Economics Exam 1

Kevin plans to go to college after he graduates from high school. The tuition is $8,000 a year, and room, board, and books cost $7,000 a year. If Kevin takes a full-time job instead of going to college, he would earn $30,000 a year. What is the opportunity cost if Kevin decides to attend college?

$45,000

Suppose the following two events occurred in the market for personal computers. First, new technology lowered the cost of production. Second, more user-friendly software and hardware became available to consumers.What impact would these two events have on the equilibrium price and quantity of personal computers?

Equilibrium price may increase or decrease while equilibrium quantity would increase.

What would be a secondary effect of increasing the tariff rate imposed on foreign-made automobiles?

Fewer exports of U.S.-made goods and services

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.

Countries are able to consume more goods than they produce if they I. trade on the basis of comparative advantage. II. exploit poorer nations. III. are self-sufficient in producing all goods and services.

I only

Scarcity would not exist if I. resources were unlimited. II. wants were unlimited. III. conservation of resources replaced consumption of resources.

I only

Which of the following increase(s) transaction costs? I. rivers and mountains II. middlemen such as real-estate agents and stockbrokers III. speculators trading international currencies

I only

Which of the following will be the result(s) of freer international trade? I. Low-income workers will be exploited. II. Rich countries will become richer, and poor countries will become poorer. III. Countries will be able to produce and consume more goods and services.

III only

Which of the following does the law of demand specifically imply?

If the product price increases, quantity demanded will decrease.

Which of the following is a key element of the economic way of thinking?

Incentives influence behavior in a predictable manner.

Why do individuals have a strong incentive to develop skills that enhance their productivity?

Increased productivity will generally lead to higher earnings.

How will a reduction in the price of cotton influence the market for blue jeans?

The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right.

Which of the following criteria does a business use to decide whether to hire an additional employee?

The extra revenue produced by the additional employee compared to the employee's wage

Which of the following best explains why soda vending machines allow customers to buy only one can at a time while newspaper vending machines provide access to all the papers in the machine?

The marginal benefit of the second newspaper to most consumers is zero.

All but one of the following are elements of the economic way of thinking. Which one is not part of it?

The value of goods can be determined objectively.

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?

They benefit as long as the additional revenue derived from the standby passengers exceeds the marginal cost.

Which of the following is true?

Voters are likely to support candidates who will provide them with the most personal benefits.

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

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

Which of the following would lead to an increase in the demand for rental apartments in your area?

a sharp increase in the number of out-of-town students attending the local college

The imposition of a price ceiling below the market equilibrium price of a good will generally lead to

a shortage of the good in the market.

The value of the best alternative given up when a decision is made is called

an opportunity cost.

The list of Forbes Wealthiest Four Hundred is generally comprised of people who made a lot of money

because they helped a lot of people.

After the September 11, 2001 terrorist attacks on New York City destroyed resources, inventories, and disrupted supply chains, city residents continued to produce and consume a large variety of goods and services. This was because of

changes in market prices, profits, and wages.

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.

When the government levies taxes to subsidize the producers of corn-based sugar, the subsidies will

exert little impact on net employment because expansion of employment in corn production will be partially offset by less employment in other sectors as the result of the taxes.

From the consumers standpoint, the price of a good

helps consumers decide among scarce goods and allocate resources toward the things they value most.

Countries are likely to reduce the ability of their citizens to achieve prosperity when they

interfere with voluntary exchange either domestically or internationally.

Production should be for people, not for profit. This statement

is incorrect, because it fails to recognize that firms must increase the value of resources in order to earn a profit.

When an emerging industry renders an existing industry obsolete because of advances in technology

it enhances economic progress through increased productivity and expansion in goods and services that are valued more highly relative to cost.

Scarcity implies that when a resource is used to produce a good

less of that resource will be available to produce other goods.

Economic progress comes about mainly through

market prices that direct resource suppliers and producers toward production of goods that are highly valued relative to cost.

Regulations, subsidies, and tax breaks that favor specific industries, regions, or groups

often have unintended consequences that affect taxpayers and consumers as a whole.

When rent controls fix the price of rental housing below the market equilibrium, imbalances will result because

quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.

If the construction of a bridge project creates benefits of $20 billion while the cost is $15 billion to construct, this indicates the project

should be built.

In voluntary exchange, if the seller of a product gains,

the buyer will also gain; mutual gain provides the foundation for exchange.

Adam Smith's invisible hand principle stresses the tendency of

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

When the government finances a job creation project through taxes or borrowing,

the reduction in private sector employment will partially, if not entirely, offset the jobs created by government.

When politicians push for free healthcare, what they are actually advocating is

the use of tax revenues to cover the actual costs of the free healthcare.

The price of a good will tend to rise when

there is excess demand for the good.

When a minimum wage law forces employers to pay wages above the market equilibrium for unskilled workers, then

unemployment among unskilled workers will rise.