26 Mar BUSINESS BMAL 590 ALC11 MicroeconomicsSECTION 1 SC
BUSINESS BMAL 590 ALC11 MicroeconomicsSECTION 1 SCARCITY, CHOICE, OPPORTUNITY COSTSECTION 1 SCARCITY, CHOICE, OPPORTUNITY COST-People respond to incentives blank_______.by ignoring negative incentives and responding to positive incentives onlyonly when they are irrationalby calculating their individual costs and benefits and determining which is greaterwhen 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 individualsefforts to reduce pollution typically are not completely successfullaws that reduce pollution raise costs of production and reduce incomesemploying individuals to clean up pollution causes increases in employment and income-An incentive blank_______.is the opposite of a tradeoffcould be a reward but could not be a penaltycould be either a reward or a penaltycould 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_______.altruismrational self-interestbenevolencegreed-The fundamental reason people must choose between goods to buy and consume is because of blank______.people engaging in exchangespecializationscarcitygreat abundance of free resources-A rational student will continue studying in a given study session until blank______.the expected grade is an Athe expected grade is a Bthe marginal value of the last unit studied equals the marginal cost of the last unitthe expected grade is passing-In economics, the cost of doing something is blank_______.the opportunity cost onlythe money, out-of-pocket expenditurethe value of the next best opportunity not takenthe 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 studyingmarginal benefit and the total benefit of studyingmarginal benefit and the marginal cost of studyingtotal benefit and the total cost of studyingSECTION 2 SUPPLY AND DEMAND-A shift in the demand curve denotesblank_______.a shift in the supply curvea change in the pricea movementa change in demand-Consider inferior goods. As real incomes rise, consumers tend to buy inferior goods inblank________.unchanged quantityhigher quantitya manner to start looking for other inferior goodsless quantity-The law of supply states that, holding other factors constant, as price increases blank_______.quantity supplied increasesquantity supplied decreasesquantity demanded increasesquantity demanded decreases-A restriction on the number of people allowed to be medical doctors in the United States would most likely blank_______.increase doctors’ feesdecrease the demand for doctorsdecrease the demand for nursesdecrease 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 goodscomplementssubstitutesinferior 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 gooda decrease in consumer incomesan increase in consumer’s desire or taste for the gooda 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 Bhave no effect on the quantity demanded of Blead to a decrease in demand for Blead 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 curverightward shift in the supply curverightward shift in the demand curveleftward 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 axisshift to the leftshift to the rightbecome flatterSECTION 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 elasticwe can say that the demand is inelasticwe can say that the demand is unit elasticwe 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 demandedquantity suppliedpriceelasticity-Suppose the demand is perfectly inelastic. The implication would be that the smallest change in price would result inblank________.no change in quantitya small change in quantityno change in pricea small change in price-For goods and services that have an inelastic demand, if price is increased, total revenueblank_______.does not changeis not a function of pricedecreasesincreases-Goods and services that are independent of each other have a cross elasticity of demand that is blank________.negativepositive0positive infinity-Goods and services that are perceived to be close substitutes have a cross elasticity of demand that isblank________.negativepositive0positive infinity-A perfectly elastic demand is a blank___________curve.verticalhorizontalnegativepositive-Income elasticity of demand is the extent to which the demand in quantity of goods responds to changes inblank________________.pricereal incomethe resourcessupply-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?CigarettesCoca Cola.Life-saving medicineGasoline.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 curveaverage variable cost curveaverage total cost curvemarginal cost curve-Economies of scale occurs when the average total cost of production blank_______ as output _______.decreases; increasesdecreases; decreasesremains constant; increasesincreases; 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 proprietorshippartnershipcooperativecorporation-Typically, a production functionblank_________.demonstrates the ability of a firm to produce various combinations of goods and services, utilizing all of its resourcesrepresents a technical relationship between the factors of production and the outputgives us insights about the least cost method of producing a given level of outputshows 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 capitaltwo times more capital than laborthree times more capital than labormore 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?4325-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 minimizedaverage revenue just equals average costmarginal cost equals zeromarginal 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 bigthe cost of building the distribution center is not too bigthe marginal revenue of building the distribution center is larger than the marginal cost of building itthe revenue generated from building the distribution center is small
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