Econ 201: Final Exam

Wages are best thought of as prices for labor services. If laws require wages be held above the market equilibrium level, this price _____ will lead to a _____ of labor, also known as unemployment.

FLOOR; SURPLUS

Viking raiders represented the _____ paradigm of social interaction

TAKE

The "concentrated benefits, dispersed costs" principle means:

TAXPAYERS WON'T NOTICE OR RESIST MOST GOVERNMENT SPENDING, EVEN IF THEY THINK IT'S WASTEFUL

Wages are determined by:

THE MARGINAL PRODUCT OF LABOR (MPL)

"There's not a dime's worth of difference between the Republicans and the Democrats." To the extent this sentiment is true, it could be explained by:

THE MEDIAN VOTER THEOREM

According to data cited by Maltsev, between 40 million and 60 million people were killed in the gulags (prison camps) during the Soviet regime in Russia.

TRUE

According to most economists' way of thinking, the basic purpose of government is to provide public goods.

TRUE

According to rational ignorance theory, people have weak incentives to become politically informed.

TRUE

Accounting profits mean a firm is covering its explicit costs (i.e. paying all of its bills). Economic profits mean a business is earning more than what its owners could have achieved in their next-best investment opportunity.

TRUE

Dr. Watts is available via Zoom for office hours at set times during the week, and also by appointment at a convenient time.

TRUE

Economist David Ricardo indicated that workers and countries should focus on comparative advantage, rather than absolute advantage, in order to maximize overall productivity.

TRUE

Entrepreneurs assess the performance of their businesses by comparing product prices and input costs using a profit and loss statement.

TRUE

For a signaling mechanism to be effective, it has to be costly enough that only those who possess the pertinent attribute(s) will be willing and able to obtain it.

TRUE

For country singer Chris Young, the price of gasoline was $3/gallon. The opportunity cost was a six-pack of beer.

TRUE

From 1996 to 2016, college tuition in the US increased by roughly four times the rate of all consumer goods prices.

TRUE

In the lecture example, the US specialized in high-tech industries, and Mexico specialized in low-tech industries. After trade, both countries wind up with more of one or both goods.

TRUE

Low overall voter turnout rates are explained by the fact that people implicitly perform a cost/benefit analysis of voting at an individual level.

TRUE

Marginal revenue (MR) is less than price for a monopoly, but is equal to price for a price taker in perfect competition.

TRUE

Money prices can help us navigate the tradeoffs we face every day by making opportunity costs explicit.

TRUE

Prices connect the decisions of buyers and sellers of various products and resources without requiring any of them to know details circumstances about why prices might be changing.

TRUE

Scarcity implies opportunity costs: more of choice A means less (or none) of choice B.

TRUE

Technically speaking, sunk costs are not actually costs, but outlays or expenses.

TRUE

The price system is the main mechanism that helps us decide how and where to employ our scarce time, energy, and resources.

TRUE

The textbook, Modern Principles of Microeconomics (3rd. ed.), is not required, but strongly recommended.

TRUE

Traditions can be very useful--even if we don't explicitly know why we adhere to them--due to the fact that societies with sound traditions have better chances of survival.

TRUE

Up to two homework assignments may be redone and resubmitted before finals week for a chance at an improved score.

TRUE

A consumer subsidy can be defined as:

A GRANT OF MONEY FROM GOVERNMENT TO CONSUMERS OF A GOOD OR SERVICE

Which statement best captures Adam Smith's observations about specialization?

A. "DO ONE THING, DO IT WELL" b. "idle hands do the devil's work" c. "an ounce of prevention is worth a pound of cure"

Watts is trying to sell one of his classic old cars. He lists the car for $6,500, but it goes months with no takers. Watts' price is likely _____ equilibrium for this particular car.

A. ABOVE b. below c. at d. no answer

Using economic thinking and tools of economic analysis to guide decision making toward pre-determined goals is known as _____ economics.

A. APPLIED b. empirical c. apriori

Parkinson's example of the Royal Navy in the post-World War I period represents:

A. BUREAUCRACIES TEND TO GROW, EVEN IF THEIR WORKLOAD DECREASES b. bureaucracies grow or shrink depending on circumstances c. politicians can effectively limit bureaucratic inefficiency d. new technologies make bureaucracies more efficient

Small groups are often more politically influential than large groups due to:

A. CONCENTRATED BENEFITS OF GOVERNMENT PROGRAMS b. dispersed benefits of government programs c. concentrated costs of government programs

Remember that HW 1 question about Dr. Watts having his worker drive to the hardware store to pick up construction materials? Technically speaking, Watts faces a higher opportunity cost --and the worker faces a lower opportunity cost--for which activity?

A. DRIVING TO THE STORE b. staying on the job

Which financial statement is essential for an entrepreneur to compare revenues vs. expenses and evaluate the success of his/her business?

A. INCOME STATEMENT b. balance sheet c. statement of cash flows d. statement of owner's equity

What determines to what extent a society engages in the "deal, don't steal" framework?

A. LAW AND INSTITUTIONS b. natural resources c. climate

Which product is likely to have the most inelastic demand curve?

A. LIFE-SAVING COVID DRUGS b. potato chips c. ebooks d. light beer

Why do old people consistently vote at much higher rates than young people?

A. OLD PEOPLE HAVE LOWER OPPORTUNITY COSTS AND MORE AT STAKE IN GOVERNMENT PROGRAMS

According to Dr. Watts, which of the "institutions that matter" is the most important foundational element of a market economy/price system?

A. PROPERTY RIGHTS b. rule of law/legal system c. honest government d. competitive markets

You sell custom crafts online. If you discover that demand for one of your products is highly inelastic, would you raise or lower the price in order to maximize revenue?

A. RAISE PRICE b. lower price

How long has the United States featured patents--intentional grants of monopoly power for inventors--as part of its economic institutional system?

A. SINCE THE SIGNING OF THE CONSTITUTION IN 1789 b. since just after the Civil War c. since the 1950s d. no answer

What does Dr. Watts mean when he uses the term "spending pathology"?

A. SPENDING MONEY IN AN UNHEALTHY, INEFFICIENT WAY b. money carries germs which can make you sick c. people are addicted to spending d. people use money for anti-social purposes

According to Friedman, which type of spending is most efficient (cost-minimizing) and effective (value-maximizing)?

A. SPENDING YOUR OWN MONEY ON YOURSELF b. spending someone else's money on yourself c. spending your own money on other people d. spending other people's money on other people

According to a 2006 report issued by the United States Department of Commerce, "For each _____ growing and harvesting job saved by current sugar policies, nearly three _____ confectionary manufacturing jobs are lost.

A. SUGAR B. CONFECTIONARY

Which of the following is not a determinant of demand?

A. TAXES b. price of substitutes c. consumer incomes d. expectations

Life expectancy in the US is currently about 79.5 years. _____ is the ultimate scarce resource.

A. TIME b. money c. love d. water

A farmer can successfully grow 10 different crops on his land. The price system allows the farmer to compare the opportunity costs of each crop and select the one which creates the greatest net value.

A. TRUE b. false

A very poor country with low levels of education and an unskilled workforce can still benefit from international trade by having its workers specialize in jobs for which they have the lowest opportunity cost.

A. TRUE b. false

What was among the first products Maltsev purchased--with just one day's wages--when he first came to America?

A. VCR b. walkman c. TV set d. new car

If resources are scare, they have _____ uses and we need a mechanism to help us critically assess the opportunity costs.

ALTERNATIVE

When the exact same information is not shared by two parties on either side of a potential exchange, this situation is referred to as one involving asymmetric information.

ASYMMETRIC

Who was the "first economist in the West to realize that socialism is a non-working system?"

Ludwig von Mises

What mechanism is commonly used to provide strong incentives for people to follow through on promised actions, such as showing up for a court hearing or complete a construction job on time?

BONDING

To achieve the higher investment returns associated with greater risk, yet minimize that risk through diversification, what long-term, passive investment vehicle does Watts recommend?

BROAD STOCK INDEXES

Consumers using government subsidies to purchase products or services for themselves represents which kind of spending:

CATEGORY III

Employers must offer a ______ to attract workers to jobs that, for a given skill/qualification level, are more dangerous, dull, or otherwise unattractive.

COMPENSATING DIFFERENTIAL

Match each pro sports team namesake to either "biological" or "catallactic" competition

Clippers-catallactic Raptors-biological Brewers-catallactic Pirates-biological Raiders-biological

Consumer subsidies shift the _____ curve to the _____, leading to _____ prices and _____ quantities for the subsidized product.

DEMAND; RIGHT; HIGHER; HIGHER

In the US--a market economy--stores are owned by _____. In the Soviet Union--a socialist economy--stores were owned by _____.

ENTREPRENEURS; THE GOVERNMENT

Dr. Watts like to say "(almost) anyone can become a millionaire if he/she starts investing at a young age." What phenomenon helps makes this possible?

EXPONENTIAL GROWTH (COMPOUND INTEREST)

"Catallaxy" derives from a Greek word meaning "fight for survival."

FALSE

"Economics" derives from a Greek term which referred to monetary exchange.

FALSE

According to Maltsev, the right amount of expert knowledge can replace the incentives provided by market prices.

FALSE

An economy can function fine without prices as long as production is controlled by the most qualified scientists and engineers with access to supercomputers.

FALSE

Boris Yeltsin remarked that American grocery stores were comparable to the "closed" stores available only to Soviet Russia's elite government workers.

FALSE

Careful use of the scientific method allows researchers to prove hypotheses about the relationship between objects with 100% certainty.

FALSE

Course content for Econ 201 will be delivered primarily through the live Zoom classes every Monday and Wednesday.

FALSE

For knowledge to be valid, it must be confirmed or proven by an experiment or statistical test.

FALSE

If Menger's farmer has a smaller crop of wheat than usual this year, he will roll a 6-sided die to decide which of his 6 regular uses of the wheat crop he will do without.

FALSE

In both legos and construction work, Dr. Watts is much better at all tasks than his daughter. This means Watts' daughter cannot contribute to productivity in these areas.

FALSE

In the "economics of crime," economists use empirical data to determine which laws are just and unjust.

FALSE

Scarcity only affects the poor.

FALSE

Taio Cruz has bad knees and self-sacrificially dances mainly for the benefit of his fans.

FALSE

The M1 Abrams Tank story indicates that politicians are motivated by careful considerations of opportunity costs and efficient use of resources.

FALSE

The acronym "TIPE#" helps you remember the determinants of supply (supply shifters).

FALSE

The labor demand curve is comprised of workers who are looking for jobs.

FALSE

Watts will be posting 80 short lecture videos to Youtube/Canvas. You are required to view all of them!

FALSE

Monopolies lead to:

HIGHER PRICES, LOWER QUANTITIES, DEADWEIGHT LOSSES

Prohibiting (making illegal) a product with highly inelastic demand often results in _____ business revenues and an _____ in criminal activity associated with this product.

HIGHER; INCREASE

If the demand curve is more _____ than the supply curve, _____ will face a larger burden from a commodity tax.

INELASTIC; CONSUMERS

Prices provide consumers and producers with _____ about opportunity costs, and give entrepreneurs _____ to create value and economize on resource costs, which they can accomplish through both product and process _____.

INFORMATION; INCENTIVES; INNOVATION

Working on behalf of special interest groups to obtain favorable laws and regulations from the government, how many members of Congress must lobbyists influence?

ONLY A SMALL NUMBER OF KEY COMMITTEE CHAIRS AND RANKING MEMBERS

Match each good to the proper category

Ocean tuna-common resource Asteroid deflection-public good Free music downloads-nonrival private good Beer-private good Catfish-private good City-wide mosquito control-public good

In a competitive market environment: _____ attract entry of new firms. _____ force exit of (some) existing firms. In the long run, profits tend to be _____.

PROFITS; LOSSES; ELIMINATED

According to Watts and (most) economists, government should mainly subsidize:

PUBLIC GOODS

_____ costs vary with a company's level of production;_____ costs are the same regardless of how much of the product/service the business sells.

VARIABLE; FIXED

Biological competition is a _____-sum game; catallactic competition is a _____-sum game.

Zero, positive

A "take" system is a _____ sum game; a "make" (+exchange) systems is a _____ sum game.

Zero; positive

According to Maltsev, how did the Soviet system get people to do things?

a. "rewards and incentives" B. "MURDER, COERCION, AND CRUDE FORCE" c. "a sense of humanity and goodwill: d. no answer

According to President Reagan, how long was the wait for delivery of a new car in the Soviet Union in the 1980s?

a. 10 days b. 10 months C. 10 YEARS

If the price of potatoes rises 10%, quantity consumed falls by 20%. What is the elasticity of demand for potatoes (absolute value)?

a. 50% B. 2 c. 0.5 d. 120

Which US president is admired by Dr. Watts for speaking explicitly about the opportunity costs of government spending-particularly military spending?

a. Herbert Hoover b. Ronald Reagan c. lbj D. DWIGHT EISENHOWER

When compared to American farms, India's farms are much smaller and less productive on a per-worker basis. This is fundamentally caused by:

a. India's climate and soil are not suitable for agriculture b. lack of investment capital in India C. INSTITUTIONAL DIFFERENCES REGULATING LAND OWNERSHIP IN THE TWO COUNTRIES d. Indian farmers do not use scientific farming methods

In the United States, the sugar industry (sugar farmers and sugar mills) represent:

a. a public interest group B. A SPECIAL INTEREST GROUP c. a social welfare organization d. a fully competitive industry

Without market prices to provide information and incentives to both producers and consumers, Soviet stores were likely to exhibit:

a. affordable prices for a limited array of products B. SURPLUSES OF SOME PRODUCTS AND SHORTAGES OF OTHERS c. high prices, but guaranteed supplies of all products

If the price of lumber--a major input in the construction of most homes--increases, home builders might do which of the following:

a. consider using other materials (such as steel) in place of lumber b. attempt to pass higher costs on to buyers through higher home prices c. build smaller houses to keep costs down D. ALL OF THESE ARE POSSIBLE OUTCOMES

Ludwig von Mises' argument about why socialism--government ownership and control of the means of production-- cannot work well in practice focused on which missing element?

a. consumer options B. MARKET PRICES c. government subsidies d. hi tech production methods

What is the term for the area above the supply curve and below equilibrium price?

a. consumer surplus b. surplus C. PRODUCER SURPLUS d. total surplus

If a good is both non-excludable and non-rival,

a. consumers won't pay for it, but only one person at a time can benefit b. consumer will pay, but multiple people can benefit at once C. CONSUMERS WON'T PAY, AND MULTIPLE PEOPLE CAN BENEFIT AT ONCE d. consumers will pay, and multiple people can benefit at once

If the price of gas rises from $1.85 to $2.25, what happens to the demand (demand curve) for gas?

a. demand increases b. demand goes down C. NOTHING--WE SIMPLY MOVE ALONG THE DEMAND CURVE d. up or down depending on circumstances

Which best explains why supply curves usually slope upwards?

a. diminishing marginal value--extra units of a good are used for less important uses b. the offset principle--demand slopes up, so supply has to slope down c. business greed--they charge as much as they can get away with D. RISING MARGINAL COSTS--YOU HAVE TO PAY A HIGHER PRICE TO GET MORE PRODUCTION

"Economics is value free." this means that:

a. economists per se don't make value judgments about people's choices b. people's preferences are taken as given c. values matter, but economics is not the source of people's values D. ALL OF THE ABOVE

If the price of milk rises by 20% and quantity of milk consumed declines by 10% per week, milk demand is _____.

a. elastic B. INELASTIC c. unit elastic d. super elastic

Which term applies to knowledge that does not require confirmation by observation, experiment, or testing?

a. empirical B. APRIORI c. scientific

According to legendary Austrian economist Ludwig von Mises, the content of people's values and ends (goals) are:

a. empirically identifiable b. scientifically valid C. BEYOND THE SCOPE OF ANY SCIENCE d. impossible to discern

What describes the "profit maximizing rule" for a business in either a competitive or a monopoly industry?

a. fc=vc B. MC=MR c. mr>mc d. mc<mr

Under what conditions would a firm continue operating at a loss in the short run, rather than shutting down?

a. if revenue is greater than fixed costs B. IF REVENUE IS GREATER THAN VARIABLE COSTS c. if marginal revenue is greater than marginal cost d. if marginal cost is greater than marginal revenue

Economic knowledge is useful for:

a. individuals in everyday life b. entrepreneurs running businesses c. citizens analyzing government policies D. ALL OF THE ABOVE

If the price of ground beef falls from $3.50 per lb. to $2.99 per lb., what happens to the supply (supply curve) of ground beef?

a. it increases b. it goes down c. it depends on consumer preferences D. NOTHING; WE MOVE ALONG A GIVEN SUPPLY CURVE

Other than consumer subsidies, what factors contribute to persistent increases in prices of goods or services?

a. labor-intensive production processes b. lack of competition c. high fixed costs in the production process D. ALL OF THESE

The opportunity cost of consuming for of good A now, by means of borrowing, is:

a. less of good B b. less goods in the future C. BOTH OF THESE

According to public choice economics, _____ is to politicians as _____ is to entrepreneurs.

a. money; votes b. public service; customer service C. WINNING ELECTION; PROFITS

Whats another term for opportunity costs?

a. outlays b. expenses C. ALTERNATIVE USES d. debits

"I hit the floor 'cause that's my plans [plans, plans, plans]." This illustrates:

a. people never make mistakes b. people always meticulously plan every activity they engage in C. PEOPLE ARE ALWAYS RATIONAL d. rationality only applies to "economic" decisions

Airlines charge higher ticket prices to business travelers than they charge to vacationers. This is known as:

a. price controls b. profit maximization C. PRICE DISCRIMINATION d. price fixing

Which of the following includes ONLY determinants of supply?

a. price of inputs, technology, tastes & preferences B. TECHNOLOGY, # OF PRODUCERS, PRICE OF INPUTS c. taxes, technology, tastes & preferences d. incomes, taxes, technology

In "perfectly competitive" markets (a.k.a. "price taker" markets):

a. producers have no influence on the product's price b. producers can sell any quantity of output at the market price c. the profit-maximizing level of output occurs where Price=Marginal Cost D. ALL OF THESE ARE CORRECT

Imposing economic "autarky" through tariffs or other anti-trade measures results in:

a. protection of domestic industries from foreign competition b. consumers facing higher prices for protected goods c. lower productivity due to lack of specialization D. ALL OF THESE ARE CORRECT

Yuri Maltsev defected from the Soviet Union to the United States in the late 1980s. Maltsev had worked in Soviet Russia as a(n) _____ before he left.

a. railroader b. engineer c. grocery store manager D. ECONOMIST

One common form of government corruption takes is _____; this hampers the market process and impairs a country's economic performance because it acts as a _____ on entrepreneurs and investors.

a. regulations; cost increase b. corruption; subsidy c. campaign contributions; tax D. BRIBERY; TAX

Prices:

a. reveal resources' opportunity costs b. indicate the value of alternative uses of resources c. allow for comparison of different bundles of inputs in a production process D. ALL OF THESE ARE CORRECT

According to President Eisenhower, the opportunity costs of America's massive military buildup during the Cold War with the Soviet Union included:

a. schools b. hospitals c. houses D. ALL OF THE ABOVE

When a business sets prices above equilibrium, it often finds that products go unsold and inventories pile up. To correct this situation, the company will sooner or later have to cut its prices. This situation is known as a:

a. shortage B. SURPLUS c. glut d. scarcity

Which product is non-rival at low usage levels, but becomes rival when more users pile in?

a. sunshine b. a slice of pizza c. Uber rides D. A PUBLIC SWIMMING POOL

What is "equal" at equilibrium?

a. supply and demand B. QUANTITY SUPPLIED AND QUANTITY DEMANDED c. consumer and producer surplus d. price and quantity

Homer Simpson failed miserably in his attempt to build his own backyard barbecue pit. This represents that:

a. the labor theory of value is always correct b. the labor theory of value only applies to physical goods C. THE LABOR THEORY OF VALUE IS NOT ALWAYS APPLICABLE d. the labor theory of value only applies to skilled labor

What forces can help bring an end to unjustified labor market discrimination--e.g. employers who are unwilling to hire people on the basis of race, religion, or sex, for jobs they are otherwise qualified to do?

a. the profit motive b. anti-discrimination laws c. public pressure D. ALL OF THESE

According to Dr. Watts, what opportunity cost mistake do many small business owners make, which leads to a false assessment of their businesses' profits?

a. they do not account for depreciation of their assets b. they do not include the cost of taxes C. THEY FAIL TO ACCOUNT FOR THE OPPORTUNITY COST OF THE OWNER'S LABOR INPUT

Price ceilings prevent people for paying, with money, the full equilibrium price of a product. If people can't pay with money and are desperate to get ahold of a product, they might resort to paying with:

a. time b. services c. their bodies D. ALL OF THE ABOVE

According to Adam Smith, which factor gives specialization the greatest positive impact on workers' productivity?

a. time savings b. skill development C. USE OF MACHINES

The US gov. protects domestic sugar producers from foreign competition with a combination of tariffs and quotas on imported sugar, along with subsidies to domestic sugar producers. As a consequence of these policies:

a. us consumers pay significantly higher prices for sugar b. us candy and confection companies have closed factories and shipped jobs overseas c. us soft drink companies substituted HFCS for sugar, leading to possible public health problems (diabetes) D. ALL OF THE ABOVE

Water is very important for life, but it has a very low market price. Diamonds are not as essential for life as water, but they have a much higher market price. How does the marginal value theory explain this seeming contradiction?

a. value is based primarily on scarcity b. value is based primarily on usefulness C. VALUE IS BASED ON USEFULNESS IN CONJUNCTION WITH SCARCITY d. no answer provided

For people who live near abundant sources of fresh water, such as the Great Lakes, the marginal value of additional units of fresh water is:

a. very high, because water is essential for life B. VERY LOW, BECAUSE THERE AREN'T MANY GOOD USES FOR ADDITIONAL WATER c. low or high depending on seasonal fluctuations d. no answer provided

Absolute advantage is based on _____ costs; comparative advantage is based on _____ costs.

input; opportunity