Economics Exam 1 chapter 1

In the study of economics, the goals of efficiency and equity are often:

in conflict with one another

Marginal thinking requires consideration of

just those costs and benefits that change as a result of the decision under review.

Specialization leads to gains for

Both the buyer and seller Involved In a transaction

Which of these is NOT an example of market failure?

Competition leads firms to provide products at the lowest possible price.

What should be included in determining the opportunity cost of an action?

Considering the value of the next best alternative. In assessing this value, the costs and benefits of the option should include all the benefits and costs of the action not selected, both financial and nonfinancial.

A country that is normally strong in human capital has a weak educational system.

False

What is true about markets?

Free markets sometimes fail to produce best results for society, but such failure can be reduced by government intervention.

Which of the following statements is true?

Human creativity allows for existing products to improve.

Which situation(s) may require government intervention? I. A local business has made a profit in each of the last ten years. II. Students are having difficulty deciding whether to go the beach or to go hiking for their class trip. III. A manufacturing firm on a river is dumping production run off into the water.

III

List four key principles of economics.

Limited resources, Opportunity costs, Specialization, Incentives

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a:

Model

Which statement is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

A tradeoff analysis entails assessing the costs and benefits of different alternatives.

True

Describe characteristics of wealthy countries that lead to new ideas.

Wealthy countries tend to have strong educational systems and provide incentives for its citizens to work hard. These qualities along with a government free of corruption, a strong legal system, and a strong monetary system enable its citizens to create new or improved products and to benefit from inventions, now and in the future.

The term marginal means

additional, extra, and doing a little more or a little less

Paying a salesperson more for increased sales is an example of:

an incentive.

Supply and demand analysis is used:

both microeconomics and macroeconomics.

Rational behavior requires thinking at the margin. Which example represents this type of thinking?

deciding whether a second burger is worth the extra $2, deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery, deciding whether the overtime pay is worth working on your day off

when goods are produced at the lowest possible cost, an economy is said to have achieved

economic efficiency

What is a key idea in economic thinking?

incentives matter

The economics of uranium mining would be studied in

microeconomics

People use ______ to determine how many hours to work, and businesses use _____ to determine how much of their marginal product they are willing to supply to the market.

marginal analysis, marginal analysis

When the government choses to use resources to build tourist centers, the selected resources are no longer available to build highways. This BEST illustrates the concept of

opportunity cost

Economics is BEST defined as the study of how:

people make rational decisions.

When a customer chooses to accept an item of value from a business because it requires no incremental spending on the part of the customer, the customer is demonstrating the principle that:

rational people think at the margin.

what is true about incentives?

rules can be established to prevent people from acting on certain incentives

We face tradeoffs in nearly every choice we make because of

scarcity

_____ is faced y all individuals and societies

scarcity

The opportunity costs of attending college do NOT include:

the expenditures for food.

opportunity cost

the most desirable alternative given up as the result of a decision

Economics is defined as

the study of how individuals decide to use their scarce resources in an attempt to satisfy their unlimited wants

Macroeconomics is concerned with issues such as

unemployment