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You should decide to go to a movie

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if the marginal benefit of the movie exceeds its marginal cost

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Joe sold gold coins for $3,000 that he bought a year ago for $3,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in fact he did lose money, because he could have received a 2.5 percent return on the $3,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of

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opportunity costs

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Which of the following most closely relates to the idea of opportunity costs

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tradeoffs

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Macroeconomics approaches the study of economics from the viewpoint of:

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the aggregate economy.

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Microeconomics

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is concerned with individual economic units and specific markets

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Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is

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positive and correct.

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Ben says that "An increase in personal income tax will decrease households' after-tax income." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that

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Holly's statement is normative, but Ben's is positive

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The possible combinations of two goods which a consumer can purchase with a given money income is shown by:

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a budget line.

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Other things equal, an increase in a consumer's money income

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shifts her budget line rightward because she can now purchase more of both products

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A production possibilities curve shows

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the maximum amounts of two goods that can be produced, assuming the full use of available resources.

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If the production possibilities curve is a straight line:

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The opportunity cost of producing one more unit of goods is constant

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Economic growth may be represented by a (an):

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Outward shift of the production possibilities curve

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Which of the following will result in an outward shift of the production possibilities curve

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An improvement in technology that benefits the entire economy

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Cuba is a command economy that suffered a decline in economic growth because of a cut in support from the former Soviet Union when it collapsed. As a consequence, Cuba:

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Experienced an inward shift of its production possibilities curve

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A society is limited to consuming only those combinations of outputs within its production possibilities. But this will not hold true anymore if there is:

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International specialization and trade

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How is the economic perspective reflected in lines for fast food?

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Customers select the shortest line because they believe it will reduce their time cost of obtaining food.

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Which of the following is a distinguishing feature of a market system?

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wide-spread private ownership of capital.

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An economic system:

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is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

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Private property:

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encourages owners to maintain or improve their property, so as to preserve or enhance value.

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Command systems are also known as:

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communism, socialism

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Broadly defined, competition involves:

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independently acting buyers and sellers and freedom to enter or leave markets

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The presence of market failures implies that:

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there is an active role for government, even in a market system.

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The "coincidence of wants" problem associated with barter refers to the fact that:

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for exchange to occur each seller must have a product desired by the other.

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If consumer desire for product X increases, all of the following will occur except:

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a decrease in the quantity of resources employed in industry X.

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The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:

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"Using the least-cost production techniques."

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The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

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"Through the guiding function of prices and the incentive function of profits."

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"Consumer sovereignty" refers to the:

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idea that the decisions of producers must ultimately conform to consumer demands.

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Which of the following is not one of the five fundamental questions?

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What prices will be charged for goods and services?

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The invisible hand refers to the:

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notion that, under competition, decisions motivated by self-interest promote the social interest.

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The two basic markets shown by the simple circular flow model are:

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input market and output market.

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In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.

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product; resource

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Which of the following best illustrates the circular flow model in action?

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All of these answers illustrate the workings of the circular flow model.

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Households and businesses are:

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sellers in the resource and product markets respectively.

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The negative relationship between price and quantity demanded:

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is referred to as the Law of Demand, applies to most of the goods in economy, is represented by a downward-sloping demand curve, is referred to as the Law of Demand

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Each of the following is a determinant of demand except

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Technology

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Two goods are complements if a decrease in the price of one good

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increases the demand for the other good.

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Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today's demand curve for Mustangs

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shifts to the left.

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If a surplus exists in a market we know that the actual price is

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above equilibrium price and quantity supplied is greater than quantity demanded.

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Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

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The equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

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Which of the following events would result in a decrease in equilibrium price and an ambiguous change in equilibrium quantity?

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an increase in supply and a decrease in demand.

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During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?

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Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the relative price of beef, making it less attractive to produce.

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In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are:

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substitute goods and the higher price for oil increased the demand for natural gas.

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If X is a normal good, a rise in money income will shift the:

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demand curve for X to the right.

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College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are:

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inferior goods.

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A decrease in the price of digital cameras will:

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shift the demand curve for memory cards to the right.

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In constructing a demand curve for product X

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the prices of other goods are assumed constant.

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The term "quantity demanded"

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refers to the amount of a product that will be purchased at some specific price.

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The law of supply indicates that, other things equal:

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producers will offer more of a product at high prices than at low prices.

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The supply curve shows the relationship between:

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price and quantity supplied

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An improvement in production technology will:

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shift the supply curve to the right.

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Other things equal, if the price of a key resource used to produce product X falls, the:

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product supply curve of X will shift to the right.

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An increase in the business tax would result in

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A leftward shift of the supply curve.

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A market is in equilibrium:

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if the amount producers want to sell is equal to the amount consumers want to buy.

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The two topics of primary concern in macroeconomics are:

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short-run fluctuations in output and employment, and long-run economic growth.

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Refer to the diagram below. A price of $20 in this market will result in:

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an excess demand of 100 units.

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The business cycle depicts:

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short-run fluctuations in output and employment.

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Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 9,000 large pepperoni pizzas (identical to last year's pizzas), but sold them for $12 each. Based on this information we can conclude that Harry's production of large pepperoni pizzas this year:

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increased nominal GDP but decreased real GDP.

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Inflation is defined as:

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an increase in the overall level of prices.

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Which of the following is used to measure directly the average standard of living across countries?

answer

real GDP per person.

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When economists refer to "investment," they are describing a situation where:

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resources are devoted to increasing future output.

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If an economy wants to increase its current level of investment, it must:

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sacrifice current consumption.

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Demand shocks:

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refer to unexpected changes in the desires of households and businesses to buy goods and services.

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Which of the following is an example of a supply shock?

answer

A dramatic increase in energy prices increases production costs for firms in the economy.

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Refer to the figures below. Which figure(s) represent a situation where prices are flexible?

answer

A only.

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Refer to the figures below. Which of the following events would most likely result in lower unemployment?

answer

A shift from D2 to D3 in Figure B.

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In situations of sticky prices and negative demand shocks we would expect firms to:

answer

build up inventories before reducing production.

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