Microeconomic Exam 1 Practice Flashcards

Questions and Answers

The assertion that "there is no free lunch" means that

There are always trade-offs between economic goals.

All production involves the use of scarce resources and thus the sacrifice of alternative goods. (correct)

Choices need not be made if behavior is rational.

Marginal analysis is used in economic reasoning.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact

Implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost. (correct)

Implies that electronic media sources are displacing print sources for many consumers.

Is an example of irrational behavior.

Contradicts the economic perspective.

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates

Productive efficiency.

Opportunity costs. (correct)

Increasing opportunity costs.

Distorted priorities.

Which of the following terms implies the least degree of confidence in an economic generalization?

Hypothesis Signup and view all the answers

The Latin term "ceteris paribus" means

Other things equal Signup and view all the answers

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

All factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. Signup and view all the answers

Which of the following is a microeconomic statement?

The price of smartphones declined 2.8 percent last year. Signup and view all the answers

A positive statement is one that

Focuses on facts, descriptions, and theoretical relationships. Signup and view all the answers

The budget line shows

All possible combinations of two goods that can be purchased, given money income and the prices of the goods. Signup and view all the answers

In moving along a given budget line,

The prices of both products and money income are assumed to be constant. Signup and view all the answers

Study Notes

Economic Concepts

"There is no free lunch" signifies that every economic decision involves trade-offs due to the use of scarce resources.
Marginal benefit analysis is critical; for many, the benefit of consuming an additional unit (like a second newspaper) is outweighed by its cost.

Opportunity Costs

Choosing to invest in computers over parking illustrates opportunity costs, emphasizing that funds allocated to one area cannot be spent on another.
Economic choices hinge on assessing opportunity costs, as they represent the value of the next best alternative.

Confidence in Economic Generalizations

Among economic terms, "hypothesis" reflects the least confidence in a generalization, ranking below "law," "principle," and "theory."

Ceteris Paribus

The Latin phrase "ceteris paribus" means "other things equal," a foundational concept in economics that isolates the effect of one variable while holding others constant.

Relationship Between Price and Quantity

A statement indicating that the quantity purchased of a good, like bananas, rises as the price falls assumes all other factors remain constant.

Microeconomic Statements

Microeconomic analysis often focuses on specific markets; for example, a decline in smartphone prices reflects a microeconomic statement.

Positive vs. Normative Statements

A positive statement in economics is objective, focusing on factual descriptions and relationships rather than value judgments.

Budget Line

The budget line represents all combinations of two goods that can be purchased within a specific income and price constraints, indicating the trade-offs consumers face.

Changes Along Budget Line

When moving along a budget line, prices of goods remain constant while the consumer's income does not influence the line directly.

Understanding Opportunity Cost in Graphs

Opportunity cost can vary between graphical representations; determining which graph showcases the lowest opportunity cost for goods like beer will require analysis of their respective slopes.

Description

Prepare for your Microeconomics Exam 1 with these comprehensive flashcards. Each card presents key concepts and definitions that are essential for understanding the subject. Test your knowledge and improve your grasp of microeconomic principles.