ECO study guide

Which of the following represents a positive statement? a. A higher income tax rate will reduce the amount of time that people spend working. b. Teenage unemployment should be reduced. c. We should raise the standard of living for the elderly. d. A decrease in tax rates is needed to help the poor.

A. A higher income tax rate will reduce the amount of time that people spend working.

Which of the following statements is normative? a. Winters in North Dakota are long and cold. b. North Dakota gets an average of 45 inches of snow each year. c. An extreme cold snap in North Dakota can cause the low temperature to fall below -30 degrees Fahrenheit. d. Ultraviolet radiation in North Dakota is significantly lower than in Texas.

A. Winters in North Dakota are long and cold.

All but one of the following are elements of the economic way of thinking. Which one is not part of the economic way of thinking? a. Incentives matter. b. The value of goods can be determined objectively. c. Economic thinking is marginal thinking. d. Information is costly.

B

Elle Woods is an attorney and also an excellent typist. She can type 120 words per minute, but she charges attorney fees at $90 per hour. Warner would like some typing work but can only type 40 words per minute. According to the law of comparative advantage, Elle should hire Warner to do her typing if and only if his wage rate is less than a. $10 per hour. b. $30 per hour. c. $45 per hour. d. $90 per hour.

B. $30 per hour.

Which of the following is not true of opportunity cost? a. Opportunity costs are subjective because they depend upon how the decision maker values his or her options. b. Opportunity costs are only the monetary costs of lost options. c. Opportunity costs are the highest-valued alternative sacrificed in order to choose an option. d. Only the decision maker can determine his or her opportunity costs for any particular action

B. Opportunity costs are only the monetary costs of lost options.

Which of the following is true regarding private ownership? a. Relative to common ownership, private ownership generally leads to less conservation of resources. b. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others. c. Private ownership generally gives the owner no incentive to find ways to use the resource wisely. d. With private ownership, resource owners have no incentive to consider the preferences of others when deciding how to employ a resource.

B. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others.

If people willingly give up something (such as money) for a good, then the good is a. not an economic good. b. scarce. c. available in an unlimited supply. d. a luxury good

B. scarce.

According to the law of comparative advantage, both individuals and nations will be able to produce a larger joint output if each productive activity is undertaken by a. the high opportunity cost producer. b. the low opportunity cost producer. c. the producer who is able to hire workers at the lowest wage. d. the party that can complete the productive activity most rapidly.

B. the low opportunity cost producer.

Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $18, then their total consumer surplus is a. $38. b. $42. c. $46. d. $72.

C. $46.

Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost is a. 10 toasters. b. 30 toasters. c. 20 toasters. d. 30 toothbrushes.

C. 20 toasters.

A freeze in Florida devastates the orange crop at the same time a new study is released showing the health benefits of vitamin C (leading consumers to want to buy more orange juice). How will the equilibrium price and quantity of orange juice change in response to the combination of these two events? a. Equilibrium quantity will decrease, equilibrium price will increase. b. Equilibrium price will decrease, the effect on quantity is ambiguous. c. Equilibrium price will increase, the effect on quantity is ambiguous. d. Equilibrium quantity will increase, the effect on price is ambiguous.

C. Equilibrium price will increase, the effect on quantity is ambiguous.

(I) The opportunity cost of an activity is the lowest valued alternative forgone as the result of choosing that activity. (II) Opportunity cost is subjective; it can be determined only by the person who chooses among the alternatives. a. Both I and II are true. b. I is true; II is false. c. I is false; II is true. d. Both I and II are false.

C. I is false; II is true.

A student noted that the football team won by a larger margin when the third-string played more minutes. Therefore, he recommended that the third-stringers become the first team. His conclusion was probably erroneous because he a. confused positive and normative analysis. b. committed the fallacy of composition. c. failed to recognize that association is not causation. d. confused macroeconomics with microeconomics.

C. failed to recognize that association is not causation.

Which of the following best represents the effects of a decrease in the price of tomato juice, other things being equal? a. An upward movement along the demand curve for tomato juice. b. A leftward shift in the demand curve for tomato juice. c. A rightward shift in the demand curve for tomato juice. d. A downward movement along the demand curve for tomato juice.

D. A downward movement along the demand curve for tomato juice.

For most students attending state universities, the largest cost component of going to college is a. the cost of books and supplies. b. the cost of room and board. c. tuition. d. the opportunity cost in terms of forgone current income from the time spent attending college.

D. he opportunity cost in terms of forgone current income from the time spent attending college.