Ch. 1 Questions

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50% while the average salary of teachers increases by 20 percent, a. students will shift majors from education to accounting. b. students will shift majors from accounting to education. c. fewer students will attend college. d. None of the above is true.

a

Foreign trade a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. b. allows a country to avoid trade-offs. c. makes the members of a country more equal. d. increases the scarcity of resources. e. is none of the above.

a

High and persistent inflation is caused by a. governments increasing the quantity of money too much. b. OPEC raising the price of oil too much. c. unions increasing wages too much. d. regulations raising the cost of production too much.

a

If a nation has high and persistent inflation, the most likely explanation is a. the central bank creating excessive amounts of money. b. the government imposing excessive levels of taxation. c. firms using their market power to enforce excessive price hikes. d. unions bargaining for excessively high wages.

a

Which of the following is not part of the opportunity cost of going on vacation? a. the money you spent on food b. the money you spent on airline tickets c. the money you could have made if you had stayed home and worked d. the money you spent on a Broadway show

a

Which of the following situations describes the greatest market power? a. Microsoft's impact on the price of desktop operating systems b. a farmer's impact on the price of corn c. Volvo's impact on the price of autos d. a student's impact on college tuition

a

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.) a. Yes. b. There is not enough information to answer this question. c. No.

a

An increase in the price of beef provides a. information that tells consumers to buy less pork. b. information that tells producers to produce more beef. c. no information because prices in a market system are managed by planning boards. d. information that tells consumers to buy more beef.

b

In the short run, a. an increase in inflation temporarily increases unemployment. b. a decrease in inflation temporarily increases unemployment. c. inflation and unemployment are unrelated. d. the business cycle has been eliminated. e. None of the above is true.

b

Which of the following statements is true about a market economy? a. Taxes help prices communicate costs and benefits to producers and consumers. b. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. c. The strength of a market system is that it tends to distribute resources evenly across consumers. d. With a large enough computer, central planners could guide production more efficiently than markets.

b

Economics is best defined as the study of a. how to predict inflation, unemployment, and stock prices. b. how to run a business most profitably. c. how society manages its scarce resources. d. how the government can stop the harm from unchecked self-interest.

c

If a central bank uses the tools of monetary policy to reduce the demand for goods and services, the likely result is ________ inflation and ________ unemployment in the short run. a. higher, higher b. lower, lower c. lower, higher d. higher, lower

c

Productivity can be increased by a. raising union wages. b. raising minimum wages. c. improving the education of workers. d. restricting trade with foreign countries.

c

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is a. nothing, because you found the money. b. $20 (because you could have used the $20 to buy other things). c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. d. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game. e. none of the above.

c

The main reason that some nations have higher average living standards than others is that a. the central banks of some nations have created more money. b. the richer nations have exploited the poorer ones. c. some nations have higher levels of productivity. d. some nations have stronger laws protecting worker rights.

c

Trade-offs are required because wants are unlimited and resources are a. efficient b. marginal c. scarce d. unlimited e. economical

c

A marginal change is one that a. is not important for public policy. b. makes an outcome inefficient. c. does not influence incentives. d. incrementally alters an existing plan.

d

A rational person does not act unless a. the action makes money for the person b. the action is ethical c. the action produces marginal costs that exceed marginal benefits d. the action produces marginal benefits that exceed marginal costs e. None of the above is true

d

Adam Smith's "invisible hand" refers to a. the subtle and often hidden methods that businesses use to profit at consumers' expense. b. the ability of government regulation to benefit consumers even if the consumers are unaware of the regulations. c. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders. d. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.

d

Because people respond to incentives, a. policymakers can alter outcomes by changing punishments or rewards. b. policies can have unintended consequences. c. society faces a trade-off between efficiency and equality. d. All of the above.

d

Governments may intervene in a market economy in order to a. protect property rights. b. correct a market failure due to externalities. c. achieve a more equal distribution of income. d. All of the above

d

International trade benefits a nation when a. its revenue from selling abroad exceeds its outlays from buying abroad. b. no domestic jobs are lost because of trade. c. its trading partners experience reduced economic well-being. d. all nations are specializing in producing what they do best.

d

Raising taxes and increasing welfare payments a. proves that there is such a thing as a free lunch b. reduces market power c. improves efficiency at the expense of equality d. improves equality at the expense of efficiency e. does none of the above

d

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than a. $100. b. $300. c. $500. d. $800. e. none of the above.

d

Which of the following is most likely to produce an externality? a. A student reads a novel for pleasure. b. A student sits at home and watches television. c. A student eats a hamburger in the student union. d. A student has a party in her dorm room

d

Which of the following products would be least capable of producing an externality? a. Cigarettes b. Inoculations against disease c. Education d. Food e. Stereo equipment

d

Workers in the United States enjoy a high standard of living because a. unions in the United States keep the wage high. b. we have protected our industry from foreign competition. c. the United States has a high minimum wage. d. workers in the United States are highly productive. e. None of the above is true.

d

Your opportunity cost of going to a movie is a. zero, as long as you enjoy the movie and consider it a worthwhile use of time and money. b. the price of the ticket. c. the price of the ticket plus the cost of any soda and popcorn you buy at the theater. d. the total cash expenditure needed to go to the movie plus the value of your time.

d

Economics is the study of how a. society manages its unlimited resources b. to reduce our wants until we are satisfied c. to avoid having to make trade-offs d. to fully satisfy our unlimited wants e. society manages its scarce resources

e

Which of the following involve a trade-off? a. Buying a new car b. Going to college c. Watching a football game on a Saturday afternoon d. Taking a nap e. All of the above involve trade-offs

e