question

Which of the following offers the best definition of economics?

answer

Economics is the study of how people choose to allocate their scarce resources to satisfy their unlimited wants.

question

Which of the following is an example of physical capital?

answer

Computers used by a company to record inventory, sales, and payroll.

question

Of the choices provided below, which offers the best definition of scarcity?

answer

Less of something is available than people want at a zero price.

question

Which of the following best describes the economic concept of rational self-interest?

answer

The attempt by people to get a given benefit at least cost, or to get the maximum benefit at a given cost.

question

refers to comparisons of incremental, additional, or small changes in economic conditions relative to the status quo.

answer

Marginal analysis

question

Microeconomics is the study of the economic behavior of entire economies.

answer

False

question

Which of the following best illustrates the "other things equal" assumption?

answer

That we hold other factors constant so that we can isolate the effects of a change in a single factor and be confident that it caused the observable effect

question

The fallacy ________ is the incorrect idea that if two variables are associated in time, one must necessarily cause the other.

answer

that association is causation

question

Positive economic statements can be proved or disproved by reference to the facts, while normative economic statements represent opinions that cannot be proved or disproved.

answer

True

question

Economics is the study:

answer

d. of how people use their limited resources to satisfy their unlimited wants.

question

The need for economic choice arises from scarcity.

answer

True

question

The primary interaction in a market economy is between:

answer

households and firms.

question

Rational self-interest means that individuals try to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit.

answer

True

question

Rational decision makers will continue to acquire information as long as additional benefit is positive.

answer

False - Rational decision makers will continue to acquire additional information as long as the additional benefits exceed the additional costs.

question

The belief that what is true for the individual is also true for the group is known as:

answer

the fallacy of composition.

question

Opportunity cost represents the least valuable of the various alternatives that must be given up when a choice is made in the context of scarcity.

answer

False

question

In terms of opportunity cost, ________ is the ultimate constraint.

answer

time

question

Which of the following is true regarding opportunity cost?

answer

Opportunity cost may vary with circumstances.

question

The ________ states that the individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in producing that good.

answer

law of comparative advantage

question

Resources are allocated most efficiently across the country and around the world when traders specialize in producing those goods for which they have a comparative advantage, and trade for the other things that they need.

answer

True

question

involves the direct exchange of one good for another without the use of money.

answer

Barter

question

exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another.

answer

Efficiency

question

Which of the following are the three fundamental economic questions?

answer

What to produce, how to produce, and for whom to produce.

question

The key criteria used to distinguish among different economic systems are (1) ________, (2) ________, and (3) ________.

answer

who owns the productive resources, how are allocation decisions made, what types of incentives guide economic decision-makers

question

In market systems, the answer to the "for whom to produce" economic question is that goods are allocated to those with the willingness and ability to pay, as expressed through market demand.

answer

True

question

Under a pure command system of government, decisions are made by:

answer

a central government.

question

A cost that has already been incurred and cannot be recovered is called:

answer

a sunk cost.

question

To consider the full cost of your college education, we would need to consider the cost of missing out on your next best alternative.

answer

True

question

When you specialize in a task that you do best, you are applying the:

answer

law of comparative advantage.

question

The production possibilities frontier shows:

answer

possible combinations of two types of goods that can be produced when all available resources are fully and efficiently employed.

question

The questions resolved by an economic system include what good and services to produce, how they will be produced, and for whom they will be produced.

answer

True

question

The economic system known as a market system is also referred to as:

answer

capitalism.

question

Over two-thirds of US personal income comes from:

answer

labor earnings.

question

A major advantage of a firm is its ability to:

answer

to reduce transaction costs, promote division of labor, reduce transportation costs, and use expensive technology.

question

Firms are assumed to:

answer

maximize profits.

question

Transfer payments are:

answer

cash transfers like welfare benefits and social security.

question

The merchandise trade balance is the difference between the value of exported goods and imported goods.

answer

True

question

The price of one currency in terms of another is referred to as the:

answer

exchange rate.

question

Households ________, and ________.

answer

supply labor, capital, land, and entrepreneurial ability to resource markets; demand goods and services from product markets

question

Two key differences in households today relative to those in the 19th century are that households today have ________ and ________.

answer

increased household reliance on markets for goods and services; higher rates of female employment outside the home

question

Which of the following represents the most valuable resource sold by most households?

answer

Labor

question

Which of the following best describes the percentage of personal income that households spend on consumption, as opposed to savings or taxes?

answer

80 percent

question

A sole proprietorship has ________, whereas a partnership has ________.

answer

a single owner receiving the firm's profit and bearing unlimited liability; multiple owners sharing the firm's profit and bearing unlimited liability

question

Corporations make up ________ percent of all U.S. businesses, and corporate sales make up ________ of all business sales.

answer

20; 89

question

An externality is a cost or a benefit that falls on third parties and is therefore ignored by the two parties to a market transaction.

answer

True

question

Public goods feature rivalry in consumption, meaning that what is consumed by one is no longer available to someone else. In addition, consumption of public goods can easily be limited to paying customers.

answer

False

question

International trade occurs because the ________ cost of producing specific goods varies across countries.

answer

opportunity

question

One form of trade protection that restricts the amount of imports of a particular good is called

answer

quota.

question

Which of the following best describes the economic concept of demand?

answer

A relation showing the quantities of a good that consumers are willing and able to buy at various prices during a given period of time, other things constant.

question

According to the substitution effect, a drop in price increases real income (purchasing power), and if the good is normal, consumers will respond by buying more of the good in question. Thus a drop in price increases quantity demanded.

answer

False

question

Which of the following would cause movement downward along the given demand curve for a normal good, leading to an increase in quantity demanded?

answer

A decline in the price of the good.

question

The law of supply states that the quantity of a product supplied is usually ________ to its price, other things constant.

answer

directly related

question

Which of the following is most likely to increase the supply of corn?

answer

Farmers that grow soybeans can also grow corn, and the price of soybeans drops by 75%.

question

Suppose that wheat can be stored over time, or sold as soon as it is harvested. Suppose that prices are low right after harvest, but forecasts call for wheat prices to rise substantially in about six months. Which of the following would you expect to be true?

answer

The current supply of wheat will decline, as farmers store wheat in anticipation of higher prices in the future.

question

Suppose that the market for fresh California navel oranges is in equilibrium, and then an unanticipated freeze destroys half of the California navel orange crop. No other factors that might cause supply or demand to shift have changed. How would you expect this event to change the market equilibrium for California navel oranges?

answer

The supply of navel oranges would decrease and the demand would remain unchanged, resulting in a higher market equilibrium price and a lower market equilibrium quantity.

question

Suppose that the federal government provides wheat farmers with a price floor, or guaranteed minimum price, above what would otherwise be the market equilibrium price of wheat, creating a surplus that the government must buy. Which of the following would most likely to cause a reduction in the surplus of wheat?

answer

Elimination of the price floor.

question

Demand is the relationship between price and:

answer

the quantity consumers are willing and able to buy.

question

Market demand is the demand of an individual consumer.

answer

False

question

The law of supply states that the higher the price the greater the quantity supplied.

answer

True

question

An increase in supply means that:

answer

producers are willing to sell more product at each price.

question

Gross Domestic Product Measures the total market value of:

answer

U.S. final production of goods and services in a year.

question

A flow variable is:

answer

an amount per unit of time.

question

Which of the following best describes gross domestic product (GDP)?

answer

The market value of all final goods and services produced in a nation during a period of time such as a year.

question

The key difference between a stock and a flow is that a flow is measured ________, while a stock is measured ________.

answer

over an interval of time, at a point in time

question

Over the long run, the U.S. economy:

answer

has grown dramatically.

question

What factors are parts of the leading economic indicators?

answer

Consumer confidence, consumer spending, and machinery orders.

question

Which of the following correctly describes real GDP?

answer

Real GDP is GDP after subtracting out the effects of inflation.

question

The price level in the economy is a composite measure reflecting the:

answer

average price of the wide range of goods and services produced and consumed in the overall economy.

question

The aggregate supply curve shows how much output U.S. producers are willing and able to supply at each price level, other things constant.

answer

True

question

The relationship between the average price of aggregate output and the quantity of aggregate output demanded is:

answer

aggregate demand.

question

reason why the aggregate demand curve slopes downward is:

answer

a lower price level increases the buying power of households.

question

The best measure of the average standard of living is:

answer

real G.D.P. per capita.

question

Between 1929 and 2003, the U.S. economy grew at an average annual rate of ________.

answer

3.4 percent

question

The revolutionary concept put forward by John Maynard Keynes was that stimulating aggregate demand through government spending would create economic growth.

answer

True

question

A key tenet of the supply-side economic theory of the 1980s was that government tax cuts would increase after-tax wages, stimulating the incentive to seek higher wages through increased labor supply.

answer

True

question

The law of diminishing marginal returns per worker states that beyond some point:

answer

increase in capital per worker add less to output per worker.

question

Labor productivity is ________ divided by the ________.

answer

total output, units of labor employed

question

Labor cost accounts for about ________ percent of the total cost of production.

answer

70

question

How does U.S. output per capita compare with other industrial countries?

answer

The United States ranks at the top of about 40% of the rest, excluding second ranked Canada.

question

8. Technological change can create dislocations as displaced workers try to find jobs elsewhere, and at the same time makes goods more affordable.

answer

True

question

12. Which of the following correctly describes convergence theory?

answer

Economies around the world will become more similar over time as less-developed countries grow faster than highly industrialized countries.

question

During the 17th and 18th centuries economic prosperity was measured by a nation's:

answer

stock of precious metals in its treasury.

question

The gross domestic product measures the:

answer

market value of all final goods and services during a year by resources located in the United States.

question

Intermediate goods and services are those:

answer

purchased for additional processing and resale.

question

Which of the following market transactions of final goods and services are excluded from the computation of U.S. GDP?

answer

Transactions in the underground economy.

question

Using the expenditure approach, which of the following is added to arrive at GDP?

answer

Net exports: (value of exports - value of imports).

question

The value added by each firm in the production process is the difference at each stage of production between ________ and ________.

answer

a. the value of what is produced, the amount paid for inputs purchased from other firms to make what is produced

question

Disposable income is the income net of taxes and transfer payments that households receive in exchange for factors of production they supply in resource markets.

answer

True

question

In the calculation of aggregate income, the value added at each stage of production by each firm equals the firm's:

answer

selling price minus payments for inputs.

question

Measures of service output often fail to reflect improvement in the speed or quality of service.

answer

True

question

GDP includes the value of leisure, and leisure is estimated based on the worker's foregone hourly earnings (opportunity cost) from their tax returns and/or completed census survey forms.

answer

False

question

Which one of the following formulas is the GDP price index?

answer

(Nominal GDP/Real GDP) X 100

question

Frictional unemployment is caused by:

answer

c. the time required to bring together employers and job seekers.

question

The economy is viewed as operating at full employment:

answer

when there is no cyclical unemployment.

question

The ________ is the ratio of the number of people in the labor force to the total adult population.

answer

labor force participation rate

question

Which of the following is associated with peaks in the business cycle?

answer

c. Relatively low levels of unemployment.

question

The definition of inflation is:

answer

an increase in the general (average) price level of goods and services in the economy.

question

If inflation is much higher than originally anticipated, ________ are made better off and ________ are made worse off.

answer

b. people that had borrowed fixed interest rate loans, banks that had made fixed interest rate loans

question

Which of the following correctly describes a wage-price spiral?

answer

An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant.

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