question

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.

answer

People will buy less gas if the price of gas increases by $.20 per gallon.

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Adam Smith believed that if people were free to pursue their own interests,

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public interest would be served quite well.

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Economic choice and competitive behavior are the result of

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scarcity.

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Economics is primarily the study of

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the choices people make as the result of scarcity

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Criteria for rationing goods and resources must be established because of

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scarcity imposed by nature.

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A fact based on observable phenomenon that is not influenced by differences in personal opinion is called

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an objective concept

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Which of the following is part of the economic way of thinking?

answer

All of the above are part of the economic way of thinking.

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Which of the following statements is correct?

answer

Opportunity costs will always be incurred when scarce resources are used to produce a good.

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"The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?

answer

the concept of opportunity cost.

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Which of the following is most consistent with economizing behavior?

answer

Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough.

question

Which of the following is true?

answer

Changes in personal costs and benefits will exert a predictable impact on the choices of human decision makers.

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In economics, the term marginal refers to

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the change or difference between two alternatives.

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If a decision maker uses marginal analysis, then the relevant costs are the

answer

additional costs of a particular activity or product.

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Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is

answer

50 cents.

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In economics, secondary effects refer to the

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unintended consequences of a change that are not immediately identifiable but are felt only with time.

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The fact that some people love tomatoes while others dislike them illustrates that

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the value of a good is subjective.

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Which of the following is a positive economic statement?

answer

Raising the federal minimum wage to $6.50 per hour will cause the rate of unemployment to increase.

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When economists use the term ceteris paribus, they are indicating that

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all other variables except the ones specified are assumed to be constant.

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The term ceteris paribus means that

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all variables except those specified are constant

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The fallacy of composition is the fallacious view that

answer

what is true for the individual will also be true for the group.

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When an economist states a good is scarce, she means that

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desire for the good exceeds the amount that is freely available from nature.

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People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

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the additional benefits of the second car with the additional costs of the second car.

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If an economy is operating at a point inside the production possibilities curve,

answer

its resources are not being used efficiently.

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Three basic decisions must be made by all economies. What are they?

answer

what will be produced, how goods will be produced, and for whom goods will be produced

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Opportunity cost is defined

answer

as the value of the best alternative not chosen

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Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of producing ten monitors?

answer

the other goods that could be produced with the resources that produce the ten monitors

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For most students attending state universities, the largest cost component of going to college is

answer

the opportunity cost in terms of forgone current income from the time spent attending college

question

Your opportunity cost of attending a football game is

answer

the highest valued alternative forgone because of the time and money required to attend the game.

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Mr. Peters can drive or fly from Tallahassee, Florida to Savannah, Georgia, for a one-day business trip. If he drives, he will be able to work three hours once he arrives in Savannah, whereas traveling by plane will enable him to work eight hours. His expected income from each hour of work in Savannah is $30. If Mr. Peters is a rational decision maker, he will fly if and only if the price differential (air cost minus driving cost)is less than

answer

$150.

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In voluntary exchange, if the seller of a product gains,

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the buyer must also gain; mutual gain provides the foundation for exchange

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Which of the following statements about exchange is false?

answer

If one trading partner gains, the other must lose.

question

"Henry Ford made millions of dollars producing and marketing automobiles. Many workers and consumers must have suffered in order for Ford to amass such enormous wealth." The person who made this observation

answer

has failed to understand that specialization and exchange generally result in mutual economic gain.

question

In economics, transaction costs refer to the

answer

time, effort, and other resources needed to search out and negotiate an exchange.

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Which of the following is true with regard to value and exchange?

answer

Transaction costs reduce our ability to gain from potentially advantageous trades.

question

Which of the following most accurately states the function of middlemen?

answer

Middlemen reduce transaction costs.

question

Private property rights involve

answer

the right to exclusive use of the property. b. legal protection against those who would seek to use or abuse the property without the owner's permission. c. the right to transfer, sell, exchange, or mortgage the property d all of the above

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Which of the following is a private owner prohibited from doing?

answer

using the property in a manner that invades or infringes on the property of another

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Which of the following is true of private ownership?

answer

Private ownership links responsibility with the right of control.

question

The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that

answer

resources are not perfectly adaptable to the production of all goods

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Increasing opportunity costs of producing goods imply that the production possibilities curve will be

answer

bowed outward.

question

A point outside the production possibilities curve represents a combination of goods that is

answer

unattainable.

question

If the citizens of a country were to work harder and take less leisure time, it would

answer

shift the production possibilities curve outward

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Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as

answer

an outward shift of the curve

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In order to prosper, entrepreneurs must

answer

undertake projects that create wealth and increase the value of resources

question

The law of comparative advantage implies that a nation, individual, or region should produce those economic goods for which it

answer

is a low opportunity cost producer.

question

The law of comparative advantage applies to exchange between

answer

individuals. b. regions. c. nations. all of the above.

question

Specialization in production is beneficial because

answer

it permits people to expand production and achieve rates of output that would otherwise be unattainable.

question

Which of the following is not a basic question that each economy must answer?

answer

Which resources are scarce?

question

Three basic decisions must be made by all economies. What are they?

answer

What goods will be produced; how will goods be produced; for whom will goods be produced?

question

If Shawn can produce donuts at a lower opportunity cost than Sue, then

answer

Shawn has a comparative advantage in the production of donuts.

question

Which of the following is true of Figure 2-4?

answer

If the economy operates at point B, it is impossible to increase the output of clothing without giving up food production.

question

In Figure 2-5, which of the following is true?

answer

Point A is inefficient. b. Point B is efficient. c. Point C is unattainable. d. All of the above are true.

question

Refer to Figure 2-10. A movement from point C to point D could be caused by

answer

unemployment.

question

Refer to Figure 2-10. If this economy put all available resources into the production of bananas, it could produce

answer

400 bananas and no baseballs.

question

Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct?

answer

The opportunity cost of each additional baseball is 2 bananas.

question

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?

answer

The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase

question

If cable TV service and satellite TV service are substitutes

answer

a decrease in the price of cable will decrease the demand for satellite TV

question

Assume the demand curve for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen,

answer

a larger quantity of cookies will be demanded.

question

A demand curve for concert tickets would show the

answer

number of tickets that will be purchased at various prices

question

Consumers buy less of a good as its price increases because

answer

substitute goods are now relatively cheaper.

question

If price falls, what happens to the demand for a product?

answer

It does not change.

question

If price falls, what happens to the quantity demanded for a product?

answer

It increases.

question

When economists say the demand for a product has increased, they mean the

answer

demand curve has shifted to the right.

question

Which of the following would lead to an increase in the demand for designer blue jeans?

answer

an increase in the income of youthful Americans

question

Two products that serve similar purposes for a consumer would be referred to as

answer

substitutes.

question

An increase in the price of a good normally increases the

answer

demand for its substitutes

question

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that

answer

Y and Z are complements.

question

If air travel and bus travel are substitutes

answer

a decrease in the price of bus travel will decrease the demand for air travel.

question

Which of the following would most likely increase demand for tickets to major league baseball games?

answer

an increase in the price of tickets to professional football games, a substitute for baseball games

question

Suppose the price of gasoline and other petroleum products declined sharply. Which of the following will most likely occur as the result of the lower petroleum prices?

answer

an increase in demand for larger, more powerful automobiles

question

If salsa and nacho chips are complements, an increase in the price of nacho chips would

answer

decrease the demand for salsa.

question

According to the law of supply,

answer

a direct relationship exists between the price of a good and the amount buyers choose to buy.

question

Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market?

answer

The quantity of eggs demanded will increase.

question

Other things constant, which of the following would most likely cause the supply of garden hoses to decrease?

answer

a decrease in the price of grass seed

question

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

answer

a decrease in the supply of automobiles, which is a shift to the left of the supply curve

question

Which of the following would most likely cause the supply of wheat to increase?

answer

a technological advance that lowers the cost of producing wheat

question

Suppose a major civil war broke out in an important oil-producing nation. What impact would this have on the market for oil?

answer

The supply of oil would fall.

question

A shortage occurs whenever

answer

price is less than equilibrium price.

question

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in

answer

equilibrium

question

Use the table below to choose the correct answer. The table is a schedule of the supply and demand for ground hamburger meat (both given in thousands of pounds per month). Price per Pound Quantity Demanded Quantity Supplied $0.50 16 1 $1.00 13 3 $1.50 10 5 $2.00 7 7 $2.50 4 9 $3.00 1 11 The equilibrium market price of ground hamburger meat would be

answer

$2 per pound.

question

Rent controls tend to cause persistent imbalances in the market for housing because

answer

Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage

question

Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this?

answer

They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

question

A minimum wage that is set above a market's equilibrium wage will result in

answer

an excess supply of labor, that is, unemployment.

question

When government imposes price controls in a market,

answer

non-price factors become more important in the rationing of the good.

question

Which tax rate measures the percent of your income paid in taxes?

answer

the average tax rate

question

If a household has $40,000 in taxable income and its tax liability is $20,000, the household's average tax rate

answer

50 percent

question

If Heather's tax liability increases from $10,000 to $15,000 when her income increases from $30,000 to $40,000, her marginal tax rate is

answer

50 percent.

question

Kathy works full time during the day as an economist and faces a 50 percent marginal tax rate. If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes?

answer

$5,000

question

In the supply and demand model, a subsidy granted to sellers is illustrated by

answer

a downward shift in the supply curve, by the per unit amount of the subsidy.

question

Given the demand and supply conditions shown in Figure 4-4, if the government imposes a price ceiling of a, which of the following would be true?

answer

Producers would wish to sell r units.

question

Given the demand and supply conditions shown in Figure 4-4, what will happen as the result of imposing a price ceiling of a?

answer

There will be a shortage of the product

question

Refer to Figure 4-17. If the government imposes a price ceiling in this market at a price of $5.00, the result would be a

answer

shortage of 20 units

question

Refer to Figure 4-17. Which of the following price controls would cause a shortage of 10 units of the good?

answer

a price ceiling of $5.50

question

Refer to Figure 4-17. Suppose a price floor of $7.00 is imposed. As a result,

answer

buyers' total expenditure on the good decreases by $20.00.

question

Refer to Figure 4-17. Suppose a price ceiling of $4.50 is imposed. As a result

answer

the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.

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