eco 1010 chapter 1 quiz Essay

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_______ = pie is divided & _____________ = size of the economic pie.
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Equality & efficiency
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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.
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Tuition is the single-largest cost of attending college for most students
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Wrong
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A marginal change is a small incremental adjustment to an existing plan of action
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true
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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
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To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.
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true
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Trade can make everyone better off except in the case where one person is better at doing everything.
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false
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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
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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
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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.
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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?
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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
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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.
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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?
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It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
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Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda
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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
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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?
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He should complete the repairs and sell the boat for $900
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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
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forgo the repairs and sell the house as it is for $250,000
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Economists are particularly adept at understanding that people respond to
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incentives.
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Which is the most accurate statement about trade?
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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
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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?
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both. only the one with a low level of output per person. only the one with a high level of output per person
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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?
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both
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Trade between countries tends to
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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
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less competition.
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Central planning refers to
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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?
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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
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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
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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.
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Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
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Households and firms interacting in markets are guided by an “invisible hand” that leads them to desirable market outcomes.
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The invisible hand works to promote general well-being in the economy primarily through
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people’s pursuit of self-interest.
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Which of the following statements does not apply to a market economy?
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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
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a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell.
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The government enforces property rights by
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providing police and courts
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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
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inadequate enforcement of property rights.
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Which of the following can lead to market failure?
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externalities and market power
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Which of the following firms is most likely to have market power?
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the only hotel in a rural area
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Over the past century, the average income in the United States has risen about
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eightfold.
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Almost all variation in living standards is attributable to differences in countries’
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productivity.
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The historical rise in living standards of American workers is primarily a result of
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the rise in American productivity.
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Slow growth in US incomes during the 1970s and 1980s was primarily due to
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slow productivity growth in the US.
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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
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inflation caused by an increase in the quantity of money in the economy.
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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?
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1 percent per year
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In the short run, an increase in the money supply is likely to lead to
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lower unemployment and higher inflation.
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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?
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country B but not country A
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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
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intended to reduce unemployment and . may lead to excessive inflation over time.
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How does the study of economics depend upon the phenomenon of scarcity?
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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
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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.
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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.
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Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?
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Whatever must be given up to obtain some item it its opportunity cost.
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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.
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The concept of working longer per year would be perceived by many teachers as a definite increase in the cost of teaching.
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Under what conditions might government intervention in a market economy improve the economy’s performance?
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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
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Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run
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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.
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Benefits from trade would not include
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less competition.
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Trade between countries tends to
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