question

The main incentive for business activity is:

answer

profit

question

Adam Smith coined the term "invisible hand" to mean:

answer

a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.

question

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

answer

A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.

question

The opportunity cost of a choice is:

answer

the value of the next best opportunity foregone.

question

In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:

answer

the value of studying economics.

question

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:

answer

$48,900.

question

What is thinking on the margin?

answer

Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.

question

A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:

answer

greater than $3

question

One benefit of trade is that it:

answer

allows for increased specialization and mass-production techniques that lower per unit costs of production.

question

The better Martha Stewart is at running her business:

answer

the higher her opportunity cost of ironing her own shirts.

question

The historical rise in living standards of American workers is primarily a result of:

answer

the rise in American productivity.

question

What are the institutions that help foster the appropriate incentives for economic growth?

answer

a dependable legal system, property rights, and competitive and open markets

question

Institutions that support economic growth are the ones that:

answer

provide incentives for entrepreneurs to take risks and innovate.

question

Booms and busts refer to the:

answer

fluctuations in economic activity over time.

question

Which of the following explains why economic booms and busts cannot be avoided?

answer

The economy is always being struck by unavoidable shocks.

question

The Zimbabwean government printed money as fast as it could for years. As a result:

answer

Zimbabwe experienced inflation at a rate of billions of percent per month.

question

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:

answer

needs to know the causes of inflation, for example, the government's printing of too much money.

question

The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:

answer

too much money or too little money might induce inflation or unemployment due to bad timing of decisions.

question

If the central bank creates too much money, _____ is the result. If the central bank doesn't create enough money, an economic _____ is the result.

answer

inflation; slowdown

question

The average starting salary of economics majors is just behind that of:

answer

chemical and nuclear engineering majors.

question

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

answer

David and Cameron must have different preferences for the car.

question

Division of knowledge refers to:

answer

people learning different tasks in which they specialize.

question

Specialization and trade can _____ the per-unit cost of production because _____ .

answer

decrease; it creates economies of scale associated with large-scale production

question

The ability of one producer to produce one good or service using fewer inputs than another producer is:

answer

absolute advantage.

question

Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?

answer

The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student.

question

Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that:

answer

France should specialize in producing phones and import computers from Sweden.

question

The production possibilities frontier shows:

answer

the combinations of outputs a country can produce given its resources and productivity.

question

Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in: I. wages in both countries. II. total output in both countries. III. living standards in both countries.

answer

I, II, and III

question

Which of the following statements is TRUE?

answer

Specialization and trade raise wages in both countries that are party to the trade.

question

According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:

answer

lower productivity in China.

question

Globalization is:

answer

the advance of human cooperation across national boundaries.

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