CH 1 Problem Set

Economists think that people are self-interested:

because they respond to incentives in predictable ways.

Most economists believe that an increase in the supply of money results in:

higher inflation in the long run.

The real power of trade lies in people's ability to:

specialize and increase production

When deciding whether or not to undertake an activity, economists compare:

the additional cost of the activity against the additional benefits received.

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:

$48,900.

Air travel from New York to Los Angeles costs $800 and takes four hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

$7 per hour.

The Central Bank of the United States can:

1. minimize a recession. 2. regulate the money supply in the United States. 3. cause inflation if it increases the money supply too much and too fast.

Which of the following environments contains factors suitable for economic growth?

1. well-functioning markets, specialization in one's comparative advantage, and good health care systems 2. well-functioning competitive markets, property rights, and firm creativity 3. development of physical and human capital per worker, and technological advancement

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

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

Greater emphasis on self-sufficiency and trading less with foreign countries would increase incomes and living standards in the United States. (T/F)

False

With careful planning, we can usually get something that we like without having to give up something else that we like. (T/F)

False

Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates?

The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates.

If two countries are initially at the same level of development, the institution of well-functioning markets can allow one country to develop faster than the other. (T/F)

True

Wealthy countries tend to have ______ physical capital per worker and _______ human capital per worker.

a lot of; a lot of

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and attending the game is:

at least $950, the lost market value of selling the ticket and the time to go.

Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to:

develop incentives such as tax breaks on savings in order to encourage more savings.

In Zimbabwe, the government ______ the ______ money, which caused the country's severe inflation

increased; supply of

When it comes to getting the flu shot, most people consider _______, not _________.

their self-interest; the social interest

Every day we rely on the work of millions of other people to provide us with food, clothing, and shelter. People work for our benefit because:

they benefit by doing so.