Macro Econ Answers – Flashcards
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Which of the following statements is correct?
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Opportunity costs will always be incurred when scarce resources are used to produce a good
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For a college student who wishes to calculate the true costs of going to college, the costs of room and board
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should be counted only to the extent that they are more expensive at college than elsewhere
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Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has
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confused association and causation
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Which of the following is part of the economic way of thinking
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All of the above are part of the economic way of thinking
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Economic analysis assumes that
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changes in the personal benefits and costs associated with an activity will exert a predictable influence on the behavior of both those who are selfish and those who are unselfish
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If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is
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$.50.
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Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident. To an economist, Jim is
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making a rational choice
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Which of the following is a positive economic statement
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a reduction in the payroll tax will reduce the unemployment rate
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Economic choice and competitive behavior are the result of
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scarcity
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A tradeoff exists between a clean environment and a higher level of income in that
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laws that reduce pollution raise costs of production and reduce incomes
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Some individuals or families can become completely saturated with a service such as television. This suggests that
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desires for a single commodity can be satisfied but then the focus will switch to other goods and services
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Which of the following is true?
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Positive economic statements are testable, but normative statements are not
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Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference
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Sarah has a higher opportunity cost of laundering her clothes than Harold does
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Which one of the following states a central element of the economic way of thinking?
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Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.
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While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be
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50 cents.
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What is the best test of an economic theor
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the ability of the theory to predict real-world events
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All but one of the following are elements of the economic way of thinking. Which one is not part of the economic way of thinking?
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The value of goods can be determined objectively.
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"As soon as I announced my 'get tough on crime' policy, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January--it was just too cold for anybody to be out robbing other people. Which fundamental economic mistake did the politician make?
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believing that association is the same as causation
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What is the best test of an economic theory?
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its ability to predict real-world events, patterns, and changes
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While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be
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20 cents
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Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than
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$20 per pound.
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The statement, "John buys more of good X as his income increases, ceteris paribus," means
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John's income is the only influence that is being allowed to change
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Which of the following is true?
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Changes in personal costs and benefits will exert a predictable impact on the choices of human decision makers.
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"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is
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incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity.
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Which of the following is most consistent with economizing behavior?
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If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least.
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Ralph wants to buy some milk and a box of cereal. If Ralph buys 4 gallons of milk at $3.00 per gallon, the box of cereal costs $2.00. If he buys 5 gallons of milk, the box of cereal is free. For Ralph, the marginal cost of buying a fifth gallon of milk is:
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$1.00
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Which of the following most clearly distinguishes between positive and normative economics?
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Positive economics is the study of the facts; normative economics is concerned with what ought to be.
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When economists say an individual has made a rational choice, they mean the individual has
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made the choice by weighing their own subjective costs and benefits
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Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on what he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is
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using marginal decision making.
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The economic way of thinking stresses that
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incentives matter--individuals respond in predictable ways to changes in personal costs and benefits.
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Economists make assumptions in order to
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focus their thinking on the essence of the problem at hand
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The most fundamental concept in economics is that
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changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive
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For the typical student, taking an introductory course in economics should
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help the student learn to rationally analyze social problems.
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While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of
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marginal decision making.
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Economic analysis is based on the premise that
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changes in the personal benefits or costs of an action influence behavior in a predictable way.
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Which of the following is a positive economic statement?
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An increase in investment will lead to a higher rate of economic growth.
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A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?
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Her marginal value of food has fallen to zero
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Economic analysis assumes that
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changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.
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The basic difference between macroeconomics and microeconomics is that
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macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).
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If a good is scarce,
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the good will have a price in a market setting
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Which of the following is a positive economic statement?
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Higher rates of investment lead to higher rates of economic growth
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Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal?
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All of the above would be considered secondary effects of making drugs illegal.
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Which of the following is a normative economic statement?
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Congress should increase the legal minimum wage.
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When economists say an individual displays economizing behavior, they simply mean that she is
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seeking the lowest cost method to accomplish her objectives
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Positive economics
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postulates a relationship that is potentially refutable and then seeks to determine whether the stated relationship is correct.
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When a good is scarce,
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some method must be used to allocate the good among users. price is one way to ration the good
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A rational decision maker takes an action if and only if
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the marginal benefit of the action exceeds the marginal cost of the action.
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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
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50 cents.
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The economic way of thinking is
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a set of basic concepts that helps one understand human choices.
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"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement
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fails to recognize that association is not causation.
