Chapter 1

A cell phone plan costs $50 per month for 1,000 minutes, and $0.30 per minute for each additional minute after 1,000. What is the marginal fee for the 1,001st minute used?

$0.30

Adam Smith coined the term "invisible hand" to mean

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

A dependable legal system and competitive, open markets help to

shape incentives that induce economic growth

According to economists, when the Food and Drug Administration raises the approval requirements for new drugs

society potentially loses a new drug approval

An automobile gets 40 miles per gallon, and a gallon of fuel costs $4.00. What is the marginal fuel cost for a typical mile of driving with this vehicle?

$0.10

How are wealth and economic growth related?

Economic growth causes increases in wealth

Among the most powerful institutions for supporting good incentives are

Property Rights

If North Korea and South Korea were both equally poor in 1950, why has South Korea developed so much faster since then?

South Korea has maintained a more market-based economic system

Fluctuations in graduate school enrollment correlate positively with fluctuations in unemployment. What is the most likely reason why?

The opportunity cost of going to graduate school is low when jobs are hard to find

A period marked by falling wages, falling national output, and rising unemployment is called a recession

True

America was so poor in past centuries that even George Washington caught malaria

True

An example of a case in which free markets do not align self-interest with social interest is pollution-emitting production

True

Greater emphasis on self-sufficiency and trading less with foreign countries would increase incomes and living standards in the United States

True

High inflation in Zimbabwe in 2009 was a result of the Zimbabwean government's printing too much money

True

Adam Smith's metaphor of the "invisible hand" refers to the notion that

behavior based on self-interest can lead to an overall benefit to society

A high-school graduate deciding to go to college makes that decision by

comparing the additional income earned per year after graduating from college with the additional cost of going to college

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

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

A student at a party deciding whether to stay a few more minutes is

thinking on the margin