Microeconomics – Flashcards
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The English word that comes from the Greek word for "one who manages a household" is
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d. economy.
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Resources are
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c. scarce for households and scarce for economies.
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The phenomenon of scarcity stems from the fact that
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d. resources are limited.
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The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
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b. people face tradeoffs
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5. A tradeoff exists between a clean environment and a higher level of income in that
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c. laws that reduce pollution raise costs of production and reduce incomes.
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6. Efficiency means that
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d. society is getting the maximum benefits from its scarce resources.
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7. When the government redistributes income from the wealthy to the poor,
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c. people work less and produce fewer goods and services.
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8. In economics, the cost of something is
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c. what you give up to get it
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9.Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns
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c. the enjoyment she would have received had she watched the video.
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10.The opportunity cost of going to college is
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b. the value of the best opportunity a student gives up to attend college.
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11. 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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c. the cost of driving the next 25 miles, but not the cost of driving the first 500
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12. Making rational decisions "at the margin" means that people
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c. compare the marginal costs and marginal benefits of each decision.
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13. The marginal benefit Claire gets from purchasing a third pair of flip-flops is
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c. the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops
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14. Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?
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a. He should sell the car now for $3800
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15. Following the implementation of laws requiring automobiles to have seat belts, which of the following occurred?
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d. All of the above are correct.
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16.Which of the following is a principle concerning how people interact?
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a. Markets are usually a good way to organize economic activity.
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17. The principle that trade can make everyone better off applies to
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d. All of the above
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18. Trade between the United States and India
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a. benefits both the United States and India
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19. Communist countries worked under the premise that
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b. central planners were in the best position to determine the allocation of scarce resources in the economy.
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20. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
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d. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.
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21. The government enforces property rights by
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b. providing police and courts.
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22. The term used to describe a situation in which markets do not allocate resources efficiently is
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b. market failure
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23. An example of an externality is the impact of
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c. pollution from a factory on the health of people in the vicinity of the factory.
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24.Which of the following firms is most likely to have market power?
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d. the only hotel in a rural area
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25. What is the most important factor that explains differences in living standards across countries?
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c. productivity
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26. To increase living standards, public policy should
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a. ensure that workers are well educated and have the necessary tools and technology.
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1. Economists use some familiar terms in specialized ways
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c. to provide a new and useful way of thinking about the world.
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2. Economists, like mathematicians, physicists, and biologists,
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d. All of the above are correct.
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3. Which of the following is an example of using the scientific method with a natural experiment?
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c. Tracking the price of oil when a war in the Middle East interrupts the flow of crude oil.
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4. Economists face an obstacle that many other scientists do not face. What is that obstacle?
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b. It is often difficult and sometimes impossible to perform experiments in economics.
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5. Economists make assumptions in order to
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d. focus their thinking on the essence of the problem at hand.
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6. In building economic models, economists often omit
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c. details.
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7. Just like models constructed in other areas of science, economic models
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a. incorporate assumptions that contradict reality
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8. The circular-flow diagram
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d. All of the above are correct.
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9. Which two groups of decision makers are included in the simple circular-flow diagram?
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d. households and firms
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10. Which of these terms are used interchangeably?
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c. "inputs" and "factors of production"
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11. In the markets for factors of production in the circular-flow diagram,
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a. households provide firms with labor, land, and capital.
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12. The two loops in the circular-flow diagram represent
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d. the flows of inputs and outputs and the flow of dollars.
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13. Refer to Figure 2-1. Which arrow represents the flow of goods and services?
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b. B
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14. Refer to Figure 2-1. Which arrow represents the flow of spending by households?
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A
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15. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and
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d. the available demand for the output.
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16. Any point on a country's production possibilities frontier represents a combination of two goods that an economy
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a. will never be able to produce
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17. If an economy is producing efficiently, then
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a. there is no way to produce more of one good without producing less of another good.
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18. When an economy is operating inside its production possibilities frontier, we know that
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a. there are unused resources or inefficiencies in the economy.
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19. On a bowed production possibilities frontier, as you move down along the curve
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d. All of the above are correct.
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22. Microeconomics is the study of
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b. how individual households and firms make decisions.
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23. A microeconomist — as opposed to a macroeconomist — might study
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b. the effect of rising oil prices on employment in the airline industry
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24. Which of the following statements is correct about the roles of economists?
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d. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers
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25. Normative statements are
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a. prescriptive, whereas positive statements are descriptive.
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26. A statement describing how the world is
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b. is a positive statement.
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27. Which of the following is an example of a positive, as opposed to normative, statement?
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c. Prices rise when the government prints too much money.
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28. President Truman once said the wanted to find a one-armed economist because when he asked his economists for advice, they always answered, "On the one hand, ... On the other hand, ..." Truman's observation that economists' advice is not always straightforward
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d. More than one of the above is correct.
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29. The Council of Economic Advisers
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d. All of the above are correct
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30. Economists try to address their subject with a scientist's objectivity.
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True
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31. In the circular-flow diagram, firms own the factors of production and use them to produce goods and services.
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False
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32. Points inside the production possibilities frontier represent inefficient levels of production
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True
