question

_______ = pie is divided & _____________ = size of the economic pie.

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Equality & efficiency

question

Government policies that improve equality usually increase efficiency at the same time.

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False- Usually decreases efficiency through trade-offs that must be made.

question

Tuition is the single-largest cost of attending college for most students

answer

Wrong

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A marginal change is a small incremental adjustment to an existing plan of action

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true

question

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

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false

question

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

answer

true

question

Trade can make everyone better off except in the case where one person is better at doing everything.

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false

question

The invisible hand ensures that economic prosperity is distributed equally

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false

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In the long run the primary effect of increasing the quantity of money is higher prices.

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true

question

The broken window fallacy states that when a window breaks and someone spends money to repair it, they have created new economic activity that would not have otherwise taken place.

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true

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Resources are

answer

scarce for households and scarce for economies.

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______study the management of scarce resources.

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Economists

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The overriding reason why households and societies face many decisions is that

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resources are scarce.

question

phrases best captures the notion of efficiency?

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minimum waste

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The property of society getting the most it can from its scarce resources is called

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efficiency.

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In economics, the cost of something is

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what you give up to get it.

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What you give up to obtain an item is called your

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opportunity cost

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When computing the opportunity cost of attending a concert you should include

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the price you pay for the ticket and the value of your time.

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Ellie decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

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the value of the knowledge she would have received had she attended class.

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the opportunity cost of going to college be highest?

answer

a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree

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You have driven 500 miles on a vacation and then you notice that you are only 25 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

answer

the cost of driving the next 25 miles, but not the cost of driving the first 500.

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A rational decision maker takes an action only if the

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marginal benefit is greater than the marginal cost.

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Making rational decisions "at the margin" means that people

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compare the marginal costs and marginal benefits of each decision.

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Caroline eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

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can be thought of as the total benefit Caroline enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

question

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

answer

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

question

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda

answer

a. can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas. b. determines Bridget's willingness to pay for the third soda. c. is likely different from the marginal benefit provided to Bridget by the second soda. ALL IS CORRECT

question

George has spent $600 purchasing and repairing an old fishing boat, which he expects to sell for $900 once the repairs are complete. George discovers that, in addition to the $600 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $900 to potential buyers. He can sell the boat as it is now for $400. What should he do?

answer

He should complete the repairs and sell the boat for $900

question

Catherine buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Catherine purchased. As a result of the city's announced plan, Catherine is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should

answer

forgo the repairs and sell the house as it is for $250,000

question

Economists are particularly adept at understanding that people respond to

answer

incentives.

question

Which is the most accurate statement about trade?

answer

Trade can make every nation better off.

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England can benefit from trade

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with any nation.

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Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial

answer

because it allows specialization, which increases total output.

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Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit?

answer

both. only the one with a low level of output per person. only the one with a high level of output per person

question

Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level. Which country can benefit?

answer

both

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Trade between countries tends to

answer

increase both competition and specialization.

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Trade makes costs

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lower and raises the variety of goods and services available.

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When the France trades with Russia

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both countries are likely made better off

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Benefits from trade would not include

answer

less competition.

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Central planning refers to

answer

government guiding economic activity. Today many countries that had this system have abandoned it.

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In communism, central planners decide which of the following?

answer

what goods and services will be produced, how much will be produced, who produced and consumed the goods and services

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Market economies are distinguished from other types of economies largely on the basis of

answer

the ways in which scarce resources are allocated.

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The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

answer

1980s

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Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

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the actions of government central planners.

question

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

answer

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

question

The invisible hand works to promote general well-being in the economy primarily through

answer

people's pursuit of self-interest.

question

Which of the following statements does not apply to a market economy?

answer

Government policies are the primary forces that guide the decisions of firms and households.

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If the price of a dozen eggs were fixed above the current price, then we would expect

answer

a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell.

question

The government enforces property rights by

answer

providing police and courts

question

A company that formerly produced software went out of business because too many potential customers bought illegally-produced copies of the software instead of buying the product directly from the company. This instance serves as an example of

answer

inadequate enforcement of property rights.

question

Which of the following can lead to market failure?

answer

externalities and market power

question

Which of the following firms is most likely to have market power?

answer

the only hotel in a rural area

question

Over the past century, the average income in the United States has risen about

answer

eightfold.

question

Almost all variation in living standards is attributable to differences in countries'

answer

productivity.

question

The historical rise in living standards of American workers is primarily a result of

answer

the rise in American productivity.

question

Slow growth in US incomes during the 1970s and 1980s was primarily due to

answer

slow productivity growth in the US.

question

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of

answer

inflation caused by an increase in the quantity of money in the economy.

question

In the short run, which of the following rates of growth in the money supply is likely to lead to the highest level of unemployment in the economy?

answer

1 percent per year

question

In the short run, an increase in the money supply is likely to lead to

answer

lower unemployment and higher inflation.

question

For a number of years country A had inflation of 3% but for the last five years has had inflation of 6%. Country B had inflation of 4% for many years, but very recently inflation unexpectedly rose to 9%. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment?

answer

country B but not country A

question

The combination of President Obama's strategies and the Federal Reserve's reaction to the deep economic downturn in the US in 2008 and 2009

answer

intended to reduce unemployment and . may lead to excessive inflation over time.

question

How does the study of economics depend upon the phenomenon of scarcity?

answer

economics is the study of how society allocates its scarce resources, if there were no scarcity, there would be no need for economics. Everyone could have all the goods and services they wanted. No one would have to make decisions based on tradeoffs, because there would be no opportunity cost

question

One tradeoff society faces is between efficiency and equality. Define each term. If the U.S. government redistributes income from the rich to the poor, explain how this action affects equality as well as efficiency in the economy.

answer

Efficiency is the property of society getting the most it can from its scarce resources. Equality is defined as the property of distributing economic prosperity evenly among the members of society. When the government redistributes income from the rich to the poor, it reduces the reward for working hard. Fewer goods and services are produced and the economic pie gets smaller.

question

Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

answer

Whatever must be given up to obtain some item it its opportunity cost.

question

With the understanding that people respond to incentives, outline the possible outcome for teachers if the K-12 school year is extended to 11 months per year instead of the existing 9 months per year.

answer

The concept of working longer per year would be perceived by many teachers as a definite increase in the cost of teaching.

question

Under what conditions might government intervention in a market economy improve the economy's performance?

answer

If there is a market failure, such as an monopoly. If the distribution of income or wealth is considered to be unfair by society, government intervention might achieve a more equal distribution of economic well-being

question

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run

answer

the government may choose to reduce the money supply in the economy. When the money supply is reduced, prices don't adjust immediately. Lower spending, combined with prices that are too high, reduces sales and causes workers to be laid off.

question

Benefits from trade would not include

answer

less competition.

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