Econ 202: Chapter 1 Review

A mixed economic system is best described an economy with a mix of A) free markets and government control. B) for-profit organizations and not-for-profit organizations. C) domestic and foreign buyers. D) state and federal governments.

A

Which of the following correctly describes the relationship between economic efficiency and economic equity? A) There is usually no conflict between the two goals. B) There is often a trade-off between the two goals. C) They are both automatically achieved in a free market economy. D) Increased efficiency usually goes hand in hand with increased equity

B

Which of the following is NOT one of the basic questions that an economic system attempts to answer? A) What to produce? B) How to eliminate choices? C) How many goods and services will be produced? D) For whom will goods and services be produced?

B

Which of the following is a macroeconomics question? A) How is the production quantity of digital cameras determined? B) What determines the unemployment rate? C) What factors determine the price of iPhones? D) What determines the wages and benefits of flight attendants?

B

Which of the following is a normative statement? A) Fifteen percent of Americans do not have health insurance. B) President Obamaʹs healthcare plan is a bad idea. C) The number of doctors in the US has risen by 10% over the past 5 years. D) Some employers offer healthcare benefits. E) None of the above is a normative statement.

B

Which of the following statements is true about scarcity? A) Scarcity is not a problem for the wealthy. B) Scarcity refers to the situation in which unlimited wants exceed limited resources. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution.

B

Maria could go to school for a year and train to be an accountant at a cost of $20,000 for her tuition and books. After the year, she can get a job earning $60,000 per year. Maria also could not go to school and get a job earning $25,000 per year right now. In terms of dollars, the opportunity cost of going to school for a year is A) $20,000. B) $30,000. C) $60,000 D) $45,000. E) $25,000.

D

In economics, we assume that people are ʺrationalʺ. That is, economists believe that people A) try to earn as much money as possible. B) will not engage in activities such as smoking or gambling unless they are irrational. C) only undertake actions if it is in their long-run interest to do so. D) consider, from their personal perspective, the expected benefits and costs of actions and try to maximize their net benefits. E) All of the above are correct

D

Suppose that you are offered the chance to babysit Dr. Nelsonʹs boys tonight. Dr. Nelson is willing to pay $30 for the 3 hours of babysitting. If you donʹt babysit you would use a free ticket that you have to go to the Bob Dylan concert . If you had to buy a ticket for the concert, you would be willing to pay $100. What is the opportunity cost of babysitting Dr. Nelsonʹs boy? A) $30 B) $40 C) $70 D) $100 E) $0

D

The three fundamental questions that any economy must address are A) Who gets jobs; what wages do workers earn; and who owns what property? B) What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? C) How much will be saved; what will be produced; and how can these goods and services be fairly distributed? D) What goods and services to produce; how will these goods and services be produced; and who receives them?

D

Which of the following statements concerning ʺequityʺ over ʺefficiencyʺ is true? A) Itʹs usually the case that actions which increase equity cause increases in efficiency B) Efficiency refers to how equally our economic rewards are distributed. C) Equity refers to making our economic rewards as large as possible. D) Itʹs usually the case that actions which increase equity cause decreases in efficiency E) More than one of the above is correct

D

An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is equal to: A) the cost of bait, any other monetary expenses, and the value of the best alternative use of the individualʹs time. B) the cost of bait, any other monetary expenses, and the value of the individualʹs wages while he was working. C) the cost of bait and any other monetary expenses. D) zero, because the person doesnʹt have a job.

A

Macroeconomics deals with ________ while microeconomics deals with ________. A) economywide choices; choices of individuals B) choices that involve money; choices that does not involve money C) choices important to people; choices not important to people D) choices of rich people; choices of poor people

A

A good theory is one that A) describes the real world as closely as possible. B) explains or predicts what it is designed to explain or predict. C) has assumptions that mirror reality. D) incorporates as many facts as possible. E) All of the above are equally important

B

Serena could go to school for a year and train to be an accountant at a cost of $30,000 for her tuition and books. After the year, she can get a job earning $80,000 per year. She also could not go to school and get a job earning $35,000 per year right now. Her room and board is $15,000 per year, and she would incur this expense whether or not she attends college. In terms of dollars, the opportunity cost of going to school for a year is A) $65,000. B) $30,000. C) $80,000 D) $40,000. E) $45,000.

A

Which of the following is a positive (as opposed to a ʺnormativeʺ) question? A) Raising the minimum wage results in higher teenage unemployment. B) Without the minimum wage, firms will unfairly exploit workers by paying low wages. C) The minimum wage isnʹt a good policy. D) Policymakers should act now to increase the minimum wage. E) More than one of the above is correct

A

Which of the following is a positive economic statement? A) SUVs result in more emissions of CO2 per mile driven than do compact cars. B) The government ought to subsidize the purchase of compact cars. C) It is wrong for people to buy SUVs. D) The government should mandate the production of electric automobiles. E) More than one of the above

A

Which of the following is an example of irrational behavior? A) Choosing to get an MBA despite the fact that your marginal benefit of more schooling is less than your marginal cost. B) Turning down a job as an executive (which pays a salary of $80,000) for a job as a white-water rafting guide (which pays a salary of $18,000). C) Borrowing the maximum possible amount of money available from student loans, so that you can get the maximum enjoyment out of your college years. D) All of the above

A

Which of the following is an example of positive statement? A) ʺAn increase in the minumum wage causes higher fast food prices.ʺ B) ʺThe minimum wage law is a good law to have.ʺ C) ʺAllowing public utilities to charge higher prices for electricity is wrong because a public agency should not earn profits.ʺ D) ʺCurrent gas prices are shamefully high.ʺ E) More than one of the above is a positive statement

A

Which of the following is normative statement? A) ʺThe tax burden on the poor in the US is too great.ʺ B) ʺIf tariffs on imported steel are raised, sales of US automakers will fall.ʺ C) ʺIncome tax reductions cause the budget deficit to rise.ʺ D) ʺMonopolies are more innovative than other firms.ʺ E) None of the above

A

Which of the following most likely produces ʺequityʺ over ʺefficiencyʺ? A) progressive income tax system B) flat income tax system

A

Who receives the most of what is produced in a market economy? A) those who are willing and able to buy them B) everyone receives an equal amount C) lawmakers and other politically favored groups D) people who earn the highest incomes

A

In a market economy, those who are willing and able to buy what is produced A) solely determine what is produced. B) receive the most of what is produced. C) receives what the government allows them to receive

B

Samia has decided that with the two hours in between classes she can do one of 3 things. She has ranked her choices, from highest to lowest as, (1) chat with her friends, (2) study economics or (3) take a nap. The opportunity cost of chatting with her friends is A) the combined value of studying economics and taking a nap. B) the value of studying economics, the next best use of time. C) the value of chatting with her friends. D) zero since she does not pay her friends to talk to her

B

Which of the following is a positive (as opposed to a ʺnormativeʺ) question? A) Should the minimum wage be set at one-half the average manufacturing wage to guarantee individuals a decent standard of living? B) Will the level of teenage unemployment increase if the minimum wage is increased? C) Wouldnʹt it be more equitable if the minimum wage increased automatically with the cost of living? D) Wouldnʹt it be better to try to increase peopleʹs wages through job-training programs rather than by requiring employers to pay minimum wages? E) More than one of the above is correct

B

Which of the following is an example of a normative (as opposed to ʺpositiveʺ) question? A) How will an increase in the price of gasoline affect the price of taxi trips? B) Should the government provide free prescription drugs to senior citizens? C) What fraction of an income-tax cut will be spent on consumer goods? D) How will an increase in the minimum wage affect the unemployment rate of teenaged workers? E) More than one of the above is correct

B

Which of the following is the best example of a macroeconomic question? A) Why does a pharmaceutical manufacturer try to lower its production costs? B) Should we have a constitutional amendment requiring the government to implement a national consumption tax to replace the current income tax? C) Should the government put a tax on alcohol in an attempt to assist in the funding of support groups like Alcoholics Anonymous? D) Why did a leading computer manufacturer establish call centers in India?

B

Which of the following statements concerning ʺequityʺ over ʺefficiencyʺ is true? A) Itʹs usually the case that actions which increase equity cause increases in efficiency B) Itʹs usually the case that actions which increase equity cause decreases in efficiency C) Equity refers to making our economic rewards as large as possible. D) Efficiency refers to how equally our economic rewards are distributed. E) More than one of the above is correct

B

Which of the following statements is false? A) Anytime you have to decide which action to take, you are facing an economic trade-off. B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. C) Economics is a social science that studies the trade-offs we are forced to make because of scarcity. D) Every individual, no matter how rich or poor, is faced with making trade-offs.

B

Economists use the idea of rational choice to A) describe how people do not always do what is best. B) explain how people may make mistakes by not using available information. C) describe how average people do not properly use economic ideas. D) explain how people use available resources to make the best choice.

D

A recent study (this is true) found that people that watch Fox News are less informed about current events than people that donʹt watch any news at all. Which is the following is a correct interpretation? A) Watching Fox News reduces peopleʹs knowledge about current events. B) There is no causal relationship between watching Fox News and understanding current events. C) Either of the above may be true - we canʹt know without more information.

C

An economy in which the interaction of individual buyers and sellers determines what to produce, how to produce, and who gets the products is a: A) public goods economy. B) centrally planned economy. C) market-based economy. D) socialist economy

C

In a market economy, ____________ ultimately decide ʺwhat goods get producedʺ, and _________ ultimately decide ʺhow goods get producedʺ. A) governments ; governments B) producers ; consumers C) consumers ; producers D) producers ; producers E) producers ; governments

C

In economic analysis, peopleʹs resources are A) limited and their wants are also limited. B) unlimited and their wants are also unlimited. C) limited and their wants are unlimited. D) unlimited and their wants are limited.

C

Pepeʹs Pizza Company is the owner of the building in which it is located. Pepe could rent out the building for $4000 a month if he didnʹt use it for his restaurant. Bethanyʹs Bakery pays $4000 a month in rent for the building that she uses for her restaurant. Who faces the higher opportunity cost of the building they use for their restaurant? A) Bethany B) Pepe C) Neither -- their opportunity costs for the buildings are equal

C

Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board. If you werenʹt in school, youʹd be working full time, and earning $20,000 per year. What is your opportunity cost of attending college for one year? A) $14,000 B) $34,000 C) $30,000 D) $24,000

C

Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision? A) the value he attributes to the joy of parenting B) depends on the ʺgoing rateʺ for stay-at-home dads C) at least $60,000 D) 0 since he will no longer be earning a salary

C

Which of the following is an example of irrational behavior (according to our definition of rationality)? A) John doesnʹt save for this retirement. B) Inez smokes a pack of cigarrettes a day despite knowing that it will harm her health. C) Lucas estimates that heʹll get $600 of benefit from buying a pair of downhill skis and the price of the skis is $700. He decides to buy the skis. D) Steven loses an average of $500 each week playing the lottery. E) All of the above are examples of irrational behavior.

C

All economics questions and problems arise because A) political parties always disagree. B) people donʹt work hard enough. C) the rich take too much and donʹt leave enough for the poor. D) human wants exceed resources available.

D

Economics promotes which of the following as the way to make the best decision? A) Continue an enjoyable activity until you cannot afford to pursue it. B) Continue an enjoyable activity until it is no longer enjoyable. C) Continue an enjoyable activity as long as you do not have to pay for it. D) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

D

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives? A) a only. B) b only. C) c only. D) a and b. E) a, b, and c

E