Econ Chapter 1+2

Table 2-4 Mobile Phones-Pizzas 0. 10,000 200 8,000 500. 6,000 900. 4,000 1400. 2,000 2000. 0 Refer to Table 2-4. Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of mobile phones from 200 to 500?

The opportunity cost is that there will be 2,000 less pizzas being produced.

A rational decisionmaker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

When a relevant variable that is not named on either axis changes,

the curve will shift.

(T or F) Trade with any nation can be mutually beneficial.

True

(T or F) When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other depends on how much of each good is being produced.

True

(T or F) When a production possibilities frontier is bowed outward, the opportunity cost of the second good in terms of the first good increases as more of the second good is produced.

True

(T or F) When economists are trying to explain the world, they are scientists, and when they are trying to help improve the world, they are policy advisers.

True

Economists study how people make decisions.

True

Production Possibilities Tennis Racket/ TennisBalls 100. 8,000 200. 6,500 300. ? If the production possibilities frontier is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced?

4500

Who would be more likely to study the effects of government spending on the unemployment rate, a macroeconomist or a microeconomist?

A macroeconomist because macroeconomics deals with the larger scale issues.

Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step?

Collect and analyze data

In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services? Goods and services Wages, rent, and profit Dollars spent on goods and services Dollars paid to land, labor, and capita

Dollars spent on goods and services

(T or F) "Other things equal, an increase in supply causes a decrease in price" is a normative statement, not a positive statement.

False

(T or F) A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

False

(T or F) Government policies that improve equality usually increase efficiency at the same time.

False

(T or F) If a line passes through the points (20,5) and (10,10), then the slope of the line is 1/2.

False

(T or F) Normative statements describe how the world is, while positive statements prescribe how the world should be.

False

(T or F) The duties of the Council of Economic Advisers are to advise the president of the United States and to determine U.S. monetary policy.

False

(T or F) There is only one explanation for why economists give conflicting advice on policy issues, and it is that they have different values about what policy should try to accomplish.

False

(T or F) With careful planning, we can usually get something that we like without having to give up something else that we like.

False

Which of the following is an important cause of inflation in an economy?

Growth in the quantity of money in the economy

Which of the following is the most correct statement about the relationship between inflation and unemployment? In the long run, falling inflation is associated with falling unemployment. In the short run, falling inflation is associated with rising unemployment. In the short run, falling inflation is associated with falling unemployment. In the long run, falling inflation is associated with rising unemployment.

In the short run, falling inflation is associated with rising unemployment.

In the circular-flow diagram, which of the following is not a factor of production?

Money

(T or F) One of the effects of gas prices rising from about $2 to about $4 per gallon was airlines ordering new, fuel-efficient aircraft.

T

When a relevant variable that is not named on either axis changes,the curve will shift.

T

Which of the following statements exemplifies a principle of individual decision making?

The cost of something is what you give up to get it.

Which of the following statements exemplifies a principle of individual decision making? Prices rise when the government prints too much money. The cost of something is what you give up to get it. Governments can sometimes improve market outcomes. Trade can make everyone better off.

The cost of something is what you give up to get it.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct? The company should never build the 25th house because this increases its total cost. If the company can sell the 25th house for at least $202,000, then it should build it. The marginal cost of the 25th house, if it is built, will equal $250,000. For the first 24 houses, the average cost per house was $205,000. The marginal cost of the 25th house, if it is built, will equal $250,000.

The marginal cost of the 25th house, if it is built, will equal $250,000.

Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics? Governments can sometimes improve market outcomes. Markets are usually a good way to organize economic activity. Trade can make everyone better off. Prices rise when the government prints too much money.

Trade can make everyone better off.

(T or F) A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.

True

(T or F) According to John Maynard Keynes, an economist must possess a rare combination of skills including being a mathematician, historian, statesman, and philosopher.

True

(T or F) An outcome is said to be efficient if an economy is getting all it can from the scarce resources it has available.

True

(T or F) Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires.

True

(T or F) Economists may disagree about the validity of alternative positive theories about how the world works.

True

(T or F) Examples of graphs of a single variable include pie charts, bar graphs, and time-series graphs.

True

(T or F) For economists, conducting experiments is often difficult and sometimes impossible.

True

(T or F) Good assumptions simplify a problem without substantially affecting the answer.

True

(T or F) Historical episodes allow economists to illustrate and evaluate current economic theories.

True

(T or F) If new government regulations designed to protect wetlands remove very productive farmland from production, then the production possibilities frontier will shift inward.

True

(T or F) Market power and externalities are two possible causes of market failure.

True

(T or F) Points outside the production possibilities frontier represent infeasible levels of production.

True

(T or F) Production possibilities frontiers can be used to illustrate scarcity, trade-offs, opportunity cost, efficiency, unemployment, technological advances, and economic growth.

True

(T or F) The scientific method is the dispassionate development and testing of theories about how the world works.

True

Communist countries worked under the premise that

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

Positive statements are

claims about how the world is.

The property of society getting the most it can from its scarce resources is called

efficiency.

Economists make assumptions to

focus their thinking on the essence of the problem at hand.

To improve living standards, policymakers should

formulate policies designed to increase productivity.

Central planning refers to

government guiding economic activity. Today many countries that had this system have abandoned it.

If an externality is present in a market, economic efficiency may be enhanced by

government intervention.

Emily and Betsey are economists. Emily thinks that the wealthiest 10 percent of the U.S. population should be taxed a rate higher than the rest of society because they can better afford it. Betsey thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Emily and Betsey

have different normative views about tax policy.

Prices direct economic activity in a market economy by

influencing the actions of buyers and sellers.

Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of attending college

only if the amount she would 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 Chloe's incentive to attend college.

The point where both x and y are zero is known as the

origin

The ability of an individual to own and exercise control over scarce resources is called

property rights.

Efficiency

refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.

The overriding reason why households and societies face many decisions is that

resources are scarce.

In the simple-circular flow diagram, the flow of money from the firms to the markets for factors of production is called

wages, rent, and profit.