Eco Chapter 1 Quiz

A marginal change is a

small, incremental adjustment.

The increase in living standards of American workers over the past century is primarily due to

improvements in productivity.

The "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes.

People are likely to respond to a policy change

if the policy changes either the costs or benefits of their behavior.

When a society cannot produce all the goods and services people wish to have, the economy is experiencing

scarcity.

For most students, the earnings they give up to attend college are

the single largest cost of their education.

In a market economy, economic activity is guided by

self-interest and prices.

Which of the following is correct concerning opportunity cost?

Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.

The U.S. president who referred to inflation as "public enemy number one" was

Gerald Ford.

Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit the rich at the expense of the poor.

Senator Jackson's argument is primarily about efficiency, while Senator Feldman's argument is primarily about equality.

Communist countries worked under the premise that

central planners were in the best position to determine the allocation of scarce resources in the economy.

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that

they would do better charging $15 than $10.

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?

to protect an industry from foreign competition

High-school athletes who skip college to become professional athletes

understand that the opportunity cost of attending college is very high.

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

All of the above are correct.

Betty's Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is thrown away. A loaf of bread costs Betty $2.00 to produce, and she prices loaves of bread at $3.50 per loaf. Suppose near the end of one day Betty still has 12 loaves of bread on hand. Which of the following is correct?

Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something.

A certain state legislature is considering an increase in the state gasoline tax. Representative Campbell argues that an increase in the gasoline tax would harm low-income drivers disproportionately. Representative Richards responds by saying that low-income drivers own smaller cars that use less gasoline, and that low-income drivers therefore would not be harmed disproportionately.

Both representatives' arguments are based primarily on equality.

The tradeoff between inflation and unemployment

None of the above are correct.

Which of the following statements best characterizes a basic difference between market economies and centrally planned economies?

None of the above are correct.

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?

People respond to incentives

In the short run, which of the following is not correct?

Policies that encourage higher employment will also induce a lower rate of inflation.

One advantage market economies have over centrally-planned economies is that market economies

are more efficient.

College-age athletes who drop out of college to play professional sports

are well aware that their opportunity cost of attending college is very high.

Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie's bread and pastries,

both Sam and Annie are made better off by trade.

The economy of the former Soviet Union is best described as a

centrally-planned economy.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

enhance equality.

When the government implements programs such as progressive income tax rates, which of the following is likely to occur?

equality is increased and efficiency is decreased.

Economists are particularly adept at understanding that people respond to

incentives.

It costs a company $35,000 to produce 500 graphing calculators. The company's cost will be $35,080 if it produces an additional graphing calculator. If the company produces 501 graphing calculators then

its average cost is less than its marginal cost.

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay

more than $40, as the marginal benefit will exceed the marginal cost.

Based on the available evidence, which of the following groups benefits most from mandatory seat belt laws?

owners of collision-repair shops

Almost all variation in living standards is attributable to differences in countries'

productivity.

The phenomenon of scarcity stems from the fact that

resources are limited.

Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is

the enjoyment he would have received if he had watched TV with his friends.

Barb's aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is

the value to Barb of the option she would have chosen had Option B not been available.