question

Opportunity cost can best be defined as the

answer

value of what must be given up in order to acquire an item.

question

Rational choice requires that opportunity cost be

answer

considered as part of making a decision.

question

Some college students think that because a college degree greatly increases their earning potential there is no opportunity cost of attending college. How would an economist look at the matter?

answer

There is still an opportunity cost, even if it is justified by higher future earnings.

question

Consider the following information regarding a person's decision to go to college: college tuition is $20,000 per year, room and board is $10,000 per year, and books and materials are $2,000 per year. Suppose that instead of going to college this person could have earned $18,000 working in a store. An economist would calculate the cost of going to college as

answer

$50,000

question

The term opportunity cost refers to the

answer

value of what is forgone when a choice is made.

question

Which of the following is an example of an externality?

answer

Tom's smoking affecting his roommate's health.

question

Which of the following is an example of a fiscal policy initiative?

answer

Reduction in taxes.

question

The opportunity cost to you of an action is

answer

the value to you of the next best action you could have taken.

question

Opportunity cost is the

answer

cost of the best option forgone as a result of choosing an alternative.

question

During a war, a government will often draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?

answer

the value of the civilian goods no longer produced by the new soldiers

question

The opportunity cost of any good or service is the

answer

value of the next best alternative.

question

Throughout the 1980s, accounting departments in U.S. universities were unable to fill many available faculty positions. This fact suggests that the salaries offered by these departments

answer

were below the market price for qualified accountants.

question

The principle of comparative advantage explains how

answer

two nations may engage in mutually beneficial trade, even though one of them is more productive than the other.

question

Suppose Tammy grew up on a farm and is very good at plowing. In addition suppose she is a popular country singer who earns $4,000 per performance. If her husband Bob can plow (but not as well as Tammy) but he can't carry a tune, then it would be most efficient if

answer

Tammy specialized in singing and Bob in plowing.

question

The United States produces both automobiles and computers more efficiently than Mexico. Nevertheless, it is possible that both nations would benefit from trade in these items. The reason for this is

answer

the law of comparative advantage.

question

The law of comparative advantages explains why

answer

nations trade with each other, regardless of their relative levels of economic development.

question

If trade between two countries is voluntary, one can expect that

answer

both countries expect to gain something

question

When economists are critical of government regulations that prohibit free individuals from making certain kinds of contracts, for example, to purchase a good or service, they will usually invoke the concept of

answer

mutual gains from voluntary trade.

question

If a decision maker uses marginal analysis, then the relevant costs are the

answer

additional costs of a particular activity or product.

question

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?

answer

They benefit as long as the additional revenue from the passengers exceeds the marginal cost.

question

When a teacher in a private school points out to her high school principal that since there are empty seats in all classrooms, the cost of additional students is really zero, she is using the

answer

principle of marginal analysis.

question

An externality is defined as

answer

a social cost that affects parties external to a transaction.

question

Which of the following is an example of an undesirable side effect of the operation of the market mechanism?

answer

negative externalities

question

In Egypt, in 1970, the Aswan Dam was completed. By preventing the annual flood of the Nile (thereby providing millions of acres of arable land) and by providing electricity, the dam was expected to raise the living standard of the Egyptian people-and it has. However, it has also led to a rise in the water table which causes Egypt's limestone structures, including the pyramids, to absorb more salt water and to suffer serious erosion from crystallized salts. Combined with air pollution and traffic vibration, this erosion is turning the pyramids to dust. Economists analyze this type of problem with the concept of

answer

an externality.

question

A large factory pours its toxic wastewater into a nearby river, and as a result, the residents of a downstream community experience high rates of illness and birth defects. The economic problem illustrated by this example is

answer

externalities.

question

When interdiction efforts manage to stem the flow of illegal drugs into the United States, assuming no change in demand, the price of these substances rises. This price increase leads to more crime as addicts attempt to maintain their now more-expensive habits. Economists call this side-effect of the drug business

answer

an externality

question

The use of chlorofluorocarbons in refrigerators and air conditioners is alleged to cause the destruction of the ozone layer that surrounds the earth. This layer protects humans from ultraviolet radiation, which causes skin cancer. Industry has been prohibited from using these substances in aerosol cans, but the government has been reluctant to ban their use altogether because of the serious economic consequences. Economists analyze such problems and refer to them as

answer

externalities.

question

Rent control is usually justified on the grounds that it protects moderate- to low-income families from the burden of rapidly rising rents and from eviction if they are unable to pay. It also prevents landlords from reaping windfalls as property values rise. Opponents note that rent controls usually lead to a reduced supply of rental housing and shortages. The proponents of rent controls support them primarily on the grounds of

answer

equality

question

Because there is a trade-off between total output and equality of income distribution

answer

policies designed to equalize distribution may adversely affect the size of output.

question

In terms of the competing claims of equality and efficiency, in the United States we have

answer

chosen greater wage inequality for lower unemployment.

question

In contrast to the United States, the European Union has chosen

answer

less wage inequality for higher unemployment.

question

In the United States, the fact that the gap between the rich and the poor has been increasing is often justified by economists on the grounds that greater

answer

inequality is an undesirable consequence of greater efficiency.

question

The 1981 tax reform act reduced taxes on high-income individuals. Many economists believed that high tax rates would deter high-income individuals from working and investing, thus slowing the growth of income. This illustrates the issue of

answer

the equality-efficiency trade-off.

question

An article in a recent economics periodical asks the question: "Is low inflation worth it?" By "it," the article probably means

answer

unemployment.

question

In the short run, efforts to reduce the unemployment rate are likely to cause

answer

an increase in the inflation rate.

question

If a government enacts a rent control to protect apartment tenants, the result is likely going to be

answer

a decrease in rents with a shortage of apartments.

question

If a government enacts a price floor on agricultural products to protect wheat farmers, the result is likely going to be

answer

an increase in price with a surplus of wheat.

question

If a voluntary trade takes place,

answer

both parties will benefit from the transaction.

question

The dramatic increase in the standard of living since the Industrial Revolution

answer

has not meant unlimited abundance for societies or persons.

question

Probably the most important factor affecting material well-being is

answer

growth in productivity

question

Economics

answer

is a broad-ranging discipline

question

Which of the following statements is true?

answer

Abstraction forms an important part of economic analysis.

question

Economics is a social science in the sense that it

answer

rigorously examines human behavior

question

For the typical student, taking an introductory course in economics should

answer

help the student learn to rationally analyze social problems.

question

Tools used by economists include

answer

All of the above are correct

question

Economics is a social science rather than a "hard" science like physics because

answer

economists study human behavior, which is affected by an unpredictable and vast range of influences.

question

Abstraction can be thought of as

answer

omitting unimportant details in order to understand complex phenomena.

question

The process of focusing on only the most important factors to explain a phenomenon is called

answer

abstraction

question

"Assume that all individuals have perfect information about prices now and in the future, that they have identical tastes, that all markets are competitive, and that there is no government." This statement is indicative of how economists

answer

abstract for analytic purposes

question

A theory can best be defined as

answer

a deliberate simplification of factual relationships that attempts to explain how those relationships work.

question

To an economist, theory can be thought of as

answer

explanation of mechanisms behind observed phenomena

question

Which of the following statements is correct?

answer

A theory may result from a tested and confirmed hypothesis.

question

During one winter quarter at Frozen U., snow falls every Friday night. Students assume that, on their campus, Fridays cause snow. This hypothesis

answer

assumes that correlation implies causation

question

Economists and others use economic theory

answer

as a partial basis for public policy recommendations.

question

Economic theory

answer

is a deliberate simplification of factual relationships

question

A theory is an abstraction used often by economists to

answer

explain why things work the way they do

question

Economic theory is a necessity, not a luxury. This statement is true because theory

answer

provides a structure for organizing and analyzing data

question

Policy-oriented economists seek to develop theories to

answer

explain how things work so policies can be formulated.

question

In the 19th century, Russian peasants noticed that during cholera epidemics there were lots of doctors around; in an attempt to eliminate cholera, they killed all the doctors. This is an example of

answer

mistaking correlation with causation

question

An economic model can be defined as

answer

a representation of a theory or a part of a theory.

question

Economists use models in order to

answer

All of the above are correct

question

Why do economists tend to create models in diagrammatic form?

answer

It is easier than building models out of physical objects.

question

A useful economic model

answer

may make some unrealistic assumptions in order to simplify a complex reality

question

Economic models

answer

are used to describe cause-and-effect relationships

question

Economists are often perceived as disagreeing with each other. Is this the way things really are

answer

No, economists agree on much more than is commonly supposed.

question

Which of the following is one source of disagreement between economists?

answer

All of the above are correct.

question

Economic analysis and policy are made more difficult by

answer

inadequate and imperfect information

question

An economist might be hired to answer which of the following questions?

answer

All of the above are correct.

question

In the fall of 1992, candidate Bill Clinton's campaign office had a large sign which read, "It's the economy, stupid." This was meant to say that

answer

economic problems were the most important in the campaign.

question

The purpose of economic science is to

answer

develop principles by which to rank alternative uses of scarce resources

question

Two advisors to the president have given their policy recommendations, and they are in disagreement. Why do these economists disagree?

answer

All of the above are reasons for disagreements among economists

question

Graphs are useful because of the way they

answer

All of the above are correct.

question

A diagram is a good example of a(n)

answer

abstraction

question

The beginning point of a graph (the 0,0 point) is known as

answer

the origin.

question

Suppose that a curve has a slope equal to zero at some point A. To the right of A, the curve may

answer

All of the above are correct

question

The slope of a curved line differs from that of a straight line in that

answer

the numerical value of the slope of a curved line is different at every point, but is the same at every point for a straight line.

question

If an economic curve has a negative slope, then one variable

answer

falls as the other rises

question

The tangent at point A on a curve has a positive slope. Therefore, the curve has a

answer

positive slope at point A

question

When variable A rises by 10 units, variable B rises by 15 units. The slope of the line describing this relationship is

answer

either 2/3 or 1.5, depending on which variable goes on which axis of the graph.

question

The slope of a downward-sloping straight line can be calculated as the distance from the

answer

vertical intercept of the line to the origin divided by the distance from the origin to the horizontal intercept of the line

question

A horizontal line has a slope of

answer

zero

question

The slope of the line in Figure 1-1 is

answer

0.5.

question

Which of the following mathematical expressions represents the equation of a straight line with a slope of zero at all points on a graph with Y on the vertical axis and X on the horizontal axis?

answer

Y = a

question

A vertical line has a slope of

answer

infinity

question

A line that rises at a 45 degree angle has a slope of

answer

1.

question

The slope of a curved line at a particular point is

answer

defined as the slope of the straight line that is tangent to the curve at that point.

question

It is possible to represent three dimensions on a two-dimensional graph by using

answer

a contour map.

question

A contour map illustrates which of the following?

answer

the way that three variables are correlated

question

People generally purchase less of a commodity as its price increases. This implies that the relationship between quantity purchased and the price of the commodity must have a

answer

negative slope.

question

A ____ is a graph whose axes show the quantities of two inputs that are used to produce some output

answer

production indifference map

question

The United States economy is

answer

largest in the world.

question

How does the U.S. economy rank in size?

answer

first in economic output

question

The United States has the largest economy in the world because

answer

both b and c are correct.

question

Inputs, or factors of production, include

answer

all of the above

question

On a world scale, how populous is the U.S. economy

answer

third

question

The working population of the United States is approximately

answer

150 million

question

If California were a separate economy, it would be the ____ largest economy on earth.

answer

eighth

question

Capitalism and free enterprise are common, and the United States

answer

has gone further in that direction than almost any other country

question

Government ownership of property and resources in the United States is

answer

relatively rare; the United States is mostly privatized

question

The United States produces ____ of what it consumes, and consumes ____ of what it produces

answer

most, most

question

In 2013, about what percentage of goods and services sold in the United States was imported?

answer

16%

question

As of 2013, annual imports to the U.S. were approximately ____ and annual exports from the U.S. were approximately ____.

answer

$2.7 trillion; $2.3 trillion

question

Which of the following is the most closed economy?

answer

the United States

question

Which of the following is the most open economy?

answer

the Netherlands

question

Which of the following is the most closed economy?

answer

the United States

question

Gross Domestic Product in 2013 was almost five times larger than it was in 1960 but it is important to note that

answer

the population grew substantially over the same time period.

question

According to the data on real U.S. GDP

answer

economic growth has been irregular, with periodic downturns

question

Economic progress is best measured by

answer

the growth rate of GDP per capita

question

Along with changes in the level of economic activity, measured by GDP, what other economic variable tends to rise and fall as a consequence?

answer

unemployment

question

Why does unemployment tend to change when the level of output changes?

answer

Labor is an input, and if output falls, employers need fewer workers to make it, so the employment falls

question

Economic fluctuations are defined as

answer

alternating periods of significant GDP growth and decline.

question

Which of the following is true about the United States?

answer

Recessions have occurred periodically in U.S. history

question

One of the most important changes in the composition of the labor force in the United States has been

answer

the major increase in the number of women who work outside the home.

question

In the United States, most workers

answer

produce services rather than goods

question

Most American workers

answer

are employed in the service-producing sector

question

Which of the following areas employed more workers in 2013?

answer

educational and health services

question

All industrialized countries have become "service economies." Which factor helps explain this shift?

answer

Information age and labor saving innovation in manufacturing.

question

Which factor of production accounts for the highest percentage of the income that the production process generates in the US?

answer

Labor

question

The average hourly wage (excluding benefits) in the United States is currently

answer

$20.00

question

For those workers who are given fringe benefits such as health insurance and pensions, the additional income this amounts to over and above the average hourly wage is approximately

answer

30-40%

question

How do the wages in the United States compare to those in northern Europe?

answer

they are similar

question

The payments to owners of capital include

answer

interest and profits.

question

Most Americans

answer

overestimate corporate profits.

question

The typical American family spends about ____ percent of its budget on goods, and the remainder on services.

answer

34

question

Nonconsumption spending accounts for roughly what percent of total output of goods and services?

answer

40%

question

The United States has approximately

answer

28 million businesses.

question

According to Robert Reich, secretary of Labor in the Clinton administration,

answer

it is almost impossible to define the nationality of a multinational company.

question

In the United States each year, approximately

answer

10% of all businesses fail.

question

A firm that does business all over the world is called a(n)

answer

multinational corporation

question

An industry can be defined as

answer

the group of all firms that sell a product.

question

Government plays a role in which type of economy?

answer

all economies

question

The role of government in a market economy includes all of the following except

answer

extensive ownership of productive resources.

question

Comparing the United States to other economies, the United States is one of the ____ economy in the world.

answer

most privatized

question

Which of the following illustrates government acting as a referee?

answer

enforcing contract provisions between buyer and seller

question

As Americans have become more health conscious, rules about food labels have become more complex and stringent. This is an example of government acting as

answer

referee.

question

Which of the following is a valid reason to consider government regulation?

answer

Seeking some social objective that markets do not achieve.

question

When government defines and enforces property rights, this is an example of government as

answer

referee

question

Antitrust laws are designed to

answer

preserve competition.

question

America's antitrust laws are used to protect competition against possible encroachment by monopoly. This is an example of government as

answer

regulator of businesses.

question

The federal government spends approximately

answer

$4 trillion

question

The largest single portion of the federal budget is devoted to

answer

Social Security and unemployment compensation

question

The largest single portion of state and local budgets is devoted to

answer

Education

question

Compared to people in other nations, people in the United States pay

answer

lower taxes.

question

A transfer payment is a sum of money

answer

given by government without a good or service in exchange.

question

The concept of government as redistributor is

answer

approved by many, but questioned by many as well

question

A central government collected taxes totaling $120 billion in the previous year. It's expenditure during the year was roughly the same. This is an example of a

answer

balanced budget

question

The government redistributes income to the poor, primarily through

answer

both a and b.

question

Progressive income taxes are designed to

answer

make the distribution of income more equal.

question

Annual incomes of James, Jack, and Stanley are $30,000, $50,000, and $80,000 and their tax rates are 10%, 20%, and 30% respectively. Which tax structure is this an example of?

answer

Progressive tax

question

A mixed economy is one in which

answer

there is some public influence over free markets

question

The United States is a fairly good example of

answer

a mixed economy.

question

All of the following are associated with a mixed economy except

answer

homogenization.

question

In a mixed economy

answer

there is some government influence over the workings of the free market

Econ chap 1 & 2 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards