Econ Final Exam
Susan is trying to decide whether to quit her $20,000 per year job so she can return to college next year as a full time student. If she goes to college next year, her books and supplies will cost $500, tuition will cost $3,000, and her other expenses (transportation, housing, and food) will increase by $2,000. What is Susan's opportunity cost of attending college next year?
$25,500
While waiting in line to buy two tacos at 75 cents each and a medium drink for 80 cents, Jordan notices the restaurant has a value meal containing 3 tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the 3rd taco would be
20 cents
Maria wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $2.50 per gallon, the car wash is $2, but if she buys 10 gallons of gasoline, the car wash is free. For Maria, the marginal cost of the 10th gallon of gasoline is
50 cents
Which of the following is the best definition of money?
Anything that widely serves as a medium of exchange, unit of account, and store of value.
Why do supermarkets stock thousands of items that people enjoy?
Competition, self-interest, and market prices influence the supermarkets' decisions on which items to stock.
Tesla Motors is an electric car company that has tried to open its own dealerships around the U.S. These dealerships are usually opposed by local independent dealerships selling cars from other companies, and these local independent dealerships pressure legislatures and courts to prohibit Tesla from opening new dealerships. Which of the following is correct?
Consumers who would like to buy directly from Tesla are made worse off by such regulations.
A local restaurant offers an "all you can eat" Sunday brunch for $12. Jenica eats two servings but leaves half of a third helping uneaten. Why
Her marginal value of an additional bite of food has fallen to zero
Which of the following would reduce a country's Economic Freedom of the World rating?
High tariffs and trade restrictions
Which of the following economies are most free?
Hong Kong and Singapore
Which of the following statements reflect sound economic reasoning?
If it is more economical to acquire a good through trade than by self-production, it makes sense to trade for it.
Which of the following is often referred to as the basic postulate of economics?
Incentives matter; individuals respond in predictable ways to change in personal costs and benefits
Which of the following is true of public goods?
It is difficult to establish a one-to-one link between payment and receipt of such goods.
Suppose the government spends $10 billion subsidizing firms producing electricity with wind turbines because these firms are high cost producers. Will the subsidies lead to economic growth and higher income levels?
No, the turbines are an ineffcient form of producing electricity and therefore the subsidies will increase the opportunity cost of supplying it.
Which of the following is most consistent with the basic postulate of economics: changes in incentives exert a predictable impact on human behavior?
People will buy less gas if the price of gas increases by $0.50 per gallon
Which of the following is true?
Profits attract businesses to productive projects, while losses discourage them from undertaking unproductive activities.
If a government is going to promote economic progress, which of the following is most important?
Protection of people and their property from aggressors and the provision of a few goods that are difficult to supply through markets.
Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
Colorado experiences a record snowfall during the winter season. What impact will this have on the market for snowmobiles?
The demand curve for snowmobiles will increase and the price of snowmobiles will rise
Which of the following statements is correct?
The human desire for goods and services is virtually unlimited while the resources required for their production is limited
Which of the following explains why elected representatives will find borrowing to be an attractive method of financing current government programs?
The shortsightedness effect.
How do high tariffs and other restraints on international trade affect a nation's prosperity?
They prevent the nation from fully realizing the potential gains from specialization, exchange, and competition.
If higher tariffs and more restrictive quotas reduced the imports of the United States,
U.S. exports would decline because foreigners would be earning fewer of the dollars needed to purchase goods and services from Americans.
Which is the best explanation why the output per acre of small private plots in the former Soviet Union was about sixteen times the output of state-owned farms?
When individuals were allowed to keep or sell the goods from private plots, there was greater incentive to manage them productively.
The expression "The no such thing as a free lunch" means
When scarce resources are used to produce one good they are unavailable to produce others
"Trade restrictions such as tariffs and quotas are like a blockade that a nation imposes on its own people." Is this statement true?
Yes, both the trade restrictions and a blockade will reduce the gains from specialization and trade.
Does voluntary exchange create wealth?
Yes, exchange makes it possible for the trading partners to gain more value from the existing supply of goods and it also makes larger output levels possible.
Which of the following is a public good?
a flood-control dam
Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?
a higher rate of investment
If a nation is going to achieve its full potential, it must have
a mechanism to attract savings and channel them into productive investment projects.
`The experience of the 1930s indicates that substantial tax increases during a severe recession will result in
a reduction in output and employment.
The Smoot-Hawley trade bill of 1930, designed to save jobs and increase revenue for the federal government, resulted in
a sharp reduction in trade and a decline in federal revenues from tariffs.
Economic growth benefits people because
all of these are correct
Which of the following is a means by which a business could obtain a monopoly?
all of these are correct
Suppose you are enjoying a conversation with a friend in your car, when a vehicle pulls up next to you with the audio system turned up to maximum, drowning out your conversation. Although the driver appears to be enjoying himself, this could be an example of
an externality.
The equilibrium price of a good or service is the price
at which the quantity supplied by producers is equal to the quantity demanded by consumers
Joe trades an apple to Winston for two oranges. Because the exchange is voluntary, we can conclude that
both joe and winston are better off
Individuals economize and respond predictably to
both positive and negative incentives
when an American hires a Mexican worker to perform a job, we know that
both the American and the Mexican are better off than they would be if they had not made this voluntary exchange
How did people like Mark Zuckerberg of Facebook and the late Steve Jobs of Apple become so rich
by providing highly valued goods and services to consumers at attractive prices
Economics analysis assumes that
changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior
In order to be successful in a market economy, entrepreneurs must
combine resources in a manner that increases their value
when two countries produce those goods for which each has the lowest opportunity cost, and then trade for those each could produce only at a high cost, they are trading according to their
comparative advantage
In contrast with nominal values, real values refer to nominal values
corrected for price changes.
In a market economy, persons undertaking an investment project must
either personally supply the required funds or convince other investors to do so.
Secure property rights promote economic progress because they
encourage individuals to produce efficiently and undertake productive activities.
Legal entitlement to scientific discoveries, inventions, innovations and intellectual property
encourages technological advancements.
Economic progress comes primarily through
entrepreneurial action directed by competitive markets.
The invisible hand principle indicates that when individuals are directed by prices determined in competitive markets, their actions will tend to promote the efficient use of resources
even when each market participant cares only about their own self interest rather than the overall efficiency of resource use.
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources
even when each market participant cares only about their own self-interest rather than about the overall efficiency of resource use.
Which of the following most accurately states the economic significance of voluntary exchange.
exchange creates value because it makes it possible for the trading partners to expand total output as the result of specialization and division of labor
The basic task of economics is to
explain the forces that underlie human decision making
If a nation wants to get the most out of its resources, each productive assignment should be carried out by those persons who
have a comparative advantage in the productive activity.
If a nation is going to achieve and sustain a high rate of economic growth, it must
have a mechanism capable of attracting savings and channeling them into wealth-creating projects.
Which of the following will discourage investment?
high and variable rates of inflation
When the government finances a shovel-ready project through taxes or borrowing, this will result in
higher taxes or interest rates, which will reduce private sector employment
Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans. This argument is
incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities.
When individuals increase their personal wealth through production and exchange, they
increase the wealth of others.
The demand curve for a good
indicates the quantities of the good that people are willing to purchase at various prices
In economics, secondary effects refer to the
indirect effects that often result from an action or policy change.
When competition is present and private ownership rights are clearly defined and securely enforced by the legal system, business firms will have a strong incentive to
innovate and develop better products and lower cost production methods.
Which of the following is most important if a country is going to achieve and sustain rapid economic growth?
institutions and policies that are supportive of private property rights, competition, and freedom of exchange
The lack of a profit motive in the political process means that
it is difficult for the government to reliably direct resources toward productive activities.
Voluntary trade promotes economic progress because
it moves goods, services and resources from people who value them less to individuals who value them more.
The economizing problem is essentially one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants
When external costs are present in a market,
more of the good will be produced than the amount consistent with economic efficiency.
An individual voter will likely be concerned with
only a few special issues (those that exert the most impact on the voter's personal welfare).
The expression, "There's no such thing as a free lunch", implies that
opportunity costs are incurred when resources are used to produce goods and services
Politicians will often be able to gain from support of trade restrictions because
organized interest groups benefiting from the restrictions will make large contributions to political campaigns while most others will not feel strongly about the restrictions.
Private ownership
permits owners to buy, sell and derive income from their property.
Since the wide spread acceptance of the Keynesian view during the 1960s,
perpetual budget deficits have been the norm.
If a business is realizing economic losses in a competitive market, it is
producing goods and services that are valued less than the resources required to produce them.
Which of the following is most important for the achievement of higher income levels and living standards?
production of additional goods and services that people value highly relative to the cost of their production
In order to achieve a high economic freedom rating, a country must
protect property rights, enforce contracts even-handedly, and rely extensively on markets to allocate goods and services.
Voters are often uninformed when they cast their ballots because they
recognize that their vote is unlikely to influence the outcome of the election.
An increase in marginal tax rates will
reduce the share of additional earnings that individuals are permitted to keep.
Trade restrictions like tariffs and quotas will
reduce the value of goods and services that we will be able to produce and consume.
The basic principles of economics are
reflective of common sense
If an economic action generates more costs than benefits, this indicates that the action
should not be undertaken from an efficiency standpoint.
If the government levies $20 billion in taxes to finance additional spending on military weapons, the net impact on total employment will be
small because the higher taxes will reduce spending in the private sector, which will tend to offset any jobs created by the government spending.
According to economic reasoning, you should follow Nike's advice and "Just Do It" when
the addition benefits are greater than the additional costs
The income and living standards of a nation will increase when
the availability of goods and services that people value increases
Government spending programs that create jobs are often popular because
the created jobs are highly visible, while the secondary effects of lost jobs in other other areas, higher interest rates, and higher future taxes are less visible
If money was not used as a medium of exchange
the gains from trade would be severely limited.
Mediocre economists often consider only the immediate direct effects of a change, whereas a good economist will also consider indirect effects that may only become observable over time. This statement most clearly emphasizes
the importance of secondary effects.
Government failure is present when
the incentives confronted by political participants encourage counterproductive use of resources.
The law of comparative advantage indicates that if a group of individuals wants to maximize their joint output, then each good should be supplied by
the low opportunity cost producer
which of the following coordinates the choices of buyers and sellers, bringing quantity demanded and quantity supplied into balance
the market price
Adam Smith believed that if people were free to pursue their own interests,
the public interest would be served quite well.
When the price of a good increases,
the quantity demanded will decrease
Public choice analysis indicates that
the shortsighted nature of the political process makes borrowing attractive to politicians.
Under a democratic representative government, legislators will have a strong incentive to support the positions of well-organized special-interest groups because
the special-interest voters will feel strongly about an issue, while others are likely to be uninformed.
The secondary effects of an economic action refer to the
the unintended consequences of a change that are not immediately identifiable but are felt over time.
If the ownership of a resource is secure
the value of the resource will be high and the resource will be used efficiently.
Economic analysis indicates that
there is both government failure and market failure.
When political officials have substantial discretionary power to override the rule of law,
this creates uncertainty and makes business activity less attractive.
Incentives matter
to all human beings regardless of environment
When an investment project generates output that is valued more highly than the value of the resources required for its production,
undertaking the project will create wealth.
When resources are allocated by markets, profits and losses provide information about
which resources are being used productively and which resources should be allocated to other uses.
Losses and business failures
will help redirect resources away from unproductive projects
If we are going to get the most value from our resources, entrepreneurs should choose the investment alternatives that
yield a profitable rate of return
