ECON exam 1 questions (Ch. 1,2,3)

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfi A. This statement is based on the misconception that following your​ self-interest and being selfish are the same thing. B. This statement correctly identifies how​ Smith's analysis ignored charitable acts of giving and benevolence. C. This statement is based on the misconception that​ Smith's analysis applies to firms and households. D. This statement is based on the misconception that​ Smith's analysis applies to every aspect of life. E. This statement is based on the misconception that​ Smith's analysis provides no role for government guidance.

A. This statement is based on the misconception that following your​ self-interest and being selfish are the same thing.

According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity? A. prices B. costs C. financial markets D. government regulations

A. prices

What is a free​ market? A. A free market is one where the government does not control the production of goods and services. B. A free market is one with perfect equality. C. A free market is one where the government restricts how a good or service can be produced. D. A free market is one where the government restricts how a factor of production can be employed. E. A free market is one without property rights.

A. A free market is one where the government does not control the production of goods and services.

Which of the following is a correct statement about a mixed​ economy? A. In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources. B. In a mixed​ economy, the government makes all economic decisions. C. In a mixed​ economy, most economic decisions are made by the government but markets plays a significant role in the allocation of resources. D. In a mixed​ economy, all economic decisions are made in markets.

A. In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

The law of demand is the assertion that A. the quantity demanded of a product is inversely related to its price. B. the quantity demanded of a product is directly related to its price. C. changes in price and changes in quantity demanded move in the same direction. D. the demand for a product is negatively related to its price.

A. the quantity demanded of a product is inversely related to its price.

Suppose the economy whose PPF is shown on the right experiences economic growth. Which of the following may have caused the shift you have​ drawn? ​(Check all that​ apply.) A. A larger labor force. B. Balanced production between ships and food. C. Advances in technology. D. The achievement of full employment. E. An increase in the capital stock.

A. A larger labor force. C. Advances in technology. E. An increase in the capital stock.

Why are models based on​ assumptions? A. Because models have to be simplified to be useful. B. Because models are not intended to analyze​ real-world events. C. Because models are only concerned about questions of​ equity, not question of efficiency. D. Because models are very different from theories.

A. Because models have to be simplified to be useful.

Which​ point(s) are​ unattainable? Briefly explain why. A. Point A because it is outside the production possibilities frontier. B. All the points because the production of each has an opportunity cost. C. Points B​, C​, and D because they are on the production possibilities frontier. D. Point E because it is inside the production possibilities frontier. E. None of the points because they all are feasible.

A. Point A because it is outside the production possibilities frontier.

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Part 2 Is it likely that the production possibilities frontier in this situation would be a straight​ line or bowed​ out A. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods. B. The production possibilities frontier would likely be bowed out because resources are likely equally well suited to produce both consumption and capital goods. C. The production possibilities frontier would likely be a straight line because resources are likely equally well suited to produce both consumption and capital goods. D. The production possibilities frontier would likely be a straight line because not all resources are equally well suited to produce both consumption and capital goods.

A. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.

In economic​ terminology, the inputs used to make goods and services are referred to as A. factors of production. B. intangibles. C. durables and nondurables. D. real output.

A. factors of production.

Economists assume that people are rational in the sense that A. they use all available information as they take actions intended to achieve their goals. B. they do not respond to economic incentives. C. they make decisions based on​ total, rather than​ marginal, variables. D. they generally make the correct choices.

A. they use all available information as they take actions intended to achieve their goals.

How can a country gain from specialization and​ trade? A. A country can specialize by using all available resources to produce goods and services to avoid trading with other countries. B. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services. C. A country can specialize in producing that for which it has an absolute advantage and then trade for other needed goods and services. D. A country can specialize by using all available resources to invest in capital goods to promote economic growth. E. A country can specialize in producing that which is most scarce and then trade for other needed goods and services.

B. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

Which of the following statements is​ true? A. Protecting property rights has no impact on a​ country's standard of living. B. By protecting private property​ rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers. C. Only rich countries have recognized governments that would even be capable of securing property rights. D. It is easy for a country to become rich even without having secure property rights.

B. By protecting private property​ rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.

What is an​ entrepreneur? A. Entrepreneurs regulate profits. B. Entrepreneurs operate businesses that produce goods and services. C. Entrepreneurs manage the free market. D. Entrepreneurs are policymakers in the government. E. Entrepreneurs manage households that consume goods and services.

B. Entrepreneurs operate businesses that produce goods and services.

According to an article in the Economist​ magazine: ​"In all rich​ countries, property rights are secure...Legally recognising land ownership has boosted​ farmers' income and productivity in Latin America and Asia...More than​ two-thirds of​ Africa's land is still under customary​ tenure, with rights to land rooted in communities and typically neither written down nor legally​ recognized." ​Source: "Title to​ Come: Property Rights Are Still Wretchedly Insecure in​ Africa," Economist​, July​ 16, 2016. Which of the following statements regarding secure property rights is​ true? A. It is solely the responsibility of the individuals who own the property to ensure that their rights are protected. B. Property rights provide incentives for people to maintain and increase the value of the property they own. C. Property rights—which include only physical property​ (not intellectual rights to new products or the processes used to produce goods and ​services)—refer to the rights of firms and individuals to have exclusive use of their property. D. All of the above.

B. Property rights provide incentives for people to maintain and increase the value of the property they own.

What is absolute​ advantage? Part 2 A. The ability to use all available resources to produce output. B. The ability to produce more of a good or service than competitors using the same amount of resources. C. The ability to produce a good or service at a lower opportunity cost than other producers. D. The gain from selling a product for more than it costs to produce that product. E. The gain from consuming a product whose benefit is greater than its cost.

B. The ability to produce more of a good or service than competitors using the same amount of resources.

Why do entrepreneurs play a key role in a market​ system? A. They determine what goods and services are produced. B. They bring together factors of production. C. They supply labor as a factor of production. D. They influence income distribution through taxes and transfer payments. E. They determine who will receive goods and services.

B. They bring together factors of production.

Suppose the price of a complement to LCD televisions rises. What effect will this have on the market equilibrium for LCD​ TVs? The equilibrium price of LCD TVs will A. increase and the equilibrium quantity will increase. B. decrease and the equilibrium quantity will decrease. C. not change and the equilibrium quantity will not change. D. increase and the equilibrium quantity will decrease. E. decrease and the equilibrium quantity will increase.

B. decrease and the equilibrium quantity will decrease.

In​ economics, the term capital refers to A. the process of raising funds through the sale of stocks and bonds. B. goods used to produce other goods. C. the difference between a​ firm's assets and its liabilities. D. financial resources used by businesses to hire resources.

B. goods used to produce other goods.

What are private property​ rights? Private property rights​ are: Part 2 A. the rights individuals and firms have to the exclusive use of intellectual property but not​ tangible, physical property. B. the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property. C. the rights individuals have to the exclusive use of intellectual property and firms have to the exclusive use of​ tangible, physical property. D. the rights individuals but not firms have to the exclusive use of​ tangible, physical property and intellectual property. E. the rights individuals and firms have to the exclusive use of​ tangible, physical property but not intellectual property. Part 3

B. the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property.

In a market​ system, how does society decide what goods and services will be​ produced? A. What goods and services will be produced is determined by a vote of consumers. B. ​Consumers, firms, and the government determine what goods and services will be produced by the choices they make. C. The government decides what goods and services will be produced. D. Firms alone determine what goods and services will be produced.

B. ​Consumers, firms, and the government determine what goods and services will be produced by the choices they make. Your answer is correct.

If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights? A. action by government to prevent the exercise of certain property rights B. an independent court system C. powerful political connections D. All of the above.

B. an independent court system

Microeconomics is the study of A. how individuals make good decisions for themselves but hurt society. B. how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices. C. the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth. D. how individuals and firms act altruistically to better society.

B. how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

A production possibilities​ frontier: A. shows the market for a good or service. B. shows the maximum attainable combinations of two goods that may be produced with available resources. C. shows how participants in the market are linked. D. shows the act of buying and selling. E. shows how unlimited wants exceed the limited resources available to fulfill those wants.

B. shows the maximum attainable combinations of two goods that may be produced with available resources.

Prepping for a​ next-day exam over the course of an evening​ (and possibly into the wee hours of test​ day) poses increasing costs since A. evenings are a less productive time to study compared to daylight hours. B. the longer you choose to study will result in an increase in the number and value of foregone activities. C. studying productivity declines sharply as the effort extends through the evening. D. tutors charge higher rates after 7 p.m.

B. the longer you choose to study will result in an increase in the number and value of foregone activities.

We can show economic​ inefficiency: A. with points inside and on the production possibilities frontier. B. with points inside the production possibilities frontier. C. with points outside the production possibilities frontier. D. with points on the production possibilities frontier. E. with points on and outside the production possibilities frontier.

B. with points inside the production possibilities frontier.

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity. A. more instant B. greater C. smaller D. more proportional

C. smaller

In what ways does a free market economy differ from a centrally planned​ economy? Unlike a free market​ economy, A. centrally planned economies have no government restrictions. B. centrally planned economies have no government. C. centrally planned economies have extensive government controls. D. centrally planned economies do not use money. E. centrally planned economies do not trade internationally.

C. centrally planned economies have extensive government controls.

What do economists mean when they use the Latin expression ceteris paribus? A. Prior to an event B. The thing speaks for itself. C. All else equal. D. The whole is just the sum of the parts.

C. All else equal.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system? A. For markets to​ work, people should take into account how their decisions affect society as a whole. B. For markets to​ work, the government should help citizens make the right decisions. C. For markets to​ work, people must be free to pursue their​ self-interest. D. For markets to​ work, people and the government need to coordinate their decisions.

C. For markets to​ work, people must be free to pursue their​ self-interest.

At which point is the​ country's future growth rate likely to be the​ highest? Briefly explain why. A. Point E because it is where resources are saved for investments. B. Point D because it is where the most resources are used to produce consumption goods. C. Point B because it is where the most resources are used to produce capital goods. D. Point A because it is where the production possibilities frontier will shift with growth. E. Point C because it is an efficient point where a mix of capital and consumption goods are produced.

C. Point B because it is where the most resources are used to produce capital goods.

Which​ point(s) are​ efficient? Briefly explain why. A. Point E because it is inside the production possibilities frontier. B. Points E​, B​, C​, and D because they are attainable. C. Points B​, C​, and D because this is where maximum output is produced with available resources. D. Point A because it is where the most capital and consumption goods combined are produced. E. Point B because it is where the most resources are used to produce capital goods.

C. Points B​, C​, and D because this is where maximum output is produced with available resources.

Scarcity is central to the study of economics because it implies that A. economic agents are rational. B. wants are unlimited. C. every choice involves an opportunity cost. D. society must make decisions at the margin.

C. every choice involves an opportunity cost.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when Part 2 A. marginal benefit is greater than marginal cost. B. marginal benefit is maximized. C. marginal benefit equals marginal cost. D. marginal cost is zero.

C. marginal benefit equals marginal cost.

One of the great benefits of trade is A. that it makes it possible for society to become better off by increasing its production but not its consumption. B. that it provides society what it desires most in life even if it does not enhance the means for achieving its goals. C. that it makes it possible for society to become better off by increasing its consumption. D. that it makes it possible for society to become better off if​ individuals, firms, and countries specialize in producing goods and services for which they have an absolute advantage.

C. that it makes it possible for society to become better off by increasing its consumption.

Opportunity cost is A. when unlimited wants exceed the limited resources available to fulfill those wants. B. the idea that because of​ scarcity, producing more of one good or service means producing less of another good or service. C. the highest valued alternative that must be given up to engage in an activity. D. when consumers and firms use all available information as they act to achieve their goals.

C. the highest valued alternative that must be given up to engage in an activity.

Which​ point(s) are​ inefficient? Briefly explain why. A. Points B​, C​, D​, and A because they are unattainable. B. Points B​, C​, and D because they are on the production possibilities frontier. C. Point A because it is unattainable. D. Point E because production there is not using all available resources. (inside curve) E. Points E​, B​, C​, and D because they are attainable.

D. Point E because production there is not using all available resources. (inside curve)

What problems might African farmers have because they lack secure property​ rights? A. Without secure property​ rights, farmers are not able to obtain funds by selling some of their land. B. Without secure property​ rights, it is harder for farmers to borrow because they cannot use their land as collateral. C. Without secure property​ rights, farmers in Africa may be reluctant to make the investments in their farms that would raise the​ farms' productivity. D. All of the above.

D. All of the above.

What is comparative​ advantage? A. The gain from consuming a product whose benefit is greater than its cost. B. The ability to produce more of a good or service than competitors using the same amount of resources. C. The gain from selling a product for more than it costs to produce that product. D. The ability to produce a good or service at a lower opportunity cost than other producers. E. The ability to use all available resources to produce output.

D. The ability to produce a good or service at a lower opportunity cost than other producers.

Suppose the equilibrium price and equilibrium quantity of gold both decrease. Which of the following would produce such a​ change? A. The market supply curve for gold could have decreased or the market demand curve for gold could have decreased. B. The market supply curve for gold could have decreased or the market demand curve for gold could have increased. C. The market demand curve for gold could have increased. D. The market demand curve for gold could have decreased. E. The market supply curve for gold could have increased.

D. The market demand curve for gold could have decreased.

What does increasing marginal opportunity costs​ mean? A. Increasing the production of a good requires decreases in the production of another good. B. The economy is unable to produce increasing quantities of goods and services. C. Production is not occurring on the production possibilities frontier. D. Increasing the production of a good requires larger and larger decreases in the production of another good. E. Increasing the production of a good requires smaller and smaller decreases in the production of another good

D. Increasing the production of a good requires larger and larger decreases in the production of another good.

An unexpected frost in the orange groves of California would cause A. a decrease in the demand for orange​ juice, decreasing the equilibrium price. B. an increase in the supply of orange​ juice, decreasing the equilibrium price. C. an increase in the demand for orange​ juice, increasing the equilibrium price. D. a decrease in the supply of orange​ juice, increasing the equilibrium price.

D. a decrease in the supply of orange​ juice, increasing the equilibrium price.

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically, A. the substitution effect is the decrease in quantity demanded because the​ consumers' purchasing power is reduced and the income effect is the decrease in quantity demanded owing to the fact that the product is more expensive relative to other goods. B. the substitution effect is the decrease in quantity demanded because there are fewer consumers and the income effect is the decrease in quantity demanded because consumer incomes failed to increase. C. the substitution effect is the decrease in quantity demanded because consumer tastes have changed and the income effect is the decrease in quantity demanded because consumer incomes have fallen. D. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

D. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good A. will have a comparative advantage if it produces more efficiently. B. will not have a comparative advantage because it has fewer resources. C. will have a comparative advantage if it is able to produce that good at a low total cost. D. will have a comparative advantage if it has a lower opportunity cost of producing that good. E. will have a comparative advantage if it devotes more resources toward that​ good's production.

D. will have a comparative advantage if it has a lower opportunity cost of producing that good.

Which of the following best describes​ scarcity? A. Prices of goods are very high. B. Wants cannot be fulfilled and thus all goods must be rationed. C. Markets cannot properly allocate resources. D. Unlimited wants exceed the limited resources available.

D. Unlimited wants exceed the limited resources available.

The three economic questions that every society must answer are A. What kind of government will the society​ have, how will it be​ run, and who will run​ it? B. What economic system will be​ used, how will it be​ implemented, and who will make market​ decisions? C. What are the prices of​ goods, how are they​ determined, and who will pay for​ them? D. What goods will be​ produced, how will they be​ produced, and who will receive the​ goods?

D. What goods will be​ produced, how will they be​ produced, and who will receive the​ goods?

Economics is a social science because A. it is based on studying the actions of individuals. B. it considers human behavior—particularly ​decision-making behavior. C. it applies the scientific method to the study of the interactions among individuals. D. all of the above.

D. all of the above.

What is the outcome of enforcing contracts and property rights in a market​ system? A. an unpredictable but definite effect on economic activity B. no effect on economic activity C. decreased economic activity D. increased economic activity

D. increased economic activity

The primary difference between product markets and factor markets is that A. product markets are generally after factor markets in the distribution chain. B. product markets produce goods for final sale while the output of factor markets is included in the purchase price of the good itself—factors are not sold. C. product markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial​ ability, while factor markets are markets for goods and services. D. product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial ability.

D. product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial ability.

Macroeconomics is the study of A. why the U.S. has spent so much money on wars and government surveillance of its own citizens. B. how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices. C. the economy on a​ state-by-state basis, covering areas affected by the Commerce Clause. D. the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

D. the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

We can show economic​ efficiency: A. with points inside and on the production possibilities frontier. B. with points on and outside the production possibilities frontier. C. with points inside the production possibilities frontier. D. with points on the production possibilities frontier. E. with points outside the production possibilities frontier.

D. with points on the production possibilities frontier.

In discussing dividing up household​ chores, Emily​ Oster, an economist at the University of​ Chicago, advises​ that: ​"No, you​ shouldn't always unload the dishwasher because​ you're better at​ it." ​Source: Emily​ Oster, "The Wrong Person Is Probably Doing the Dishes in Your​ Home," Slate​, November​ 21, 2012. Even if you are better at unloading the dishwasher than your​ spouse, you​ shouldn't always be the one to unload it because A. your opportunity cost of unloading the dishwasher is nonexistent. B. your spouse will act as a​ 'free rider' if you do all the work. C. absolute advantage is what matters for specialization not comparative advantage. D. you may be even better at some other household task and must consider the opportunity cost.

D. you may be even better at some other household task and must consider the opportunity cost.

What is the basis for​ trade? A. Available resources. B. Economic growth. C. Absolute advantage. D. Efficiency. E. Comparative advantage.

E. Comparative advantage.

Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts: A. to make their decisions free of influence from people with powerful political connections. B. to make their decisions free of intimidation by criminal gangs. C. to make their decisions free of influence from other parts of the government. D. to make their decisions based on the law. E. all of the above.

E. all of the above.

What role do they play in the working of a market​ system? Private property​ rights: A. encourage a significant number of people to be willing to risk funds by investing them in business. B. encourage firms to spend money on research and development. C. are the basis for international trade. D. determine what goods and services will be produced. E. both a and b.

E. both a and b.

What are the implications of this idea for the shape of the production possibilities​ frontier? A. The production possibilities frontier will have a positive slope. B. The production possibilities frontier will be bowed inward. C. The production possibilities frontier will have a negative slope. D. The production possibilities frontier will be a straight line. E. The production possibilities frontier will be bowed outward.

E. The production possibilities frontier will be bowed outward.

The production possibilities frontier will shift outward A. if technology declines. B. if resources are not used in production. C. if production occurs outside the production possibilities frontier. D. if resources are used to produce consumption goods. E. if resources are used to produce capital goods.

E. if resources are used to produce capital goods.

___________ is concerned with what is​, and _____________ is concerned with what ought to be. Economics is about _____________, which measures the costs and benefits of different courses of action.

Positive analysis, normative analysis, positive analysis

Indicate which of the following statements represent positive analysis and which represent normative analysis a. A​ 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. b. The federal government should spend more on AIDS research. c. Rising paper prices will increase textbook prices. d. The price of coffee at Starbucks is too high.

a. positive analysis. b. normative analysis. c. positive analysis. d. normative analysis.

Consider the production possibilities frontier that shows the​ trade-off between the production of cotton and the production of soybeans depicted in the figure. Suppose that genetic modification makes soybeans resistant to​ insects, allowing yields to increase.

curve where point on x-axis is the farther down but point on y-axis is the same, no point ever goes higher on y-axis

Centrally planned economies allocate resources based on decisions by ________________, while market economies answer these questions through decisions made by _________________

government, households and firms

The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ________________ issue. ​ However, to understand how much new machinery and equipment firms decide to​ purchase, one must analyze the incentives individual firms​ face, which is a _______________ issue.

macroeconomic, microeconomic

Indicate whether each of the following is primarily a microeconomic issue or a macroeconomic issue. a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a _____________ issue. b. The effect of higher income taxes on the total amount of consumer spending. This is a _________ issue. c. The reasons for the economies of East Asian countries growing faster than the economies of​ sub-Saharan African countries. This is a _________ issue. d. The reasons for low rates of profit in the airline industry. This is a ________ issue.

microeconomic, macroeconomic, macroeconomic, microeconomic