Econ Final Exam and Cumulative Quizzes

Which of the following is true? A) Changes in personal costs and benefits will exert a predictable influence on the choices of people. B) If the intentions behind a policy are good, you can be assured that the outcome will be desirable. C) If a good is provided free to an individual by government, its production will not consume valuable scarce resources. D) If one individual gains from an economic activity, then someone else must lose.

A) Changes in personal costs and benefits will exert a predictable influence on the choices of people.

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?

A) Her marginal value of an additional bite of food has fallen to zero.

Which of the following is often referred to as the basic postulate of economics?

A) Incentives matter—individuals respond in predictable ways to changes in personal costs and benefits.

Which of the following is true of taxes?

A) Taxes drive a wedge between what buyers pay and what sellers receive.

Which of the following best explains why legislators often find debt financing more attractive than taxation?

A) The current cost of debt financing is less visible than taxation.

Which of the following is a major implication of the invisible hand concept?

A) When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity.

Which of the following is the best example of a public good?

A) a regional flood control project

Higher standards of living are the result of

A) an increase in the availability of goods and services that people value.

High marginal tax rates will

A) cause some people to work and earn less than would be the case if marginal tax rates were lower.

In contrast with nominal values, real values refer to nominal values

A) corrected for price changes.

Economic progress comes primarily through

A) 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

A) even when each market participant cares only about their own self interest rather than the overall efficiency of resource use.

Which of the following will discourage investment?

A) high and variable rates of inflation

Competition is

A) important in both the market and government sectors.

Over the long haul, rapid increases in the supply of money lead to

A) inflation.

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

A) innovate and develop better products and lower cost production methods.

Private ownership

A) permits owners to buy, sell and derive income from their property.

Which of the following is most important for the achievement of higher income levels and living standards?

A) production of additional goods and services that people value highly relative to the cost of their production

Economic progress

A) reflects that people are achieving higher income levels and living standards.

In the last 250 years the U.S. economy has succeeded in

A) relaxing the grip of scarcity and improving the quality of life.

In a free market economy, current consumption, saving and investment decisions

A) shape the future course of the national economy.

When the money supply is expanding rapidly and the general level of prices increasing sharply, economic growth is

A) slowed by the resulting unpredictability of the future level of prices.

Which of the following contributed to the soaring housing prices during 2002-2004?

A) the Fed's low-interest rate policy

According to economic reasoning, you should offer one hour of volunteer service per week when .

A) the additional benefits of doing so are greater than the additional costs.

Real, rather than nominal, figures are important to use when making comparisons of incomes across time periods because

A) the real figures are adjusted for changes in the general level of prices.

Incentives matter

A) to all human beings regardless of environment.

Which of the following is the best measure of size of government as a share of the economy?

A) total government expenditures as a percentage of GDP

"Competition is the great regulator." This statement reflects that

A) when competition is present, businesses have a strong incentive to serve the general public and therefore there is little need for regulation of competitive markets.

Which of the following is a characteristic of "public goods"?

B) It is difficult to restrict their availability to paying customers.

Which of the following is a predictable, secondary effect of a sharp increase in gasoline prices?

B) Producers will increase the production of fuel-efficient cars.

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) a smaller trade sector B) a higher rate of investment C) higher tax rates D) greater use of taxation to transfer income from the rich to the poor

B) a higher rate of investment

The experience of the 1930s indicates that substantial tax increases during a severe recession will result in

B) a reduction in output and employment.

The Fed's low short-term interest rate policy of 2002 to 2004 encouraged decision makers to

B) borrow more and increase their purchases of housing.

A highly charitable person, such as Mother Theresa, will be influenced by

B) both changes in benefits and costs.

In order to be successful in a market economy, entrepreneurs must

B) combine resources in a manner that increases their value.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

B) even when market participants care only about their own self interests rather than about the overall efficiency of resource use.

When the purchasing power of money is stable and predictable, this

B) facilitates gains from specialization, investment, and trade.

When individuals increase their personal wealth through production and exchange, they

B) increase the wealth of others.

An increase in income tax rates will

B) make it less expensive for a successful lawyer to attend a tax deductible professional meeting in Hawaii.

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

B) mal-investment, that is, excessive investment in housing construction during 2002-2005.

The expression, "There's no such thing as a free lunch," implies that

B) opportunity costs are incurred when resources are used to produce goods and services.

The shortsightedness effect suggests that benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future.

B) politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future.

A government fulfills a protective function when it

B) prevents illegal seizure of private property.

Even-handed enforcement of contracts fuels economic prosperity because it

B) promotes gains from trade by keeping transaction costs low.

The political attractiveness of tariffs, quotas, and other trade restrictions is primarily the result of

B) the special interest nature of trade restrictions.

The secondary effects of an economic action refer to the

B) the unintended consequences of a change that are not immediately identifiable but are felt over time.

The expression "There's no such thing as a free lunch" means

B) when scarce resources are used to produce one good they are unavailable to produce others.

The price of an airline ticket from Denver to Chicago costs $450. A bus ticket costs $150. Traveling by plane takes 2 hours compared with 32 hours by bus. Other things constant, Erica would gain by choosing air travel if, and only if, she values her time at more than A) $5 per hour. B) $300 per hour. C) $10 per hour. D) $9.38 per hour.

C) $10 per hour.

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? A) $5,500 B) $3,000 C) $25,500 D) $3,500

C) $25,500

Which of the following is the best definition of money?

C) Anything that widely serves as a medium of exchange, unit of account, and store of value.

If a business firm continues to sustain losses, what usually happens in a market economy?

C) It goes out of business and the resources it was using become available for use in other areas.

Which of the following is most consistent with the basic postulate of economics: changes in incentives exert a predictable impact on human behavior?

C) People will buy less gas if the price of gas increases by $0.50 per gallon.

Inflation is

C) a persistent increase in the general level of prices.

Which of the following is most important if you want to achieve high earnings?

C) ability to provide others with things that they value highly

Economic analysis indicates that high tax rates will

C) all of the above.

Which of the following students would be most likely to drop out of college before completing their degree?

C) an outstanding baseball player in his junior year that just received a $500,000 offer from a professional team

Economic analysis assumes that

C) changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

When services are provided and financed by local rather than higher levels of government and people can move freely among governmental units,

C) competition among governmental units will help residents get more for their tax dollars.

During 2007-2008, the price of gasoline increased from approximately $1.50 to $4.00 per gallon. As a result, the

C) demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline.

Legal entitlement to scientific discoveries, inventions, innovations and intellectual property

C) encourages technological advancements.

The basic task of economics is to

C) explain the forces that underlie human decision making.

If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that

C) fewer students will attempt to cheat.

If import restrictions prohibit foreigners from selling various goods and services in the U.S. market,

C) foreigners will have fewer U.S. dollars with which to buy U.S. goods and services.

If a nation wants to get the most out of its resources, each productive assignment should be carried out by those persons who

C) have a comparative advantage in the productive activity.

Intense competition in a market will generally lead to

C) improvements in the quality of the good or service available to consumers.

In economics, secondary effects refer to the

C) indirect effects that often result from an action or policy change.

Voluntary trade promotes economic progress because

C) it moves goods, services and resources from people who value them less to individuals who value them more.

When services are provided and financed by local rather than higher levels of government and people can move freely among governmental units,

C) people will be able to vote with their feet (choose combinations of taxation and government services more consistent with their preferences) as well as with their ballots.

An increase in marginal tax rates will .

C) reduce the share of additional earnings that individuals are permitted to keep.

Inflation

C) reduces the purchasing power of the dollar.

Money is valuable because it

C) reduces transaction costs.

Competition among decentralized governmental units will

C) strengthen the incentive of governments to operate efficiently and cater to the views of citizens.

Which of the following is the primary source of high earnings in a market economy?

C) the ability to provide others with things that they value highly

According to economic reasoning, you should follow Nike's advice and "Just Do It" when

C) the additional benefits are greater than the additional costs.

Adam Smith's invisible hand principle stresses the tendency of

C) the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

"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

C) the importance of secondary effects.

When decentralized governmental units operate independently and compete with each other, governments will attract residents and expand their tax base when

C) they provide residents with desired services at an attractive tax cost.

Money is

C) whatever is generally used to pay for goods, services and resources.

While waiting in line to buy two tacos at 75 cents each and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be A) 75 cents. B) zero. C) 80 cents. D) 20 cents.

D) 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 costs $2, but if she buys 10 gallons of gasoline, the car wash is free. For Maria, the marginal cost of the tenth gallon of gasoline is A) $2.50. B) zero. C) $2.00. D) 50 cents.

D) 50 cents.

Why is voluntary exchange an important source of economic prosperity? A) It moves goods from people who value them less to people who value them more. B) It makes it possible to produce a larger output as a result of gains from division of labor and specialization. C) It makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. D) All of the above are correct.

D) All of the above are correct.

Which of the following best summarizes the importance of business failure and the central idea of "creative destruction in a market economy"?

D) Business failure allows the assets and resources from that business to move into other areas where they will be more productive.

Which of the following marketing pieces takes the concept of marginalism into account?

D) Contribute $50 annually to the Heifer Foundation and give a chicken to a family living in poverty. This gift will help generate an additional $100 in household income through the sale of the eggs produced.

Which of the following statements reflect sound economic reasoning?

D) 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 are scarce? A) information B) time for recreation C) clean air D) all of the above

D) all of the above

Individuals economize and respond predictably to

D) both positive and negative incentives.

Competition is present when

D) freedom of entry and rival firms are present in a market.

Monetary and price instability will

D) generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment.

As output and employment contracted during the early 1930s, policy makers

D) increased both tariffs and tax rates.

When the inflation rate is high and volatile,

D) investment is more risky and gains from trade are reduced.

The economizing problem is essentially one of deciding how to make the best use of

D) limited resources to satisfy virtually unlimited wants.

Which of the following would reduce a country's Economic Freedom of the World rating?

D) monetary instability and trade restrictions

If you want to earn a high income you should figure out what others value because

D) others will be willing to pay attractive prices for things they value.

When policy makers are constantly shifting back and forth between expansionary and restrictive monetary policy, this is most likely to

D) promote instability because the time lags of monetary policy are long and unpredictable.

If the Fed is going to create an environment for economic progress, it should focus on

D) the achievement of price stability.

If money was not used as a medium of exchange,

D) the gains from trade would be severely limited.

Adam Smith believed that if people were free to pursue their own interests,

D) the public interest would be served quite well.

If we are going to get the most value from our resources, entrepreneurs should choose the investment alternatives that

D) yield a profitable rate of return.