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Economics is a social science concerned with:

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The best use of scarce resources to achieve the maximum satisfaction of economic wants.

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A person should consume more of something when its marginal:

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benefit exceeds its marginal cost.

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The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

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The scientific method

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Which is an illustration of a microeconomic question?

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Will a new type of television set increase the number of buyers?

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A schedule or curve that shows the various combinations of two products a consumer can purchase with a specific amount of money income is:

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A budget line

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Which of the following is real capital?

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a construction crane

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A point inside a production possibilities curve best illustrates:

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unemployment.

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A normative statement is one that:

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is based on value judgments.

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The problems of aggregate inflation and unemployment are:

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major topics of macroeconomics.

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On a production possibilities curve, the single optimal or best combination of output for any society:

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Depends upon the preferences of society

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If an increase in one variable is associated with a decrease in another variable, then we can conclude that the variables are

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inversely related

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The ratio of the vertical change to the horizontal change between two points of a straight line is the

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slope

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There are two sets of x, y points on a straight line in a two-variable graph, with y on the vertical axis and x on the horizontal axis. If one set of points was (0, 5) and the other set (5, 20), the linear equation for the line would be

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y = 5 + 3x

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In a two-variable graph of data on the price and quantity of a product, economists place

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price on the vertical axis even though it is the independent variable and quantity on the horizontal axis even though it is the dependent variable

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In a two-dimensional graph of the relationship between two economic variables, an assumption is usually made that

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other variables are held constant

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If the slope of a straight line is zero, then the straight line is

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horizontal

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Which statement best describes a command economy?

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The production and allocation of goods and services is determined primarily through government

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Which statement is correct?

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Freedom of choice and enterprise are essential elements of the market system

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In a competitive economy, prices:

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do all of these.

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The competitive market system:

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encourages innovation because successful innovators are rewarded with economic profits.

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Which is not one of the Five Fundamental Questions?

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What goods and services should be produced by government?

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The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of:

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The "invisible hand"

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Which of the following is a limitation of the simple circular flow model?

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the determination of product and resource prices is not explained.

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Households and businesses are:

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sellers in the resource and product markets respectively.

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The influential book written by Adam Smith was:

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The Wealth of Nations

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The circular flow model:

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Illustrates the interdependence of businesses and consumers

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The law of demand is illustrated by a demand curve that is:

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Downward sloping

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Which would cause a decrease in the quantity of computers supplied?

answer

A decrease in the demand for computers

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When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n):

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increase in the supply of gasoline.

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A schedule which shows the various amounts of a product producers are willing and able to produce at each price in a series of possible prices during a specified period of time is called:

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Supply

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If the quantity supplied of a product is less than the quantity demanded, then:

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There is a shortage of the product

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If the market price is above the equilibrium price:

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A surplus will occur and producers will produce less and lower prices

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A competitive market will:

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achieve an equilibrium price.

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A product market is in equilibrium:

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where the demand and supply curves intersect.

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A headline reads "Storms destroy half of the lettuce crop." This situation would lead to a(n):

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Increase in the price of lettuce and decrease in quantity purchased

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Government-set price floors and price ceilings:

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Interfere with the rationing function of price in a free market

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Bad weather in coffee-producing regions of the world devastated the coffee crop. As a result, coffee prices increased worldwide. Which of the following statements best explains the situation?

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The supply of coffee decreased.

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Assume that the supply of tomatoes in a competitive market increases. What will most likely happen to the equilibrium price and quantity of tomatoes?

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price will decrease; quantity will increase

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Assume that the demand for security services increases in a competitive market. What will most likely happen to the equilibrium price and quantity of security services?

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price will increase; quantity will increase

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A decrease in the demand for beef is more than offset by an increase in its supply. As a result the equilibrium price will

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decrease and the equilibrium quantity will increase

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A decrease in the supply of oil is more than offset by an increase in its demand. As a result, the equilibrium price will

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increase and the equilibrium quantity will increase

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An increase in the demand for lumber that is less than the increase in the supply of lumber will

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decrease the equilibrium price and increase the equilibrium quantity of lumber

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What will happen to the equilibrium quantity and price of a product in a competitive market when there is an equal increase in demand and supply?

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equilibrium quantity will increase and equilibrium price will stay the same

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What will happen to the equilibrium quantity and price of a product in a competitive market when the decrease in demand exactly offsets the increase in supply?

answer

equilibrium quantity will stay the same and equilibrium price will decrease

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An increase in demand when the supply curve is vertical will

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increase price but not affect quantity

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If a seller sets a price for a product that turns out to be below the equilibrium price, then there will be a

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shortage of the product

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A surplus means that

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quantity demanded is less than the quantity supplied at that price

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A market for tickets in which buyers bid for tickets held by initial purchasers rather than the original seller is a

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secondary market

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Consumer surplus arises in a market because:

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Some consumers are willing to pay more than the equilibrium price but do not need to do so

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Negative externalities arise:

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when firms "use" resources without being compelled to pay for their full costs.

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Rivalry and excludability are the main characteristics of:

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private goods

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The market system does not produce public goods because:

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private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

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A demand curve for a public good is determined by:

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summing vertically the individual demand curves for the public good.

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Cost-benefit analysis attempts to:

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compare the benefits and costs associated with any economic project or activity.

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At the optimal quantity of a public good:

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marginal benefit equals marginal cost.

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An important problem in evaluating public projects through the use of cost-benefit analysis is that:

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positive and negative externalities associated with such projects may be difficult to measure.

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From the economist's perspective, "market failures" basically arise when:

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Demand and supply do not accurately reflect all the benefits and all the costs of production

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When the production of a product creates external costs greater than external benefits, a market economy will:

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Allocate too many resources to production of the product

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Which would be an example of an adverse selection problem?

answer

A person in ill health who purchases disability insurance

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Which would be an example of where the government has intervened to correct a market failure caused by inadequate information about sellers?

answer

Licensing of medical doctors and surgeons

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A good example of a government action that creates a moral hazard problem would be the:

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Provision of unemployment compensation insurance

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Inadequate buyer information about sellers and their product can cause market failure in the form of

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an underallocation of resources to the product

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The establishment of a system of weights and measures by government is designed to correct situations in which there is

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inadequate buyer information about sellers

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For what type of profession would the marginal cost to buyers of obtaining information about sellers of professional services be relatively high and not having that information could impose a high cost on the buyer?

answer

medical surgery

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A situation in which one party to a contract alters his or her behavior after signing the contract in ways that can be costly to the other party would be

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a moral hazard problem

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If Congress adopted an increase in government insurance on bank deposits, this action would create a moral hazard problem because it may

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encourage bank officers to make riskier loans

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Assume that individuals who are most likely to benefit substantially from an insurance policy decide to buy one and the insurance company does not know this information. This situation would be an example of

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an adverse-selection problem

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Which one of the following situations would most likely create an adverse-selection problem?

answer

an insurance company offering a life insurance policy with no medical exam

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What has been the main approach used by the federal government to improve workplace safety?

answer

establish standards for workplace safety and enforce them with inspections and penalties

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Which one of the following would be an example of a service provided by the private sector to overcome information failure for buyers of goods and services?

answer

publishing Consumer Reports

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Which of the following are potential problems with directing and managing government?

answer

c)It is difficult for the government to effectively aggregate information from bottom to top a) The government's massive size and scope **A and C is the correct!**

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What is the correct criterion in evaluating government programs?

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By comparing the marginal benefit to the marginal cost of the government program. If the marginal benefit exceeds the marginal cost this is an efficient program.

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An unfunded liability for a government program implies that:

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projected government revenue exceeds projected government expenditure for the program

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A special-interest issue is one whose passage yields:

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large economic gains to a small number of people and small economic losses to a large number of people

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Politicization of fiscal and monetary policy refers to:

answer

The use of fiscal and monetary policy to help politicians before an election

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Which of the following is the most likely cause of unfunded liabilities?

answer

The benefit of the program is immediate while the cost is in the distant future.

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It is often argued that government laws and regulations have unintended consequences. Which of the following is an unintended consequence of the 2010 healthcare reform law?

answer

Companies are reducing full-time employees to part-time employees.

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The concept of limited choices, as used in public choice theory, refers to the fact that:

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Voters must select a candidate who represents a "bundle" of various public policy programs and who can't register support or opposition for specific programs

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Public choice theory focuses on the economics of:

answer

government decision making, politics, and elections.

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Regulatory capture is problematic for which of the following reasons?

answer

The regulations governing an industry are set by the industry itself

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Deficiencies in the processes used to make collective decisions of government and economic inefficiencies caused by government are the primary focus of

answer

public choice theory

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The trading of votes to secure favorable outcomes on decisions that otherwise would be adverse is referred to as

answer

logrolling, and it may increase or decrease economic efficiency

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The idea that the person holding the middle position will in a sense determine the outcome of an election is suggested by the

answer

median-voter model

question

Public choice theory focuses on the economics of:

answer

government decision making, politics, and elections.

question

Suppose that Steve and Susie each perceive $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800. If the proposed tax levied on each for the park would $300, a majority vote will:

answer

defeat this project and resources will be underallocated to it.

question

A special-interest issue is one whose passage yields:

answer

large economic gains to a small number of people and small economic losses to a large number of people.

question

Majority voting fails to incorporate the strength of the preferences of the individual voter and therefore:

answer

May produce economically inefficient outcomes

question

Assume that voters are asked to vote for either more police protection or more schools in a community. More schools are likely to win if:

answer

Median voters prefer that choice

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The special-interest effect is significant because:

answer

It can contribute to economic inefficiency in the public sector

question

The concept of limited choices, as used in public choice theory, refers to the fact that:

answer

Voters must select a candidate who represents a "bundle" of various public policy programs and who can't register support or opposition for specific programs

question

When elected officials decide to pursue their personal interests at the expense of the voters who elected them, the conflict is an example of Correct Answer

answer

a principal-agent problem

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Actions that groups take to seek government legislation that puts tariffs on foreign products to limit foreign competition or that gives tax breaks to specific corporations would best be an example of

answer

rent-seeking behavior

question

According to public choice theory, politicians tend to favor programs with

answer

clear benefits and deferred costs

question

One type of government failure that involves the unlawful misdirection of government resources or actions that arise when government officials use their offices for personal gain is

answer

political corruption

question

It is difficult to determine whether provision for a particular good or service should be assigned to the private or public sector of the economy because the

answer

institutions in both sectors are imperfect

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