Econ Final

Which of the following quotation best describes the operation of a market economy?

"Markets reward people who supply things others value highly relative to cost."

Which one of the following popular expressions best reflects the economic way of thinking?

"There is no such thing as a free lunch."

Which of the following is the best definition of money?

Anything that is widely used as a medium of exchange, unit of account, and store of value.

Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing?

As interest rates decline, the demand for interest-sensitive goods increases

Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing?

As interest rates decline, the demand for interest-sensitive goods increases.

Suppose the following two events occured in the market for personal computers. First, new technology lowered the cost of production. Second, more user-friendly software and hardware became available to consumers. What impact would these two events have on the equilibrium price and quantity of personal computers?

Equilibrium price may increase or decrease while equilibrium quantity would increase.

Which of the following is an accurate statement with regard to the factors underlying the financial crisis of 2008-2009?

Federal regulations reduced mortgage lending standards and permitted the investment banks to leverage their loans more highly, both of which contributed to the initial run up in housing prices and subsequent increase in the default and foreclosure rates.

Joe wants to upgrade his current cell phone for a new one. How would marginal decision making help Joe decide if this is a good idea?

He should weigh the cost of upgrading his phone with the additional benefits he expects to receive from a new phone.

The Economic Freedom of the World index indicates that the world's freest economy is

Hong Kong

Which of the following is a key element of the economic way of thinking?

Incentives influence behavior in a predictable manner.

Celina worked her way through law school as a typist. She now makes $200 per hour as a lawyer. As the result of a heavy workload, she hires a typist at $25 per hour, but Celina discovers she can type twice as fast as her new employee. Should Celina do her own typing?

No, even though Celina types faster than her new employee, her opportunity cost of doing any given amount of typing will exceed that of her new employee.

Given your knowledge of the incentives created by private ownership, which of the following statements is true?

People will be more likely to pick up dog droppings in their front lawn than in a common area.

How does the invisible hand ensure that an economy will not run out of a renewable resource?

Price increases due to the diminishing supply of a resource will both curb consumption and provide incentive for producers to expand supply.

What is the main benefit derived from production of goods and services?

Production of goods and services people value makes higher living standards possible.

What is the cause of inflation?

Rapid increases in the money supply

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

Sarah has a higher opportunity cost of laundering her clothes than Harold does.

Which of the following best explains why soda vending machines allow customers to buy only one can at a time while newspaper vending machines provide access to all the papers in the machine?

The marginal benefit of the second newspaper to most consumers is zero.

Which of the following occurred during the 12 months following passage of the 1930 Smoot-Hawley trade bill?

The volume of trade declined sharply and the unemployment rate rose

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?

They benefit as long as the additional revenue derived from the standby passengers exceeds the marginal cost.

What effects do specialization and trade have on the allocation of resources and the level of production of a society?

They create a more efficient allocation of resources and an increase in the level of production.

Which of the following statements most clearly reflects the concept of opportunity costs?

You can't have your cake and eat it too."

Which of the following is most likely to lead to expansions in output and higher income levels per person?

a high rate of investment

If a nation is going to achieve its full potential, it must have

a mechanism to attract savings and channel them into productive investment projects.

The 2009 "Cash for Clunkers" government program provided car buyers with cash payments if they purchased a new car and traded in an older one that had to be destroyed. This program resulted in

a reduction in the supply of used cars and a temporary increase in spending on new automobiles.

The economic way of thinking is

a set of basic concepts that helps one understand human choices

When economists say that market equilibrium is consistent with economic efficiency, they mean that

all gains from trade between producers and consumers have been realized.

A decrease in marginal tax rates will

allow taxpayers to keep more of what they earn.

Other things constant, which of the following would you expect to increase the output growth rate of a country?

an increase in the rate of investment as a share of total output

Which of the following is an example of promoting growth through improved economic organization?

better enforcement of property rights that promotes investment and trade

When government regulations in a country determine which businesses can enter and compete in a market,

bribes, political favoritism, and corruption are likely to be widespread.

After the September 11, 2001 terrorist attacks on New York City destroyed resources, inventories, and disrupted supply chains, city residents continued to produce and consume a large variety of goods and services. This was because of

changes in market prices, profits, and wages.

The main postulate of economics is based on the premise that

changes in personal benefits or costs of an action influence behavior in predictable ways.

Resources will be used most productively when

competition and the pursuit of profit are present.

A private owner of a resource has a strong incentive to

conserve the resource for the future, particularly if it is expected to increase in value.

Lobbying efforts that erect roadblocks that limit entry into markets,

consume valuable resources that could have been used for productive activities.

In a market economy, when the government uses subsidies to keep a company in business even though it is unprofitable, the result will be

continuation of the employment of resources in an unproductive and inefficient manner.

The invisible hand principle indicates that individuals will have a strong incentive to

cooperate with others by helping them in exchange for income.

Individuals are more likely to engage in productive activities when institutions and policies

create a fair and unbiased judicial system.

Profit can be defined as the

difference between the sales revenue of a business firm and the opportunity cost of the resources required to produce the goods supplied by the firm.

Firms will exit an industry and the remaining firms will contract the scale of their operations when

economic losses are present

Governments promote growth and prosperity when they

encourage productive activity and discourage plunder.

When the markets of an economy are open and competitive, economic progress and the growth of income will be

enhanced because producers will have a strong incentive to operate efficiently and provide consumers with goods they value highly relative to cost.

In order to obtain support for favored political proposals, special interest groups have an incentive to

exaggerate the perceived benefits and understate the expected costs of a proposal.

Higher standards of living are a result of

expansion in the production of goods and services that are highly valued.

If a firm is unable to cover the cost of the resources employed by the firm (including the opportunity cost of resources owned by the firm), the firm will

go out of business in the long run because it is making losses.

"Steve Jobs made tens of millions of dollars producing and selling the iPod, iPad and other Apple products. Many workers and consumers must have suffered in order for Jobs to amass such enormous wealth." The person who made this statement

has failed to understand that specialization and exchange generally result in mutual economic gain

The Economic Freedom of the World index indicates that countries with more economic freedom

have higher levels of per capita income.

Entrepreneurs will increase their efforts to develop economical alternative energy sources

if current energy supply decreases and prices rise.

A country should import a good or a service

if other countries can provide the imported item cheaper than it could be produced domestically

If the United States reduced tariff rates and other trade barriers,

income levels of Americans would be higher.

When the money supply of a nation increases rapidly relative to the growth of the economy, the result is

inflation

When the money supply of a nation increases faster than the growth of the economy, the result is

inflation.

Which of the following will increase economic freedom?

institutions and policies supportive of voluntary exchange

Countries are likely to reduce the ability of their citizens to achieve prosperity when they

interfere with voluntary exchange either domestically or internationally.

"Production should be for people, not for profit." This statement

is incorrect, because it fails to recognize that firms must increase the value of resources in order to earn a profit.

When government enterprises are funded or subsidized by taxes,

it will be difficult to determine whether consumers value the good or service more than its cost.

Which of the following contributed to the severity of the Great Depression of the 1930s?

large increases in tax rates in 1932 and again in 1936

The policies of Fannie Mae and Freddie Mac during 1995-2008 encouraged mortgage originators to

loosen lending standards and extend more loans to low income and sub-prime borrowers.

What is the "invisible hand" that coordinates the actions of individuals referred to by Adam Smith?

market prices.

Which of the following is the best example of a public good?

national defense

If a business is realizing economic profits in a competitive market, it is

producing goods and services that are valued more than the resources required to produce them.

To be successful in a market economy a firm must

provide goods valued by consumers at economical prices.

In a market economy, you will likely earn a high income if you find a way to

provide others with goods and services that they value highly.

A legal system that protects private property and enforces contracts in an even-handed manner helps promote economic growth because it

provides people with a strong incentive to supply others with things that they value at an economical price.

The government enforces property rights by

providing police and courts

High transaction costs will tend to

reduce the number of mutually beneficial exchanges that occur.

An increase in marginal tax rates will

reduce the share of additional earnings that individuals are permitted to keep.

Individuals are most likely to prosper in an economy that

rewards employment that expands production of goods and services that others value highly relative to cost.

Which of the following results because the desire for goods and services is far greater than the production capacity of an economy?

scarcity

When it comes to scarce resources, governments can

shift the cost of resources, but they cannot avoid them.

A marginal change usually is a

small, incremental adjustment.

The law of comparative advantage explains why

specialization and exchange will make it possible for trading partners to expand their joint output

Which of the following is the primary source of high earnings among physicians and surgeons in a market economy?

the ability to provide others with things that they value highly

In a market economy, when a consumer is willing to buy and a producer is willing to supply an additional unit, this indicates that

the consumer values the unit as much or more than the per unit cost of production.

Goods are scarce because

the desire for goods is far greater than their availability from nature.

Private owners will gain by conserving resources for the future, when

the expected future value of a resource exceeds its current value.

Your opportunity cost of attending a baseball game is

the highest valued alternative forgone because of the time and money required to attend the game

The popularity of trade restrictions, tariffs, and quotas often reflects that

the immediate benefits are highly visible, while the secondary effects of lost jobs in other industries are less visible.

"Mediocre economists often consider only the immediate direct effects of a change, whereas a good economist will also consider indirect effects that may only become observable over time." This statement most clearly emphasizes

the importance of secondary effects.

As personal income tax rates are increased,

the incentive to engage in tax-avoidance activity increases.

If the United States reduced tariff rates and other trade barriers,

the income levels of Americans would be higher.

A demand curve for personal computers indicates

the number of personal computers consumers will purchase at alternative prices.

The marginal tax rate is

the percentage of tax that must be paid on an additional dollar of income earned.

The exchange rate of the dollar relative to other currencies is determined by market forces. When equilibrium is present in the exchange rate market,

the purchases of Americans from foreigners will be equal to the sales of Americans to foreigners.

A business can gain by purchasing a resource from another firm if

the resource can be acquired more economically through trade than in-house production.

Which of the following would increase the income of both Americans and people living in other countries throughout the world?

the unilateral phasing out of all U.S. trade restrictions

The expression "There's no such thing as a free lunch" means

the use of resources to produce a good has an opportunity cost because of scarcity.

The opportunity cost of an action is

the value of the best opportunity that was sacrificed because the action was taken.

The supply curve illustrates

the various quantities of a good or service producers are willing to supply at alternative prices.

When consumers are willing to pay a price that exceeds the per unit cost of production,

this indicates that the producer's decision to direct resources to that product was profitable.

If government is going to promote gains from trade and economic progress, it must

uphold a legal system that is unambiguous and nondiscriminatory.

Markets coordinate output decisions by pushing price

upward when there is a shortage.

In a market economy, the equilibrium price

will continually adjust to changes in supply and demand as long as it is not restricted by political intervention or monopoly power.

The opportunity cost of the resources used to produce goods and services supplied by the government

will fall on residents even if the government services are financed by borrowing rather than taxes.