ECON 201

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because

the Federal Reserve is worried about unemployment

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

the actions of government central planners

When society requires that firms reduce pollution, there is

a tradeoff because of reduced incomes to the firms' owners and workers.

Both the production of goods and services and the unemployment rate are used to measure

the business cycle.

In most societies, resources are allocated by

the combined actions of millions of households and firms.

You have driven 800 miles on a vacation and then you notice that you are only 15 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

the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.

Unemployment could cause this economy to produce at point B (fig 2-10)

TURE

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5% interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is...

$315

Consider Luis's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Luis's cost of going to college is

$42,000

Which of the following combinations of corn and wheat is NOT currently attainable but would be attainable if there was an improvement in overall production technology? (fig 2-3)

1,000 bushels of corn and 2,200 bushels of wheat

If the PPF is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced? (fig 2-1)

4,500

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?

9%

Which of the following is an example of a capital input?

A computer

Which of the following firms is likely to have the greatest market power?

A utility company

The famous observation that households and firms interacting in markets act as if they are guides by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book>

Adam Smith

Trade

Allows specialization, which reduce costs

Which of the following is an example of an externality?

Antonio's dog barks loudly during the night, waking his neighbors.

Equality means distributing society's resources in the most efficient manner. a. TRUE b. FALSE

B- FALSE

Based on the values in the table, the production possibilities frontier is

Bowed outward indications increasing opportunity cost

Which of the following statement best represents the principle represented by the adge, "there ain't no such thing as a free lunch"?

Dani must decide between going to Florida or Brazil for spring break

For a number of years country A had inflation of 3% but for the last five years has had inflation of 6%. Country B had inflation of 4% for many years, but very recently inflation unexpectedly rose to 9%. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment?

Country B but not Country A

When the government implements programs such as progressive income tax rates, which of the following is likely to occur?

Equality is increased and efficiency is decreased

A rational decision-maker takes an action if and only if the marginal cost exceeds the marginal benefit

FALSE

An increase in the marginal cost activity necessarily means that people will no longer engage in any of that activity

FALSE

Economics is the study of how evenly goods and services are distributed within society

FALSE

Economics is the study of how society allocates its unlimited resources

FALSE

If wages for economists rose, then economists' leisure time would have a lower opportunity cost

FALSE

In the circular0flow diagram, firms consume all the goods and services that they produce

FALSE

Inflation increases the value of money

FALSE

Inflation is the primary determinant of a country's living standard

FALSE

Market failure occurs when no individual has the ability to substantially influence market prices

FALSE

Points B and C represent infeasible outcomes for this economy (fig 2-10)

FALSE

Since economists cannot use natural experiments offered by history, they must use carefully constructed laboratory experiments instead.

FALSE

The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

FALSE

The invisible hand ensures that economic prosperity is distributed equally

FALSE

The invisible hand ensures that economic prosperity is distributed equally.

FALSE

The opportunity cost of moving from point B to point D is 15 doghouse (fig 2-10)

FALSE

Tuition is the single-largest cost of attending college for most students.

FALSE

When a PPF is bowed outward, the opportunity cost of one good in terms of the other is constant

FALSE

With careful planning, we can usually get something that we like without having to give up something else that we like

FALSE

With careful planning, we can usually get something that we like without having to give up something else that we like.

FALSE

In a market economy, who makes the decisions that guide most economic activity?

Firms and households

Which of the following statements does NOT apply to a market economy?

Government policies are the primary forces that guide the decisions of firms and households

Which of the following is an important cause of inflation in an economy?

Growth in the quantity of money in the economy

Which of the following observations was made famous by Adam Smith in his book "The Wealth of Nations"

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes

Which of the following claims is consistent with the views of mainstream economists?

If we increase the rate of inflation from 3% to 6%, then the rate of unemployment will temporarily fall

Which if the following is the most correct statement about the relationship between inflation and unemployment?

In the short run, falling inflation is associated with rising unemployment

A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay

More then $40; because the marginal benefit will exceed the marginal cost

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

People face tradeoff

In the short-run, which of the following is NOT correct?

Policies that encourage higher employment will also induce a lower rate of inflation

Which of the following is NOT a result of the shift of the economy's PPF from Graph (a) to Graph (b)? (fig 2-4)

Production of one donut and four cups of coffee becomes efficient

Which of the following industries has a marginal cost that is close to zero?

Software

A technological advance in the production of the first good increases the opportunity cost of the first good in terms of the second good

TRUE

Economists acting as scientists make positive statements, while economists acting as policy advisers make normative statements

TRUE

In the short-run, society faces a tradeoff between inflation and unemployment

TRUE

Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates principle that people respond to incentives.

TRUE

The classic tradeoff between "guns and butter" states that when a society spends more on nation defense, it has less to spend on consumer goods to raise the standard of living.

TRUE

To say people respond to incentives means that people may alter their decision when the cost and benefits of an action change

TRUE

When a PPF is bowed outward, the opportunity cost of one good in terms of the other depends on how much of each good is being produced

TRUE

It is possible for this economy to produce 75 doghouses

TURE

The opportunity cost of moving from point B to point A is zero

TURE

The production possibilities frontier shows the opportunity cost of one good as measured in terms of the other good

TURE

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

The cost of the parking is part of opportunity cost of attending college if you would not have to pay fro parking otherwise

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

The marginal cost of the house, if it is built, sill equal $250,00

The marginal benefits Sabrina gets from purchasing a third pair of gloves is

The total benefits she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves

Timothy decides to spend four hours playing video games rather than attending his classes. His opportunity cost of playing games is...

The value of knowledge he would have received had he attended his classes.

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that

They would do better charging $15 than $10

Which of the following statements about trade is false?

With trade, on country must win and one must lose

If the US decides to trade with Yemen, we know that

Yemen and the US can both benefit

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

a decrease in the number of unskilled jobs available.

Productivity is defined as the

amount of goods and services produced from each unit of labor input

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

benefit of leaving was greater than the marginal cost.

Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange for Terrence tiling Dale's kitchen floor,

both Dale and Terrence are made better off by trade

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester

Making rational decisions at the margin means that people

compare the marginal cost and marginal benefits of each decision

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased.

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is know as

externality

The terms equality and efficiency are similar in that they both benefits society. However, they are different in that

equality refers to uniform distribution of those benefits and efficiency refer to maximizing benefits from scarce resources

The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that...

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

Large and persistent inflations are almost always caused by

excessive growth in the quantity of money

To improve living standards, policymakers should

formulate policies designed to increase productivity

The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by

government actions that distort prices

The basic principles of economics suggest that

government should become involved in markets when those markets fail to produce efficient or fair outcomes

The "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes

an increase in the overall level of prices in the economy is referred to as

inflation

Prices direct economic activity in a market economy by

influencing the actions of buyers and sellers

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tex revenue from the wealthy to the poor. This redistribution of wealth...

is more equal but less efficient for society

This economy cannot currently produce 70 washers and 70 dryers because

it does not have the resources and technology to produce that level of output

The term used to describe a situation in which markets do not allocate resources efficiently is

market failure

When recommending specific policies to undertake, economists make

normative statements

The adage, "There ain't no such thing as a free lunch," means

people face tradeoffs

The overriding reason why households and societies face many decisions is that

resources are scarce

Which of the following statements exemplifies a principle of individual decision making?

the cost of something is what you give up to get it

Mina decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone to the park.

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds to marginal benefit of an extra bottle of water

During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. A likely explanation of these facts is that

the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.

Consider a production possibility frontier for an economy that produces only sofas and cars. The opportunity cost each car is

the slope of the PPF, or 3/2 sofas

Which of the following do economists NOT generally regard as a legitimate reason for the government to intervene in a market

to protect an industry from foreign competition