Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
1. economics The study of the allocation of scarce resources among alternative uses.
2. Microeconomics The study of the economic choices individuals and firms make and of
how these choices create markets and attect welfare.
3. models Simple theoretical descriptions that capture the essentials of how the
economy work.
4. production A graph showing all possible combinations of goods that can be
possi- bility produced with a fixed amount of resources.
frontier
5. opportunity costs The cost of a good as measured by the alternative uses that are
foregone by
producing it.
6. 6 principles of mi- 1. Resources are Scarce
croeconomics 2. Scarcity involves opportunity cost
3. Opportunity cost are increasing
4. Incentives Matter
5. Ineflciency involves real costs
6. Whether Markets work well is important
7. 1. ResourcesSome combinations of food and clothing (such as 10 units of food together
are Scarce
with 12 units of clothing) are impossible to make given the resources
available. We simply cannot have all of everything we might want.
8. 2. Scarcity in-
That is, producing more of one good necessarily involves producing less
some-
1/
41
,Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
volves opportuni- thing else. For example, if this economy produces 10 units of food and
3 units
ty costs of clothing per year at point A, producing 1 more unit of clothing would
"cost"
2/
41
,Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
one-half unit of food. In other words, to increase the output of clothing by
unit means the production of food would have to decrease by one-half un
9. 3. Opportunity Expanding the output of one particular goodwill usually involves
costs are increasing oppor- tunity costs as diminishing returns set in. Although the
increas- ing precise reasons for this will be explained later, Figure 1.1 shows this
principle clearly. If clothing output were expanded to 12 units per year
(point B), the opportunity cost of clothing would rise from one-half a unit
of food to 2 units of food. Hence, the opportunity cost of an economic
action is not constant but varies with the circumstances.
10. 4. Incentives Mat- When people make economic decisions, they will consider opportunity
costs. Only
ter when the extra (marginal) benefits from an action exceed the extra
(marginal) opportunity costs will they take the action being considered.
Suppose that the economy is operating at a place on its production
possibility frontier where the opportunity cost of 1 unit of clothing is 1
unit of food. Then any person could judge whether he or she would
prefer more clothing or more food and trade at this ratio. But if, say,
there were a 100 percent tax on clothing, it would seem as if you could get
only one-half a unit of clothing in exchange for giving up food—so you
might choose to eat more and dress in last year's apparel. Or, suppose
a rich uncle otters to pay one-half your clothing costs. Now it appears
that additional clothing costs only one-half unit of food, so you might
choose to dress much better, even though true opportunity costs (as
shown on the production possibility frontier) are unchanged. Much of
the material in this book looks at the problems that arise in situations
like these, when people do not recognize the true opportunity costs of
11. 5. Inefficiency their actions and therefore take actions that are not the best from the
in- volves real perspective of the economy as a whole.
costs
An economy operating inside its production possibility frontier is said to be
3/
41
,Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
per- forming
"ineflciently"—a term we
will be making more
precise later. Producing,
say, 4 units of clothing and
4 units of food (at point C
in Figure 1.1) would
constitute an ineflcient use
of this economy's
resources. Such
production would involve
the loss of, say, 8 units of
clothing that could have
been produced along
with the 4
4/
41
complete solutions passed
1. economics The study of the allocation of scarce resources among alternative uses.
2. Microeconomics The study of the economic choices individuals and firms make and of
how these choices create markets and attect welfare.
3. models Simple theoretical descriptions that capture the essentials of how the
economy work.
4. production A graph showing all possible combinations of goods that can be
possi- bility produced with a fixed amount of resources.
frontier
5. opportunity costs The cost of a good as measured by the alternative uses that are
foregone by
producing it.
6. 6 principles of mi- 1. Resources are Scarce
croeconomics 2. Scarcity involves opportunity cost
3. Opportunity cost are increasing
4. Incentives Matter
5. Ineflciency involves real costs
6. Whether Markets work well is important
7. 1. ResourcesSome combinations of food and clothing (such as 10 units of food together
are Scarce
with 12 units of clothing) are impossible to make given the resources
available. We simply cannot have all of everything we might want.
8. 2. Scarcity in-
That is, producing more of one good necessarily involves producing less
some-
1/
41
,Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
volves opportuni- thing else. For example, if this economy produces 10 units of food and
3 units
ty costs of clothing per year at point A, producing 1 more unit of clothing would
"cost"
2/
41
,Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
one-half unit of food. In other words, to increase the output of clothing by
unit means the production of food would have to decrease by one-half un
9. 3. Opportunity Expanding the output of one particular goodwill usually involves
costs are increasing oppor- tunity costs as diminishing returns set in. Although the
increas- ing precise reasons for this will be explained later, Figure 1.1 shows this
principle clearly. If clothing output were expanded to 12 units per year
(point B), the opportunity cost of clothing would rise from one-half a unit
of food to 2 units of food. Hence, the opportunity cost of an economic
action is not constant but varies with the circumstances.
10. 4. Incentives Mat- When people make economic decisions, they will consider opportunity
costs. Only
ter when the extra (marginal) benefits from an action exceed the extra
(marginal) opportunity costs will they take the action being considered.
Suppose that the economy is operating at a place on its production
possibility frontier where the opportunity cost of 1 unit of clothing is 1
unit of food. Then any person could judge whether he or she would
prefer more clothing or more food and trade at this ratio. But if, say,
there were a 100 percent tax on clothing, it would seem as if you could get
only one-half a unit of clothing in exchange for giving up food—so you
might choose to eat more and dress in last year's apparel. Or, suppose
a rich uncle otters to pay one-half your clothing costs. Now it appears
that additional clothing costs only one-half unit of food, so you might
choose to dress much better, even though true opportunity costs (as
shown on the production possibility frontier) are unchanged. Much of
the material in this book looks at the problems that arise in situations
like these, when people do not recognize the true opportunity costs of
11. 5. Inefficiency their actions and therefore take actions that are not the best from the
in- volves real perspective of the economy as a whole.
costs
An economy operating inside its production possibility frontier is said to be
3/
41
,Exam 1 int micro econ 3001 questions with 100%
complete solutions passed
per- forming
"ineflciently"—a term we
will be making more
precise later. Producing,
say, 4 units of clothing and
4 units of food (at point C
in Figure 1.1) would
constitute an ineflcient use
of this economy's
resources. Such
production would involve
the loss of, say, 8 units of
clothing that could have
been produced along
with the 4
4/
41
