Microeconomics Exam 1

Office of Management and Budget

Economists from which administrative department help the president formulate spending plans and regulatory policies

Efficiency means our economic pie is divided into equal slices. T/F

False

Flexible and floating exchange rates are not an effective international monetary arrangement. T/F

False

The Council of Economic Advisers was created in 1946 and consists of two members and a staff of several dozen economists. T/F

False

Positive statements are descriptive because they make a claim about how the world actually is.

On the other hand, normative statements are prescriptive because they make a claim about how the world should be.

Some economists disagree because their scientific judgment differs. Which of the following instances best reflects this source of disagreement?

One economist believes that the level of household saving would not be affected by a change in the tax laws; another economist believes that taxing a household's consumption would change a household's saving behavior.

Economists often appear to give conflicting advice to policymakers

The two basic reasons for this are differences in scientific judgments and differences in values.

A ceiling on rents reduces the quantity and quality of housing available.

True

Demand for substitutes and complements changes when the prices of other goods change but not when income changes. T/F

True

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

True

Fiscal policy has a significant stimulative impact on a less than fully employed economy.

True

Tariffs and import quotas usually reduce general economic welfare.

True

The demand curve and the supply curve do not shift in response to a price change. T/F

True

The law of supply states that, all else equal, when the price increases, the quantity supplied increases. T/F

True

There is a tradeoff between efficiency and equality. More of one (equality) usually means we have less of the other (efficiency). T/F

True

When income increases, demand for inferior goods decreases and demand for normal goods increases. T/F

True

rational people make decisions by comparing costs and benefits, people respond to incentives T/F

True

firms are...

buyers

An increase in the price of a good would

decrease the quantity demanded of the good.

Efficiency

getting the maximum benefit out of our scarce resources

subsidy

government giving you money to give someone the incentive to work

specialization and benefits...

improve trading and decrease prices

market economy

many people making individual decisions

law of demand

p ^ q v p v q ^

In economics, the phrase "no such thing as a free lunch" means

people face tradeoffs.

"Total revenue rises when the quantity sold increases and prices remain constant" is an example of a

positive economic statement.

law of supply

q ^ p ^

Almost all economists agree that government subsidies on ethanol in the United States should be

reduced.

households are...

sellers

incentive

something that induces people to do an action (positive or negative)

Absolute advantage is

the ability to produce a good using fewer inputs than another producer.

equality

the benefits are distributed equally among all members of society.

In perfectly competitive markets

the goods offered for sale are all exactly the same and the buyer and sellers are so numerous that no single buyer or seller has any influence over the market price -like wheat rather than electricity, soft drinks, or jeans

Almost all economists agree that a legitimate role for the government is

the redistribution of income.

Marginal thinking involves

weighing the marginal benefit and the marginal cost of a decision.