Economics Quiz 2 & 4

d. both Dan and Andrea will gain from this transaction.

If Andrea sells Dan a Wii gaming system for $150, a. the well-being of both parties will be unchanged. b. Andrea will gain from the transaction, but Dan will lose. c. Dan will gain from the transaction, but Andrea will lose. d. both Dan and Andrea will gain from this transaction.

b. both Sean and Susan will gain from this transaction.

If Sean sells Susan a DVD player for $30, a. the well-being of both parties will be unchanged. b. both Sean and Susan will gain from this transaction. c. Sean will gain from the transaction, but Susan will lose. d. Susan will gain from the transaction, but Sean will lose.

d. the law of comparative advantage

Specialization in goods and services one can produce at a low cost makes it possible for trading partners to produce a larger joint output. This is called a. the law of absolute advantage. b. the law of demand. c. the law of production possibilities. d. the law of comparative advantage

c. it moves goods, services and resources from people who value them less to individuals who value them more.

Voluntary trade promotes economic progress because a. it discourages businesses from seeking lower per-unit costs through adoption of mass production methods. b. it discourages trade based on the comparative advantage of suppliers. c. it moves goods, services and resources from people who value them less to individuals who value them more. d. This is a trick question; voluntary exchange does not promote economic progress.

c. makes larger outputs possible as a result of specialization.

Voluntary trade promotes economic progress because it a. moves goods, services and resources from people who value them more to individuals who value them less. a. moves goods, services and resources from people who value them more to individuals who value them less. b. encourages individuals to become self-sufficient. c. makes larger outputs possible as a result of specialization. d. benefits buyers at the expense of sellers.

b. the value of the products to the consumers will exceed the costs of the resources required for their production.

When the equilibrium price of a product is present a. neither consumers nor producers will benefit from the exchanges. b. the value of the products to the consumers will exceed the costs of the resources required for their production. c. the consumers will benefit from the exchanges, but the producers will experience losses. d. the producers will profit from the exchanges at the expense of consumers.

b. the quantity demanded will decrease.

When the price of a good increases, a. the opportunity cost of producing the good will increase, causing the supply to fall. b. the quantity demanded will decrease. c. the quantity supplied will decrease. d. the quantity demanded will also increase.

b. the market price

Which of the following coordinates the choices of buyers and sellers, bringing quantity demanded and quantity supplied into balance? a. government mandates b. the market price c. taxes and subsidies d. consumer demand

b. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity.

Which of the following is a major implication of the invisible hand concept? a. Government-operated firms tend to have lower costs than private sector firms. b. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. c. Prosperity cannot be achieved unless the selfish nature of people can be changed. d. Competition is harmful to the health of an economy because it results in wasteful duplication.

a. Producers will increase the production of fuel-efficient cars.

Which of the following is a predictable, secondary effect of a sharp increase in gasoline prices? a. Producers will increase the production of fuel-efficient cars. b. The federal government will place a quota on the number of fuel-efficient cars for sale, thus "forcing" consumers to purchase the gas guzzling vehicles. c. the termination of research on the cost-effectiveness of alternative fuels to power automobiles. d. Producers will increase the production of gas guzzling vehicles.

a. production of additional goods and services that people value highly relative to the cost of their production

Which of the following is most important for the achievement of higher income levels and living standards? a. production of additional goods and services that people value highly relative to the cost of their production b. increases in government spending that create jobs c. restriction of imports that expand employment in the protected industries d. an increase in total employment

c. the quantity of a good or service producers are willing to supply at alternative prices.

The supply curve graphically illustrates a. the difference between the current supply of a good or service and the potential supply producers are capable of producing. b. the difference between the current supply of a good or service and the potential amount consumers are willing to purchase. c. the quantity of a good or service producers are willing to supply at alternative prices. d. the quantity of a good or service consumers will purchase at alternative prices.

b. transaction costs.

The time and resources needed to search out, negotiate, and consummate trades are referred to as a. trade deficits. b. transaction costs. c. tariffs. d. marginal costs.

b. incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities.

"Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans." This argument is a. correct because a higher minimum wage will increase total income which will stimulate aggregate demand and employment. b. incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities. c. incorrect because the government has too big a deficit to pay for the increase in the minimum wage. d. correct because most minimum wage workers are household heads trying to earn enough to support their family.

b. the importance of secondary effects.

"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 a. the law of comparative advantage. b. the importance of secondary effects. c. the gains derived from voluntary exchange. d. economizing behavior.

b. the public interest would be served quite well.

Adam Smith believed that if people were free to pursue their own interests, a. less would be produced than if government planners were in charge of the economy. b. the public interest would be served quite well. c. they would generally apply their talents to unproductive activities that would generate little value to society. d. they would have little incentive to undertake productive activities.

d. the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

Adam Smith's invisible hand principle stresses the tendency of a. self-interested individuals to pursue activities that benefit themselves, but harm the overall economic welfare of society. b. compassion to encourage productive economic activity. c. government regulation to bring the self interest of individuals into harmony with the economic welfare of society. d. the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

d. The demand curve for snowmobiles will increase and the price of snowmobiles will rise.

Colorado experiences a record snowfall during the winter season. What impact will this have on the market for snowmobiles? a. The supply of snowmobiles will increase and the price of snowmobiles will fall. b. The demand curve for snowmobiles will decrease and the price of snowmobiles will fall. c. The supply of snowmobiles will increase and the price of snowmobiles will increase. d. The demand curve for snowmobiles will increase and the price of snowmobiles will rise.

a. demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline.

During 2007-2008, the price of gasoline increased from approximately $1.50 to $4.00 per gallon. As a result, the a. demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline. b. supply of gas guzzling automobiles decreased, causing their price to increase. c. demand for gas guzzling automobiles increased, causing their price to increase. d. supply of gas guzzling automobiles increased causing their price to fall.

d. reflects that people are achieving higher income levels and living standards.

Economic progress a. indicates that scarcity is no longer a problem. b. indicates income levels are higher even though environmental and health conditions have worsened. c. requires that individuals work longer hours. d. reflects that people are achieving higher income levels and living standards.

b. entrepreneurial action directed by competitive markets.

Economic progress comes primarily through a. imposition of trade barriers. b. entrepreneurial action directed by competitive markets. c. government investment in heavy industry. d. central planning.

d. an increase in the availability of goods and services that people value.

Higher standards of living are the result of a. government subsidies that expand employment. b. trade restrictions that favor domestic industries over foreign competition. c. an increase in the general level of prices. d. an increase in the availability of goods and services that people value.

b. quantity demanded equals quantity supplied.

If equilibrium is present in a market, a. quantity demanded exceeds quantity supplied. b. quantity demanded equals quantity supplied. c. quantity supplied exceeds quantity demanded. d. the price of the product will tend to rise.

d. the gains from trade will increase

If the Internet helps buyers learn about the availability of products and find potential sellers more quickly, a. the volume of trade will decline. b. buyers will be better off, but sellers will be worse off. c. transaction costs will rise. d. the gains from trade will increase.

a. supply of corn will decrease and the price of corn will rise.

If the Midwest experiences a severe drought that damages the corn crops, we should expect the a. supply of corn will decrease and the price of corn will rise. b. demand curve for corn will decrease and the price of corn will fall. c. demand curve for corn will increase and the price of corn will rise. d. supply of corn will increase and the price of corn will fall.

d. producers will increase supply in the long run.

If the market price of a good is more than the opportunity cost of producing it, a. the situation will remain unchanged as long as supply and demand remain in balance. b. the market price of the product will increase in the long run. c. resources will flow away from production of the good, causing supply to decline with the passage of time. d. producers will increase supply in the long run.

a. Both Maria and Lisa expect to gain from this transaction.

Maria decides to buy a dress from Lisa; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction? a. Both Maria and Lisa expect to gain from this transaction. b. If Lisa gains from the transaction, Maria must lose an equal amount. c. If the dress originally costs more than $20, Maria gains and Lisa loses. d. If the dress originally costs less than $20, Lisa gains and Maria loses

d. reduce transaction costs.

Middlemen: a. increase transaction costs. b. increase the price of goods, services and resources without providing any benefits. c. impede trade and hinder economic growth. d. reduce transaction costs.

d. indicates the quantities of the good that people are willing to purchase at various prices.

The demand curve for a good a. is determined primarily by the cost of producing the good. b. indicates the relationship between the price of the good and the price of other goods. c. illustrates the quantity producers will provide at alternative prices. d. indicates the quantities of the good that people are willing to purchase at various prices.

d. at which the quantity supplied by producers is equal to the quantity demanded by consumers.

The equilibrium price of a good or service is the price a. at which the current quantity supplied by producers is equal to the potential output. b. fixed by the government so that producers do not over produce and consumers do not over purchase. c. at which all consumers can afford to purchase units of a good or service as long as they provide them with any value. d. at which the quantity supplied by producers is equal to the quantity demanded by consumers.

c. even when market participants care only about their own self interests rather than about the overall efficiency of resource use.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a. only if buyers and sellers really care, personally, about economic efficiency. b. even if business firms fail to produce goods efficiently. c. even when market participants care only about their own self interests rather than about the overall efficiency of resource use. d. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.

b. the low opportunity cost producer.

The law of comparative advantage indicates that if a group of individuals wants to maximize their joint output, then each good should be supplied by a. the person with the lowest wage rate. b. the low opportunity cost producer. c. the person with the most advanced technical knowledge. d. the person that can accomplish the task most rapidly.