Micro Exam 1 (Chapter 1) – Flashcards
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The main incentive for business activity is
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profit
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Adam Smith coined the term "invisible hand" to mean
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a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.
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What best illustrates the concept of Adam Smith's "invisible hand"?
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A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
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The opportunity cost of a choice is:
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the value of the next best opportunity foregone.
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In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:
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the value of studying economics.
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Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:
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$48,900.
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What is thinking on the margin?
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Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.
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A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:
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greater than $3
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One benefit of trade is that it:
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allows for increased specialization and mass-production techniques that lower per unit costs of production.
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The better Martha Stewart is at running her business:
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the higher her opportunity cost of ironing her own shirts.
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The historical rise in living standards of American workers is primarily a result of:
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the rise of american productivity.
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What are the institutions that help foster the appropriate incentives for economic growth?
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a dependable legal system, property rights, and competitive and open markets
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Institutions that support economic growth are the ones that:
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provide incentives for entrepreneurs to take risks and innovate.
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Booms and busts refer to the:
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fluctuations in economic activity over time.
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What explains why economic booms and busts cannot be avoided?
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The economy is always being struck by unavoidable shocks.
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The Zimbabwean government printed money as fast as it could for years. As a result:
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Zimbabwe experienced inflation at a rate of billions of percent per month.
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A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:
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needs to know the causes of inflation, for example, the government's printing of too much money.
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The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:
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too much money or too little money might induce inflation or unemployment due to bad timing of decisions.
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If the central bank creates too much money, _____ is the result. If the central bank doesn't create enough money, an economic _____ is the result.
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inflation; slowdown.
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The average starting salary of economics majors is just behind that of:
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chemical and nuclear engineering majors.
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The _____ tax rate is the tax rate on additional income.
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margin
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The benefits of trade extend beyond simple exchange. For example, trade allows us to take advantage of _____, the reduction in costs that arise when goods are mass-produced.
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economies of scale
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_____ matters, and understanding economic growth is one of the most important tasks of economics.
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wealth
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What is NOT an example of non-monetary incentives?
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interest
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When self-interest aligns with the broader public interest, we get _____ outcomes.
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good
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The opportunity cost of attending college increases as _____ increase(s).
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job opportunities for high school graduates
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The marginal tax rate is the tax rate on ________ income.
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more
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When two people voluntarily trade with each other
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they both benefit.
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Why do some countries have more physical and human capital than others, and why is it organized well using the latest technological knowledge?
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incentives.
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Suppose Betty can produce two auto repairs or eight pies in a day. Don can produce one auto repair or five pies in a day. When Betty bakes one pie, she forgoes the opportunity to have performed _____ auto repairs.
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(2/8) 0.25
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Among the most powerful institutions for supporting good _____ are property rights, political stability, honest government, a dependable legal system, and competitive and open markets.
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incentives
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Most economists today believe that if the government, especially the U.S. Federal Reserve, had acted more quickly and more appropriately:
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the Great Depression would have been shorter and less deep.
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What does NOT happen if the central bank prints too much money?
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The general level of prices falls
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What is an example of self-interest NOT being aligned with social interest?
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A firm does not have to pay for its pollution emissions.
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What is TRUE about monetary and fiscal policy?
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Monetary and fiscal policy can affect the length and severity of recessions.
