Econ 201 Test 1

The inability of the government and government agencies to efficiently allocate resources is called: A. Government Failure B. Federalism C. Market Failure D. Communism

A. Government Failure

The economic school of thought that emphasizes the role of market failure in today's economic problems is called the ___________ school. A. Keynesian. B. Federalist C. Conservative D. Classical

A. Keynesian.

Which of the following causes the production possibilities frontier to have a bowed out, curvilinear shape? A. The assumption that resources are specialized and not perfect substitutes for one another B. The scarcity of resources C. The assumption that resources are not specialized D. The point that moving along the PPF technology is held constant

A. The assumption that resources are specialized and not perfect substitutes for one another

What happens to the demand for Xbox games if the price of an Xbox falls? A. The demand for Xboxes increases because the price of a complement falls. B. The demand for Xboxes decreases because the price of a substitute falls. C. The demand for Xboxes decreases because the price of a complement falls. D. The demand for Xboxes remains unchanged.

A. The demand for Xboxes increases because the price of a complement falls.

We measure the marginal ________ of a good by what a ________ for another unit of the good. A. benefit; person is willing to pay B. cost; person is willing to pay C. cost; person's preferences are D. benefit; person must pay

A. benefit; person is willing to pay

When an economist refers to choices made "at the margin" the economist is referring to: A. decisions based on the marginal benefits and marginal costs of small changes in a particular activity. B. an individual's margin account with a stockbroker that allows part of a stock purchase to be made with borrowed money. C. an individual's all-or-nothing choice concerning a specific good or activity. D. all of the above

A. decisions based on the marginal benefits and marginal costs of small changes in a particular activity.

A free rider is someone who: A. enjoys the benefits of a good without paying for it. B. consumes only the goods he or she pays for. C. creates an external benefit. D. is irrational.

A. enjoys the benefits of a good without paying for it.

The economic resource that organizes the use of other economic resources is called: A. entrepreneurship. B. labor. C. land. D. capital.

A. entrepreneurship.

An outcome is considered efficient if A. it is not possible to make someone better off without making anyone else worse off. B. it is possible to make someone better off without making anyone else worse off. C. it results in fair shares for everyone involved. D. it is the best available choice for an individual.

A. it is not possible to make someone better off without making anyone else worse off.

Paul Krugman is a ______________economist. A. Keynesian B. libertarian C. classical D. marxist

A. Keynesian

On the issue of free trade, economists (on average): A. Strongly support B. Have no opinion C. Strongly oppose D. Are very divided

A. Strongly support

Most economists believe that: A. prices are an unfair way to ration goods and services B. especially to the poor markets are often unfair to the poor C. prices are the best way to ration goods and services D. both b and c E. none of the above

C. prices are the best way to ration goods and services

During the summer you have made the decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost is $3,000 and books and supplies cost $1,300. In terms of dollars, the opportunity cost of attending summer school is: A. $6,000. B. $10,300. C. $4,300. D. $3,300.

B. $10,300.

During the summer you have made the decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost is $3,000 and books and supplies cost $1,300. In terms of dollars, the opportunity cost of attending summer school is: A. $6000 B. $10300 C. $3300 D. $4300

B. $10300

One economist says that raising taxes on gas would be in the social interest. What does this economist mean? A. Higher taxes on gas would benefit everyone. B. Higher taxes on gas would benefit society as a whole. C. Raising taxes on gas would benefit most of the people. D. Raising taxes on gas would benefit some social groups.

B. Higher taxes on gas would benefit society as a whole.

Paul Krugman is considered to be a _______________ economist. A. supply-side B. Keynesian C. monetarist D. classical

B. Keynesian

In the U.S. economy, which of the following statements is TRUE? A. Production is divided evenly between goods and services. B. More services are produced than goods. C. More goods are produced than services. D. The economy is too complex to determine the proportion of production that is devoted to producing services.

B. More services are produced than goods.

The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent. What was the opportunity cost of your evening at the movies? A. zero B. 60 percent C. 10 percent off your grade D. 70 percent

C. 10 percent off your grade

Which of the following is NOT a factor of production? A. wilderness areas that have yet to be developed B. vans used by a bakery company for deliveries C. 175 shares of Microsoft stock D. a person developing a production schedule for a new product

C. 175 shares of Microsoft stock

Which of the following questions is NOT a microeconomic question? A. What is Britney's opportunity cost of having another baby? B. Does the United States have a comparative advantage in information technology services? C. Can the Federal Reserve keep income growing by cutting interest rates? D. How would a tax on e-commerce affect eBay?

C. Can the Federal Reserve keep income growing by cutting interest rates?

The economic school of thought that emphasizes the role of government failure in today's economic problems is called the ___________ school. A. Federalist B. Keynesian C. Classical D. Conservative

C. Classical

The political party that emphasizes the role of market failure in today's economic problems is called the ___________ Party. A. Republican B. Conservative C. Democratic D. Federalist

C. Democratic

The 2010 Patient Protection and Affordable Care Act (Obamacare) contains a provision that may require individuals to either purchase private health insurance or pay a tax. This is an example of: A. market capitalism. B. the invisible hand. C. a mixed economy. D. centrally planned socialism.

C. a mixed economy.

The principle of increasing opportunity cost leads to: A. an inward shift of the production possibilities frontier (PPF). B. an outward shift of the production possibilities frontier (PPF). C. a production possibilities frontier (PPF) that is bowed outward from the origin. D. a production possibilities frontier (PPF) that is bowed inward from the origin.

C. a production possibilities frontier (PPF) that is bowed outward from the origin.

The Occupy Wall Street movement advocates: A. centrally planned socialism. B. following the teachings of Adam Smith. C. a shift away from market capitalism. D. a shift towards more market capitalism.

C. a shift away from market capitalism.

A shift rightward of the production possibilities frontier (curve) can be caused by: A. an increase in production costs B. a decline in unemployed workers C. an increase in human capital (education) D. all of the above E. none of the above

C. an increase in human capital (education)

Jill, an economics student, has already spent 5 hours cleaning her room. In deciding whether or not to continue cleaning for another hour, she applies the economic principle of: A. ceteris paribus. B. productivity. C. choosing at the margin. D. scarcity.

C. choosing at the margin.

All economic questions are about: A. how to satisfy all our wants. B. what to produce. C. how to cope with scarcity. D. how to make money.

C. how to cope with scarcity.

When an economist talks of scarcity, the economist is referring to the: A. ability of society to employ all of its resources. B. ability of society to continually make technological breakthroughs and increase production. C. inability of society to satisfy all human wants because of limited resources. D. ability of society to consume all that it produces.

C. inability of society to satisfy all human wants because of limited resources.

Economic models: A. are essentially different from those used in other sciences. B. include all relevant facts. C. simplify reality. D. always use graphs.

C. simplify reality.

On the issue of immigration, economists (on average): A. strongly oppose. B. are very divided. C. strongly support. D. have no opinion.

C. strongly support

The fallacy of composition is the false belief that: A. because event A occurred before event B, event A caused event B. B. because event A occurred after event B, event A caused event B. C. what is true for each part is also true for the whole. D. the ceteris paribus condition does not apply.

C. what is true for each part is also true for the whole.

If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point: A. on its PPF. B. beyond its PPF. C. within its PPF. D. None of the above is correct because increasing the production of one good without decreasing the production of another good is impossible.

C. within its PPF.

When a country decides to produce fewer bombers and more public housing projects, it is answering the ________ part of one of the two big economic questions. A. "for whom" B. "defense" C. "how" D. "what"

D. "what"

"The rich should pay higher income tax rates than the poor" is an example of a: A. Descriptive statement B. Positive statement C. Theoretical statement D. Normative statement

D. Normative statement

When Janet Yellen, Chair of the Federal Reserve, addresses Congress regarding the United States role in the world economy, she is discussing: A. scarcity. B. a microeconomic topic. C. incentives. D. a macroeconomic topic.

D. a macroeconomic topic.

"As part of the financial crisis bailout plan in 2008, the Federal Reserve should not bail out banks that made risky loans." This is an example of: A. the Federal Reserve taking actions that are not at the margin. B. opportunity costs. C. a positive statement. D. a normative statement.

D. a normative statement.

Which of the following will shift the production possibilities rightward? A. an increase in technology. B. an increase in the capital stock. C. increase in labor and other natural resources. D. all of the above.

D. all of the above.

Economists believe that: A. all resources are scarce B. all human activity has an opportunity cost C. consumer wants are unlimited D. all of the answers are true E. none of the above

D. all of the answers are true

The term ceteris paribus means: A. the study of scarcity and choice. B. the greatest good for all. C. value free and testable. D. all other things remaining equal.

D. all other things remaining equal.

In economics, the term "capital" refers to A. the money in one's pocket. B. consumer goods. C. mineral resources. D. buildings and equipment.

D. buildings and equipment.

According to your instructor (class discussion), the "bounce" theory of economics is supported by: A. both classical economists or Keynesians B. Keynesian economists and many Democrats C. neither classical economists or Keynesians D. classical economists and many Republicans

D. classical economists and many Republicans

When government action leads to inefficiency, it is known as: A. lack of government trust. B. politics. C. government as usual. D. government failure.

D. government failure.

According to Adam Smith: A. when big corporations pursue their self-interest of maximum profit, they will inevitably conflict with social interest. B. politicians are well-equipped to regulate corporations and intervene in markets to improve market outcomes. C. in a market transaction buyers can either get what they want for less than they would be willing to pay or sellers can earn a profit, but both buyers and sellers can't gain simultaneously. D. government intervention in markets is not desirable because an invisible hand leads decisions made in pursuit of self-interest to unintentionally promote the social interest.

D. government intervention in markets is not desirable because an invisible hand leads decisions made in pursuit of self-interest to unintentionally promote the social interest.

According to Charles Jones and Peter Klenow of Stanford University , France: A. has approximately 50% of the standard of living of the U.S. B. has a much lower standard of living as the U.S. C. has a much higher standard of living as the U.S. D. has nearly the same standard of living as the U.S.

D. has nearly the same standard of living as the U.S.

In every economic system, choices must be made because resources are ________ and our wants are ________. A. unlimited; unlimited B. unlimited; limited C. limited; limited D. limited; unlimited

D. limited; unlimited

The analysis of the behavior of individual decision-making units is the definition of: A. positive economics. B. normative economics. C. macroeconomics. D. microeconomics.

D. microeconomics.

The term human capital refers to: A. labor resources used to make capital equipment. B. buildings and machinery. C. entrepreneurship and risk-taking. D. people's knowledge and skill.

D. people's knowledge and skill.

Positive and normative statements differ in that: A. normative statements never use the word "should." B. normative statements can be tested, whereas positive statements cannot. C. normative statements depict "what is" and positive statements depict "what ought to be." D. positive statements can be tested, whereas normative statements cannot.

D. positive statements can be tested, whereas normative statements cannot.

T/F According to Adam Smith, individuals acting in their own self-interest in the market place are also unintentionally acting in the social interest.

True

T/F Because wants and desires are unlimited; in a well functioning economy there cannot be any substantial long-term involuntary unemployment (regardless of future productivity and technology increases.)

True

T/F Free market economists (classical) are more likely to be allied with Republicans than are Keynesian economists who are more likely to be allied with the Democrats.

True

T/F Many economists believe that occupational licenses are designed more to rise salaries in those professions than protect the consumers.

True

T/F Most economists agree that tariffs and import restrictions make most people worse off.

True

T/F Most economists believe that "exporting jobs" in the process of globalization is good for the U.S. and world economy.

True

T/F Scarcity applies to both the rich and the poor.

True

T/F The "Big" Trade-off is between efficiency and equity (fairness) in any economy.

True

T/F The best definition of a capital good is "foregone consumption"

True

T/F The current price of gasoline is modest in real inflation adjusted terms by historical standards.

True

T/F The iron law of price is that it must rise before it can fall when a shortage occurs.

True

T/F The majority of economists favor less restrictive immigration policies in the U.S.

True

T/F The more we have of a good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it.

True

Which factor of production earns most income in the United States? A. entrepreneurship B. labor C. capital D. money

B. labor

According to economists A. market capitalism is the best system available and some government intervention and regulation can either help or harm the social interest. B. centrally planned socialism is the best system available since governments generally make decisions that are in social interest. C. market capitalism is the best system available and any government intervention and regulation will inevitably harm the social interest. D. centrally planned socialism and pure market capitalism are equally capable of promoting social interest, but a mixed economy is an undesirable compromise between the two that will harm social interest.

A. market capitalism is the best system available and some government intervention and regulation can either help or harm the social interest.

If a country must decrease current consumption to increase the amount of capital goods it produces today, then it: A. must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods. B. must be producing outside the production possibilities frontier and will continue to do so in the future. C. must not have private ownership of property and will have to follow planning authorities decisions today and in the future. D. must be using resources inefficiently today, but will be more efficient in the future.

A. must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods.

Production efficiency is achieved when: A. producing one more unit of one good cannot occur without producing less of some other good. B. producing inside the production possibilities frontier C. The economy is on the production possibilities frontier (boundary). D. None of the above.

A. producing one more unit of one good cannot occur without producing less of some other good.

Economic growth can be pictured in a production possibilities frontier diagram by: A. shifting the production possibilities frontier outward. B. shifting the production possibilities frontier inward. C. making the production possibilities frontier more bowed out. making the production possibilities frontier less bowed out.

A. shifting the production possibilities frontier outward.

Economic models: A. simplify reality. B. are essentially different from those used in other sciences. C. always use graphs. D. include all relevant facts.

A. simplify reality

Because of the existence of comparative advantage, the total output of goods is higher when each producer A. specializes in the production of one good or a few goods. B. makes both intermediate and final goods. C. produces many different goods. D. produces at the midpoint of its PPF.

A. specializes in the production of one good or a few goods

On the issue of agriculture price supports and subsidies, economists (on average): A. strongly oppose. B. have no opinion. C. are very divided. D. strongly support.

A. strongly oppose

Marginal cost is the cost: A. that arises from an increase in an activity. B. that your activity imposes on someone else. C. of an activity that exceeds its benefit. D. that arises from the secondary effects of an activity.

A. that arises from an increase in an activity.

After you graduate, you have decided to accept a position working at the Bureau of Labor Statistics for $45,000.00 a year. The two other offers you received were working for Wal-Mart for $38,000 and working for Ernst and Young consulting for $42,000. Of these two offers, you would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor Statistics? A. the $42,000 you would have been paid working for Ernst and Young B. the $38,000 you would have been paid working for Wal-Mart C. the $42,000 you would have been paid working for Ernst and Young and the $38,000 you would have been paid working for Wal-Mart D. the $45,000 you are paid for working at the Bureau of Labor Statistics

A. the $42,000 you would have been paid working for Ernst and Young

Resource use is allocatively efficient: A. when marginal benefit equals marginal cost. B. whenever marginal benefit exceeds marginal cost. C. when the maximum possible quantity is being produced. D. whenever marginal cost exceeds marginal benefit.

A. when marginal benefit equals marginal cost.

Which of the following is a positive statement? A. Unemployment is a more important problem than inflation. B. When the national unemployment rate is 9 percent, the unemployment rate for inner-city youth is often close to 40 percent. C. Unemployment and inflation are equally important problems. D. An unemployment rate of 9 percent is a national disgrace.

B. When the national unemployment rate is 9 percent, the unemployment rate for inner-city youth is often close to 40 percent.

Which of the following is NOT part of the first big economic question? A. How are goods and services produced? B. Why do incentives affect only marginal costs? C. For whom are goods and services produced? D. What goods and services are produced?

B. Why do incentives affect only marginal costs?

It is expected that the price of a bushel of wheat will increase in one month. This belief will result in: A. a decrease in future supply of wheat. B. a decrease in current supply of wheat. C. an increase in current supply of wheat. D. no change in current or future supply of wheat.

B. a decrease in current supply of wheat

A bowed outward production possibilities frontier occurs when: A. the society is operating on the production possibilities frontier. B. as more of a good is produced, producing additional units of it require greater reductions in the other good. C. resources are not scarce. D. opportunity costs are constant.

B. as more of a good is produced, producing additional units of it require greater reductions in the other good.

As an economic concept, scarcity applies to: A. time but not money. B. both money and time. C. money but not time. D. neither time nor money.

B. both money and time.

An expansion of the production possibilities frontier is: A. something that has occurred only rarely in history. B. called economic growth. C. proof that scarcity is not a binding constraint. D. a free gift of nature.

B. called economic growth.

Macroeconomics is concerned with: A. government decision making concerning farm price supports. B. economy-wide variables. C. individual consumers. D. the effects on Ford Motor of a strike by the United Auto Workers.

B. economy-wide variables.

An increase the expected future price of a good: A. increases its supply. B. increases its demand. C. has no effect on either its demand or its supply. D. decreases its demand.

B. increases its demand.

The principle of decreasing marginal benefit means that as the quantity of a good consumed: A. increases, its total benefit decreases. B. increases, its marginal benefit decreases. C. decreases, its marginal benefit decreases. D. None of the above answers is correct.

B. increases, its marginal benefit decreases.

The "gifts of nature" are included as part of which factor of production? A. capital B. land C. entrepreneurship D. labor

B. land

Factors of production include: A. the economic system. B. land, labor, capital and entrepreneurship. C. only capital, land, and labor. D. labor and capital (not land, which is fixed).

B. land, labor, capital and entrepreneurship.

The loss of the highest-valued alternative defines the concept of: A. entrepreneurship. B. opportunity cost. C. scarcity. D. marginal benefit.

B. opportunity cost.

The principle of increasing opportunity cost occurs because: A. we must give up something to get something else. B. resources are not equally suited to all activities. C. scarcity exists. D. resources are being used inefficiently.

B. resources are not equally suited to all activities.

The price of a tomato increases and people buy more lettuce. You infer that lettuce and tomatoes are ________ A. inferior goods B. substitutes C. normal goods D. complements

B. substitutes

The benefit that arises from an increase in an activity is called: A. an incentive B. the marginal benefit C. the marginal cost D. opportunity cost

B. the marginal benefit

When a nation has a comparative advantage in the production of a particular good: A. the opportunity cost of producing that good is higher than that of other goods. B. the nation can gain from trade. C. the nation tends to avoid specialization. D. the comparative advantage encourages self-sufficiency.

B. the nation can gain from trade

The birth of economics as an intellectual discipline can be dated fairly precisely in the eighteenth century with: A. the introduction of paper currency. B. the publication of the book, The Wealth of Nations. C. the development of the factory system. D. the opening of the London stock exchange.

B. the publication of the book, The Wealth of Nations.

In economics, normative statements are about: A. the way things are. B. the way things ought to be. C. marginal benefits, not marginal costs. D. marginal costs, not marginal benefits

B. the way things ought to be.

In a market economy, what people do in the pursuit of their self-interest: A. always forwards the social interest B. usually forwards the social interest C. is usually in conflict with the social interest D. is always in conflict with the social interest

B. usually forwards the social interest

The fact that a rock star earns $5 million a year while a teacher earns $25,000 annually is most directly an example of an economy answering the ________ part of one of the two big economic questions. A. "how" B. "when" C. "for whom" D. "why"

C. "for whom"

The production possibilities frontier: A. is also called the supply curve. B. refers to the technology used in such goods as computers and military aircraft. C. once applied to U.S. technology but now refers to Japanese technology. D. represents (the production of) all possible combinations of any two goods or services that are technically (productively) efficient.

D. represents (the production of) all possible combinations of any two goods or services that are technically (productively) efficient.

Marginal cost is the cost: A. that your activity imposes on someone else. B. of an activity that exceeds its benefit. C. that arises from the secondary effects of an activity. D. that arises from an increase in an activity.

D. that arises from an increase in an activity.

A substitute is a good: A. that is not used in place of another good. B. of lower quality than another good. C. of higher quality than another good. D. that can be used in place of another good.

D. that can be used in place of another good.

The opportunity cost of attending college includes the cost of: A. tuition, books, and the lost wages for the hours spent studying. B. the tuition but not the job at which you would otherwise have worked. C. the highest valued alternative to attending college. D. the highest valued alternative to attending college plus the cost of tuition.

D. the highest valued alternative to attending college plus the cost of tuition.

The 2007-2009 recession: A. was not as severe as the 1980-82 recession. B. was mild by historical standards. C. was worst than the Great Depression 1929-1933. D. was the worst recession since 1937-1938 recession.

D. was the worst recession since 1937-1938 recession.

T/F Generally speaking the larger the agricultural sector, the richer the nation per capita (ceteris paribus).

False