Econ Exam 1
If a household has $40,000 in taxable income and its tax liability is $20,000, the household's average tax rate is
50 percent
Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises?
The opportunity cost of producing hay increases.
Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this?
They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.
What are the three basic questions faced by every economy?
What, how, and for whom will goods be prod
Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?
When Mia cleaned her apartment, she didn't clean under the refrigerator.
A decrease in supply will cause
a decrease in quantity demanded.
A substantial revision of the income tax code that made business and personal tax returns much easier to complete would tend to cause which of the following changes in the labor market for accountants?
a decrease in the wage rate of accountants
A legal system that provides secure private property rights and unbiased enforcement of contracts
enhances the efficiency of markets.
A nation that protects its workers from unemployment by limiting the use (by employers) of technological improvements will
grow less rapidly because technological change is an important factor contributing to the growth of output.
The fallacy of composition is the incorrect view that
if something is true for an individual, then it must also be true for the group.
A tax on the buyers of coffee will
increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
When private ownership rights are well-defined and enforced, owners of physical assets and resources
incur the opportunity cost of ignoring the wishes of others.
The creation of a new product or process, often facilitated by the knowledge of engineering and scientific relationships, is known as
invention
The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie
is variable, not fixed, across time periods.
If it is impossible or very costly to exclude nonpaying customers from receiving a good, the good is considered to be
nonexcludable.
A demand curve for flowers would show the
number of flowers that will be purchased at various prices.
The difference between positive economic statements and normative economic statements is that
positive statements are based on fact while normative statements are based on opinion
Government provision of goods and services that cannot easily be provided through markets because it is difficult to establish a one-to-one link between payment and consumption of the good is referred to as the
productive function of government.
In a competitive market, if the production process involves an external benefit, the market will
result in a market price that is lower than the efficient one.
The basic ingredients in any economic decision are
scarcity and choice
According to the law of supply, as the price of a good increases,
sellers will produce more of the good.
If an economic action generates more costs than benefits, the action
should not be undertaken from an efficiency standpoint.
When economists say the supply of a product has increased, they mean the
supply curve has shifted to the right.
Which of the following groups would most likely benefit from a law that is extremely tough on those who drink and drive? a. truck drivers b. taxi drivers c. bartenders d. doctors and nurses
taxi drivers
When market failure is present,
the conditions implied by idealized efficient allocation of resources will be absent, but it does not follow that political action will improve the situation.
If coffee and cream are complements, an increase in the price of coffee will cause
the demand for cream to fall.
If a good is scarce,
the good will have a price in a market setting.
A rational decision maker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost of the action.
"Government failure" is present when
the structure of incentives encourages political decision-makers to undertake actions that conflict with the efficient allocation of resources.
In economics the term utility refers to
the subjective benefit or satisfaction a person expects to receive from a choice or course of action.
A subsidy on a product will generate more actual benefit for producers (and less for consumers) when
the supply of the product is relatively inelastic.
The expression "There's no such thing as a free lunch" means
the use of resources to produce a good has an opportunity cost because of scarcity
Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that
Florida has a comparative advantage in producing oranges.
Which of the following about minimum wage is true? a. Most minimum wage workers are employed more than 40 hours per week. b. Economic analysis indicates an increase in the minimum wage would increase the training opportunities available to inexperienced workers. c. Most minimum wage workers are heads of families with incomes below the poverty level. d. Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.
d
Which of the following examples illustrates a progressive income tax? a. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. b. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes. c. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes. d. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.
d
Which of the following most accurately states the economic significance of exchange? a. Exchange reduces value since it consumes resources without adding to the physical supply of goods. b. Physical goods have value because they exist; exchange can neither increase nor decrease their value. c. Production of physical goods creates value; exchange merely redistributes this value. d. Exchange creates value by moving goods from parties who value them less to parties who value them more.
d
An increase in the price of a good would
decrease the quantity demanded for the good.
If government taxes a firm which pollutes this will
decrease the supply of the good produced.
The term ceteris paribus means that
all variables except those specified are constant.
Which of the following is a positive economic statement? a. reducing unemployment should be the highest priority of the federal government. b. a reduction in the payroll tax will reduce the unemployment rate. c. corporations should be prohibited from laying off workers during a recession.
b
According to the invisible hand principle, competitive markets generally
bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent.