest change in price would result inblank________. no change in quantity a small change in quantity no change in price a small change in price -For goods and services that have an inelastic demand, if price is increased, total revenueblank_______. does not change is not a function of price decreases increases -Goods and services that are independent of each other have a cross elasticity of demand that is blank________. negative positive 0 positive infinity -Goods and services that are perceived to be close substitutes have a cross elasticity of demand that isblank________. negative positive 0 positive infinity -A perfectly elastic demand is a blank___________curve. vertical horizontal negative positive -Income elasticity of demand is the extent to which the demand in quantity of goods responds to changes inblank________________. price real income the resources supply -The cross-price elasticity between two products is estimated to be 2. If the price of the first product is increased by 8%, demand for the second product will blank_______. increase by 8% decrease by 4% increase by 4% increase by 16% -Which of the following products is likely to have the most elastic demand? Cigarettes Coca Cola. Life-saving medicine Gasoline. SECTION 4 PRODUCTION AND COST -Which one of the following represents factors of production? The output of a production function. Productivity. Efficiency. Land, labor, capital, technology, and entrepreneurship. -All these curves are U-shaped except blank_______. average fixed cost curve average variable cost curve average total cost curve marginal cost curve -Economies of scale occurs when the average total cost of production blank_______ as output _______. decreases; increases decreases; decreases remains constant; increases increases; increases -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 calledblank________. sole proprietorship partnership cooperative corporation -Typically, a production functionblank_________. demonstrates the ability of a firm to produce various combinations of goods and services, utilizing all of its resources represents a technical relationship between the factors of production and the output gives us insights about the least cost method of producing a given level of output shows production costs at any level of output -Suppose the marginal product of labor is 8 and the marginal product of labor is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use blank_______. more labor and less capital two times more capital than labor three times more capital than labor more capital and less labor -Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 60 employees and served 120 customers. This year, it had 70 employees and served 140 customers. What is the marginal product of labor? 4 3 2 5 -Fred works 40 hours a week managing Fred's Convenience Store, without drawing a salary. He could earn $600 a week doing the same work for Bob. Fred's Convenience Store owes its bank $100,000, and Fred has invested $100,000 of his own money. If Fred's accounting profits are $1,000 per week while the interest on his bank debt is $200 per week and savings account interest and loan interest are equal, his economic profits are blank_______. $1000 per week $400 per week $200 per week $0 per week -To maximize profit, the firm should set output at the level where blank_______. the average cost per unit is minimized average revenue just equals average cost marginal cost equals zero marginal revenue is equal to marginal cost -A firm should build an additional distribution center if blank_______. the revenue generated from building the distribution center is big the cost of building the distribution center is not too big the marginal revenue of building the distribution center is larger than the marginal cost of building it the revenue generated from building the distribution center is small