Econ Chapter 1 Questions

An auto manufacturer should continue to produce additional autos as long as the firm is profitable, even if the cost of the additional units exceeds the price received.

False, a manufacturer should produce as long as the marginal benefit exceeds the marginal cost.

In the short run, a reduction in inflation tends to cause a reduction in unemployment

False, a reduction in inflation tends to raise unemployment.

An individual farmer is likely to have market power in the market for wheat.

False, a single farmer is too small to influence the market.

The United States will benefit economically if we eliminate trade with Asian countries because we will be forced to produce more of our own cars and clothes.

False, all countries gain from voluntary trade.

A tax on liquor raises the price of liquor and provides an incentive for consumers to drink more.

False, higher prices reduce the quantity demanded.

Adam Smith's "invisible hand" concept describes how corporate business reaches into the pockets of consumers like an "invisible hand".

False, it refers to how markets guide self-interested people to create desirable social outcomes.

When the Government redistributes income with taxes and welfare, the economy becomes more efficient.

False, the economy becomes less efficient because it decreases the incentive to work hard.

Workers in the United States have a relatively high standard of living bc the united states has a relatively high minimum wage.

False, workers in the United States have a high standard of living because they are productive.

Productivity is defined as

amount of output produced from each unit of labor input.

Economics is the study of the choices people make in attempting to manage their scarce resources.

true

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.

$800

Germany's hyperinflation after World War I was primarily due to the rapid increase in the supply of money.

True

Rational people act only when the marginal benefit of the action exceeds the marginal cost.

True

The last time the United States experienced high inflation was during the 1970s.

True

When economist say. "there ain't no such thing as a free lunch," they man that all economic decisions involve trade offs.

True

When jet flies overhead, the noise it generates is an externality

True

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

a. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being.

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. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent 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. students will shift majors from education to accounting.

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. No. c. There is not enough information to answer this question.

a. yes

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

c. improving the education of workers

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. a decrease in inflation temporarily increases unemployment

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

b. a student has a party in her form room.

Which of the following is a way in which the government helps enforce property rights? a. requiring property owners to pay property taxes. b. providing the court system. c. providing public parks and recreation facilities. d. forcing people to own property.

b. providing the court system

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

b. society manages its scarce resources

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

b. the money you spent on food

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. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

The idea that trade can make everyone better off applies to which of the following: a. Families. b. States within the United States. c. All of these answers are correct. d. Different countries.

c. all of these answers are correct

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

c. governments increasing the quantity of money too much.

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

c. information that tells producers to produce more beef.

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

c. microsoft's impact on the price of desktop operating systems

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

c. scarce

Marginal thinking involves: a. accurately calculating the opportunity cost of a decision. b. comparing the total benefit and total cost of a decision. c. weighing the small incremental benefits against the small incremental cost of a decision. d. always acting in your own self-interest.

c. weighing the small incremental benefits against the small incremental cost of a decision

If the Federal Reserve announces that it will be increasing the money supply through its monetary policy tools, it tells us the Federal Reserve is a. concerned there is too much inflation. b. not concerned about the unemployment rate. c. would like to slow down the pace of economic growth. d. hoping to stimulate demand for goods and services.

d. hoping to stimulate demand for goods and services

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. improves equality at the expense of efficiency

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. the action produces marginal costs that exceed marginal benefits.

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. workers in the United States are highly productive.

There is no relationship between a country's productivity and its standard of living.

false

An unintended consequence of public support for higher education is that low tuition provides an incentive for many people to attend state universities even if they have no desire to learn anything.

True.

High and persistent inflation is caused by excessive growth in the quantity of money in the economy.

True.

Sue is better at cleaning, and bob is better at cooking. It will take fewer hours to eat and clean if Bob specializes in cooking and sue specialized in cleaning than if they share the household duties evenly.

True.

To a student, the opportunity cost of going to a basketball game would include the price of the ticket and the value of the time that could have been spent studying.

True.

Which of the following involve a trade-off? a. buying a new car b. going to college c. watching a football game on Saturday afternoon d. taking a nap e. All of the above involve trade-offs.

e. All of the above involve trade-offs

Which of the following products would be least capable of producing an externality? a. cigarettes b. stereo equipment c. inoculations against disease d. education e. food

e. food

When countries trade, one country wins and the other country loses.

false