Unit 1 test

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should a. compare the total cost of your education to the total benefits of your education. b. compare the total cost of your education to the benefits of staying one more semester. c. compare the cost of staying one more semester to the benefits of staying one more semester.

c

important phrase

• "When the govt tries to cut the econ pie into more equal slices, the pie get smaller."

Equality

the property of distributing economic prosperity uniformly among society.

Effiency

( the property of society getting the most it can from its scarce resources)

For a very long time Tropicland has had inflation of 12%. Suddenly its inflation rate drops to 4%. The drop in the inflation rate a. could be due to slower money supply growth. We would expect unemployment to be higher. b. could be due to slower money supply growth. We would expect unemployment to be lower. c. could be due to higher money supply growth. We would expect unemployment to be higher. d. could be due to higher money supply growth. We would expect unemployment to be lower.

A

When computing the opportunity cost of attending a football game you should include a. the price you pay for the ticket and the value of your time. b. the price you pay for the ticket, but not the value of your time. c. the value of your time, but not the price you pay for the ticket. d. neither the price of the ticket nor the value of your time.

A

Which of the following would a permanent increase in the growth rate of the money supply change permanently? a. inflation b. unemployment c. both inflation and unemployment d. neither inflation nor unemployment

A

Principle Eight

A Country's Standard Of Living Depends On Its Ability To Produce Goods And Services - There is a direct relationship btw productivity and living standards. - To boost living standards, a policymakers need to raise productivity by ensuring that workers are well educated, have the tools needed to produce goods and services, and have access to the best available technology.

Samantha's college raises the cost of room and board per semester. This increase raises Samantha's opportunity cost of attending college a. even if the amount she'd have to pay for room and board if she didn't attend college rose by the same amount. An increase in opportunity cost reduces Samantha's incentive to attend college. b. even if the amount she'd have to pay for room and board if she didn't attend college rose by the same amount. An increase in opportunity cost increases Samantha's incentive to attend college. c. only if the amount she'd have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Samantha's incentive to attend college. d. only if the amount she'd have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost increases Samantha's incentive to attend college.

C

Something that induces a person to act is called a. a trade-off. b. a policy. c. an incentive. d. an opportunity cost.

C

Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? a. only the one with a low level of output per person. b. only the one with a high level of output per person. c. both d. neither

C

Principle Seven

Govt. Can Sometimes Improve Market Outcomes - Property Rights is an ex of a govt regulation that is useful in the market economy The purpose of Govt. regulation is A) to promote efficiency, and B) to promote Equality.

Principle Six

Markets Are Actually A Good Way To Organize Economic Activity - Firms decide whom to hire and what to make - Households decide which firms to work for and to buy with their income. - Its all about consumer's taste and producers' cost, which in a market economy is reflected in prices.

Principle Four

People Respond To Incentives - A higher price in a market provides an incentive for buyers to consume less, and an incentive for sellers to produce more. - Many policies change the costs or benefits that people face and therefore, alter their behavior.

Principle One

People face trade-offs. To get one thing that we like, we have to give up another thing we like. Ex: trade-off btw a clean environment and a high level income (laws that reduce pollution raise the cost of producing goods and services).

Principle Nine

Prices Rise When The Govt. Prints Too Much Money - When the Govt. prints large quantities of $$, the value of $$ falls. - In almost all cases of large or persistent inflation, the culprit is the growth in the quantity of money.

Principle Three

Rational people think at the margin • Rational people often make decisions by comparing marginal benefits vs marginal costs. • ".. if and only if the marginal benefit of the actions exceeds the marginal cost." ○ Marginal Change: a small incremental adjustment to an existing plan of action. ( ex: a 200 seated air plane costs an airline $100k to fly it. They charge each person $500 for a seat (100k/200) so as to make profit. Marginal benefit would be if the plane had an extra seat before they take-off and there was a passanger willing to pay $300 for a ticket. Instead of flying with one empty seat, the airline now has a marginal benefit of $300.

Principle Ten

Society Faces A Short-Run Trade-off BTW Inflation & Unemployment - Short-run benefits of increasing the quantity of money: ○ Stimulating the overall level of spending and thus the demand for G & S ○ Higher demand is an incentive for firms to hire more workers and increase productivity ○ More hiring= lower unemployment rate. - In 2008, the Obama Admin boosted the economy by reducing taxes, increasing govt. spending, while the Federal Reserve increased the money supply. The goal was to reduce unemployment.

Principle Five

Trade Can Make Everyone Better Off - Trade allows countries to specialize in what they do best and to enjoy a variety of goods and services. - People are able to buy a variety of goods and services at a lower cost.

Principle Two

the cost of something is what you give up to get it (deals with Opportunity Cost) • Ex: college athletes who can earn millions by professional sports understand that the opportunity cost of getting a degree is very high ( millions), so they are more likely to drop out.