Ag. Econ Chapter 1 Review Questions

1. Scarcity means that there is less of a good or resource available than people wish to have.
ANS: T
2. Economics is the study of how evenly goods and services are distributed within society.
ANS: F
3. With careful planning, we can usually get something that we like without having to give up something else that we like.
ANS: F
4. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.
ANS: T
5. Efficiency means everyone in the economy should receive an equal share of the goods and services produced.
ANS: F
6. Government policies that improve equality usually increase efficiency at the same time.
ANS: F
7. A marginal change is a small incremental adjustment to an existing plan of action.
ANS: T
8. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.
ANS: F
9. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
ANS: F
10. A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.
ANS: F
11. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual’s productivity.
ANS: T
12. Trade can make everyone better off except in the case where one person is better at doing everything.
ANS: F
13. The invisible hand ensures that economic prosperity is distributed equally.
ANS: F
14. The government can potentially improve market outcomes if market inequalities or market failure exists.
ANS: T
15. One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.
ANS: T
16. Productivity is defined as the quantity of goods and services produced from each unit of labor input.
ANS: T
17. Inflation is the primary determinant of a country’s living standards.
ANS: F
18. Inflation increases the value of money.
ANS: F
19. In the long run the primary effect of increasing the quantity of money is higher prices.
ANS: T
20. The business cycle refers to fluctuations in economic activity such as employment and production.
ANS: T