Clemson Microeconomics 2110 Exam 1 Questions With Correct Answers

CLEMSON MICROECONOMICS 2110 EXAM 1
QUESTIONS WITH CORRECT ANSWERS
what is microeconomics? - CORRECT ANSWER -
study of individual consumers and their participation in markets (consumers can be a country or
a business)



what is meant by "people respond to incentives"? - CORRECT ANSWER -
an incentive is a comparison of benefits and costs, which are defined broadly in terms of money,
resources, and time - economists make predictions based on incentives



what is the first "bigEidea" of microeconomics and what does it mean? - CORRECT ANSWER -
the first big idea is incentives matter -
incentives are both rewards and punishments that people respond to in predictable ways



how would an economist look at increasing safety regulations on things like cars or planes? -
CORRECT ANSWER -
common sense is more safety = good, but economic sense says that there will be a change toEthe
incentives

-
for example the increase in safety regulations could cause people to drive more recklessly (studie
s showed thisEwas true)



whatEis the second "big idea" of microeconomics and what does it mean? - CORRECT ANSWER -
good institutions align self-interest with social interest - self-
interestEis doing what is valuable to oneself (not selfishness) and when markets work well, this se
lf-interest also helps society



whatEis scarcity? - CORRECT ANSWER -
a good is scarce when there is not enough to supply demand -

, does not mean rare, rather means something must be given up to get it and this is what drives c
hoices and resource allocation



whatEis resource allocation? - CORRECT ANSWER -
microeconomics gives a model of resource allocation through markets -
people optimize and resources equilibrate by allocating to where they are most needed



what is the third "big idea" of microeconomics? - CORRECT ANSWER -trade-offs are everywhere -
a trade-off is giving up something to obtain something else and in order to get more of one
good, you m ust give up something else



what is opportunity cost? - CORRECT ANSWER -
X2 X2 X2 X2 X2 X2 X2




the true cost of something is what you must give up to get it -
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




opportunity cost is the value of the next best alternative given up because every choice usually i nvol
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




ves givingEsomethingEup
X2




what is the fourth "big idea" in microeconomics? - CORRECT ANSWER -thinking on the margin -
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




rational choicesEare made by considering trade-
X2 X2 X2 X2 X2 X2




offs on the margin, or by considering the marginal costs and benefits of a situation (marginal = s mall
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




amount more) X2




whatEis the marginal principle? - CORRECT ANSWER -
X2 X2 X2 X2 X2 X2 X2




if the marginal benefits outweigh the marginal costs, the choice is a smart one
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




why should we care about opportunity costs? - CORRECT ANSWER -
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




consider a 5, 10, and 20 dollar bill -
X2 X2 X2 X2 X2 X2 X2 X2 X2




all take the same resources and time to produce, but are worth different amounts -
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




the opportunity cost of ripping a 5 in half is only 5 dollars worth, ripping a 20 is 20 dollars worth
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2