Microeconomics Chapter 1 & 2 Quiz

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Questions and Answers

When should you decide to go to a movie?

If the marginal benefit of the movie exceeds its marginal cost.

When should a person consume more of something?

When its marginal benefit exceeds its marginal cost.

What is an economic hypothesis?

A possible explanation of cause and effect.

How is opportunity cost best defined?

The amount of one product that must be given up to produce one more unit of another product. Signup and view all the answers

What is the term for the pleasure, happiness, or satisfaction received from a product in economics?

Utility. Signup and view all the answers

Rational behavior implies that everyone will make identical choices.

False Signup and view all the answers

What does a point inside the production possibilities curve indicate?

It is attainable, but the economy is inefficient. Signup and view all the answers

What does the production possibilities curve tell us?

The combinations of two goods that can be produced with society's available resources. Signup and view all the answers

What does the assertion "There is no free lunch" mean?

All production involves the use of scarce resources and thus the sacrifice of alternative goods. Signup and view all the answers

What best answers the question, 'What goods and services will be produced?' in a market system?

Goods and services that are profitable. Signup and view all the answers

How does human specialization, or the division of labor, affect output?

It increases output by enabling workers to take advantage of differences in their skills. Signup and view all the answers

What characterizes the market system?

Private property rights. Signup and view all the answers

What does the 'coincidence of wants' problem associated with barter refer to?

For exchange to occur, each seller must have a product that some buyer wants. Signup and view all the answers

What is the market system's answer to the question, 'How will the system accommodate change?'?

"Through the guiding function of prices and the incentive function of profits." Signup and view all the answers

What does the invisible hand concept suggest?

Assuming competition, private and public interests will coincide. Signup and view all the answers

What does 'consumer sovereignty' mean?

Buyers determine what will be produced based on their 'dollar votes' for the goods and services offered by sellers. Signup and view all the answers

What is the market system's answer to the question, 'How will the goods and services be produced?'?

"Using the least-cost production techniques." Signup and view all the answers

What does the simple circular flow diagram show?

Households are on the selling side of the resource market and on the buying side of the product market. Signup and view all the answers

Broadly defined, what does competition involve?

Independently acting buyers and sellers and freedom. Signup and view all the answers

Study Notes

Decision-Making in Economics

Choose to attend a movie when its marginal benefit surpasses its marginal cost.
Increase consumption of a product when its marginal benefit is greater than its marginal cost.

Economic Concepts

An economic hypothesis provides a possible explanation of the relationship between cause and effect.
Opportunity cost represents the value of the next best alternative given up to produce one more unit of a different product.

Utility and Rational Behavior

Utility is the satisfaction or pleasure derived from consuming a product.
Rational behavior doesn't imply identical choices among individuals.

Production Possibilities

Points within the production possibilities curve indicate attainable but inefficient use of resources.
The curve illustrates the maximum combinations of two goods that can be produced with societal resources.

Scarcity and Choices

The phrase "There is no free lunch" emphasizes that all production requires the use of scarce resources, necessitating sacrifices of alternatives.
Goods and services produced in a market system are those deemed profitable.

Specialization and Market Characteristics

Human specialization or division of labor boosts output by leveraging differences in worker skills.
The market system is marked by private property rights.

Barter and Exchange

The "coincidence of wants" challenge in barter requires sellers to possess goods desired by buyers for successful exchange.

Market System Dynamics

The market's response to accommodating change relies on price guiding functions and profit incentives.
The invisible hand suggests that competitive forces align private interests with public good.

Consumer Influence and Production Methods

Consumer sovereignty indicates buyers dictate production through their demand expressed via "dollar votes."
The market system addresses how goods and services are produced by prioritizing least-cost production techniques.

Circular Flow in Economy

The simple circular flow diagram demonstrates that households act as sellers in the resource market and buyers in the product market.
Competition in a broad sense entails the existence of independently acting buyers and sellers, alongside market freedom.

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Description

Test your understanding of key concepts from Microeconomics Chapters 1 and 2. This quiz covers important terms such as marginal benefit, marginal cost, and opportunity cost that are essential for economic reasoning. Perfect for students looking to strengthen their grasp of microeconomic fundamentals.