Final Exam Studies

Consider a market in which maximum possible Total Social Surplus is equal to $850,000 (which is realized if 32,500 units are traded). If instead 28,000 units are traded, then realized Total Social Surplus is equal to $700,000. It follows that if 28,000 units are traded, then Deadweight Loss is equal to _____. (chapter 5, p. 131, #6) a. $150,000 b. -$150,000 c. $775,000 d. $1,550,000

a. $150,000

What is the area of the total revenue generated by the tax? (Chapter 11) a. BEKM b. AGFC c. ILFJ d. EKG

a. BEKM

Choose the answer option that best explains the following apparent paradox regarding price gouging: "The only way to guarantee low prices is to allow sellers to charge high prices." (Price gouging lecture; EconTalk podcast episode) a. If sellers are not allowed to charge high prices, there won't be the necessary market signals that would entice new sellers to enter the market and provide new supply while allocating existing supply to buyers who value it the most. Therefore, for sellers to receive the correct signals to increase supply, they must be allowed to charge high prices. b. Price ceilings do not cause shortages. They prevent greedy sellers from raising their prices too high during times of crisis. c. Sellers who charge high prices would be arrested and prosecuted by local authorities enforcing anti-price gouging laws, which would signal to other sellers not to increase their prices drastically during

a. If sellers are not allowed to charge high prices, there won't be the necessary market signals that would entice new sellers to enter the market and provide new supply while allocating existing supply to buyers who value it the most. Therefore, for sellers to receive the correct signals to increase supply, they must be allowed to charge high prices.

What is the role of profits and losses (i.e., negative profits) in a market system? (Chapter 4) a. Profits serve as signaling mechanisms that incentivize market actors to marshal resources to their most valuable uses. b. Profits exist to enrich the capitalist class at the expense of workers. c. Profits are a signal that suppliers are charging too much for their products. d. Companies that earn profits should have a tax imposed on them; the role of profits, therefore, is to fund public works through the taxes that are collected.

a. Profits serve as signaling mechanisms that incentivize market actors to marshal resources to their most valuable uses.

The Rothbard (1956) article Demonstrated Preference begins with the following: "Human action is the use of means to arrive at preferred ends. Such action contrasts to the observed behavior of stones and planets, for it implies purpose on the part of the actor." What can we deduce about the preferences of a person who chooses to spend two hours at a concert rather than a movie? a. That person places going to the concert higher in his value scale/preference order than going to the movie. b. That person places going to the movie higher in his value scale/preference than going to the concert. c. That person enjoys going to the concert three times as much as he enjoys going to the movie. d. That person enjoys going to the movie three times as much as he enjoys going to the concert.

a. That person places going to the concert higher in his value scale/preference order than going to the movie.

Which of the following is a statement of normative economics? (Intro, chapter 1) a. The government should run deficits to cure economic slumps and lower unemployment. b. Gas prices will fall if the government reduces certain regulations on the fossil fuel industry. c. An increase in the minimum wage will increase the standard of living of all low-wage workers. d. There will be no unintended consequences from President Biden's decision to forgive up to $10,000 of student loan debt.

a. The government should run deficits to cure economic slumps and lower unemployment.

Assume that America imports sweaters from the UK at a cost of $35 each and that an American sweater industry does not currently exist. However, if Congress imposes a per-unit-tariff of $15 on each British sweater, American sweater producers can compete with British imports at the new price of $50 per imported sweater, so a new American sweater industry might be able to start up. According to chapter 11 of Economics in One Lesson, how would this tariff actually end up costing American jobs elsewhere in the domestic American economy?

a. The money raised by the tariff might be spent on wasteful government projects. Answer: b. Since American consumers would have to pay $15 more for the same quality of sweater, they would have to reduce their expenditures by $15 somewhere else. c. The UK might try to export more sweaters to America to make up for the sales lost due to the tariff. d. The premise of the question is incorrect. The tariff would not cost American jobs anywhere else in the domestic economy.

Which of the following statements is NOT true about the study of macroeconomics? (Intro) a. There is a clear dividing line between microeconomics and macroeconomics; microeconomic principles aren't really connected to macroeconomic phenomena b. Macroeconomics studies the national (or even international) economy as a whole c. One of the primary tools of macroeconomics is the use of statistical aggregates like unemployment, gross output (GO), and gross domestic product (GDP) d. The GDP levels of many U.S. states are comparable in size to other countries

a. There is a clear dividing line between microeconomics and macroeconomics; microeconomic principles aren't really connected to macroeconomic phenomena

A change in the productive capacity of an economy over time can be illustrated by shifts in the maximum curve of the PPF. (chapter 2) a. True b. False

a. True

A straw man fallacy occurs when one person takes another person's argument/point, distorts it/exaggerates it in some kind of extreme way, and then attacks the extreme distortion as if that distortion is really the claim the first person is making without actually addressing the original argument raised. (Video link) a. True b. False

a. True

Although economists might disagree with each other regarding values, they often agree on methodology and analysis, and there are many topics and issues on which many economists tend to agree with each other (at least in terms of the analysis of the issue in question if not a particular normative policy). (Article) a. True b. False

a. True

For a two-person, two-good economy in which one worker has an absolute advantage in the production of both goods, it will still be true in all cases that the less productive worker will still have a comparative advantage in producing something. (Chapter 2; exam 1, #31) a. True b. False

a. True

For a two-person, two-good economy in which one worker has an absolute advantage in the production of both goods, it will still be true in all cases that the less productive worker will still have a comparative advantage in producing something. (chapter 2) a. True b. False

a. True

In order for a person to be able to purchase goods and services (i.e., act as consumers) in a market, he must first produce a good or service (i.e., act as a supplier) in another market. In other words, the value of goods and services that he can purchase is equal to the value of what he supplies in other markets. Therefore, production must always precede consumption. (Chapter 4) a. True b. False

a. True

In the interaction between households and firms in the basic circular flow diagram, households supply factors of production while firms supply finished goods and services to their respective markets. (chapter 4) a. True b. False

a. True

Individual people/economic agents are the basic unit of action in economics; collective entities (e.g., "Ford Motor Company," "American military forces," etc.) do not act. Only individuals within those groups act. (Chapter 1) a. True b. False

a. True

Markets are the only institution in an economic system that is not a rational decision maker. (chapter 4) a. True b. False

a. True

The defining characteristic that distinguishes a governmental entity from a firm is the fact that the government has a monopoly on the legal, legitimate use of physical force in a given territory. While consumers have a choice to veto potential transactions with private firms, they do not have that same option with transactions involving governments. (chapter 4) a. True b. False

a. True

The labor theory of value is an "objective" theory of value that measures the value of a good according to the quantity of "socially necessary labor-time" required for its production. (Chapters 3 and 6; Capitalism vs. Socialism lecture) a. True b. False

a. True

When interpreting a Production Possibilities Frontier (PPF), a combination of goods is unattainable if it cannot possibly be produced with the currently available resources and technology. (Chapter 2, p. 41, #1) a. True b. False

a. True

The Selick (2003) article "There's No Such Thing as a Nonprofit Organization" states the following: "[I]n fact, every single employee of a nonprofit institution is actually a 'profit center' in himself." Is that statement true? Why/why not? a. True. Employees of nonprofits still incur personal expenses in order to work, which they seek to minimize, while they seek to maximize their personal income, which results in their personal profit. b. True. Employees of nonprofits are more altruistically inclined than employees of for-profit organizations, so they view their personal profit as being tied up with the success or failure of the organization. c. False. Employees of nonprofits face no incentives to maximize their personal income since the managers of the nonprofits have personal stakes in minimizing the organization's expenses. d. False. Employees of nonprofits on average earn less than their pri

a. True. Employees of nonprofits still incur personal expenses in order to work, which they seek to minimize, while they seek to maximize their personal income, which results in their personal profit.

A government policy that attempts to internalize an externality can be generally described as... (Chapter 10) a. a policy which introduces a cost (or foregone gain) that would be realized by a decision maker who generates an externality. b. a policy which completely bans an activity that generates an externality. c. a policy which mandates the exact level of an activity that decision makers must engage in. d. None of the above.

a. a policy which introduces a cost (or foregone gain) that would be realized by a decision maker who generates an externality.

The Gini coefficient is... (Chapter 13) a. a quantitative metric of income inequality on a scale between 0 and 1. b. the sum of the unemployment rate and the inflation rate. c. the result of dividing a nation's GDP by its population. d. None of the above.

a. a quantitative metric of income inequality on a scale between 0 and 1.

Rawlsian Justice refers to... (Chapter 12) a. a system of justice based on the Maximin Principle which states that morality requires that society needs to maximize the utility of the worst off person in society. b. a consequentialist theory of morality that claims that right and wrong can only be determined by the benefits and costs of the outcomes that come from behavior. c. a system of natural rights that protects each person's income and property from government interference. d. a form of Social Contract Theory which states that the government has a contract with each person not to interfere with them when they are following normal laws of property rights and contracts.

a. a system of justice based on the Maximin Principle which states that morality requires that society needs to maximize the utility of the worst off person in society.

The law of _____ means that the additional value that a person gets from consuming an additional unit of a good decreases as the person consumes more of it. (chapter 1) a. diminishing marginal utility b. scarcity c. unintended consequences d. demand

a. diminishing marginal utility

The Incentive Principle states that... (chapter 1, question #1) a. if the marginal benefit of an activity increases, then a rational person will engage in more of the activity; if the marginal cost of an activity increases, then a rational person will engage in less of the activity. b. scarcity is a universal phenomenon that arises because resources are limited. c. an action should be taken if and only if the additional benefits from taking the action are at least as great as that action's additional costs. d. having more of one thing usually means getting by with less of something else.

a. if the marginal benefit of an activity increases, then a rational person will engage in more of the activity; if the marginal cost of an activity increases, then a rational person will engage in less of the activity.

An output combination is characterized by productive efficiency if... (chapter 2) a. it is possible to produce the output combination, and it is not possible to increase the amount produced of any good without decreasing the amount produced of any other good. b. it is possible to produce the output combination, and it is possible to increase the amount produced of some good without decreasing the amount produced of any other good. c. it cannot possibly be produced (given the limits imposed by the scarcity of resources and current technology). d. one single worker possesses a comparative advantage in producing every good that is a part of the output combination.

a. it is possible to produce the output combination, and it is not possible to increase the amount produced of any good without decreasing the amount produced of any other good.

If a country's Lorenz Curve fell on the 45-degree line... (Chapter 12) a. it would mean the country's income was distributed equally across the population. b. it would mean that the country's income was perfectly unequal with one person earning everything and everyone else nothing. c. its Gini Coefficient would be 10, the highest possible number. d. it would be the most morally advanced country in the world, because all moral systems demand income equality as the goal.

a. it would mean the country's income was distributed equally across the population.

A government agency can be said to suffer from regulatory capture when... (Chapter 11) a. private businesses influence the decisions of that agency to such a degree that the agency protects the interests of the firms rather than the public. b. government regulators from one federal agency displace the regulators of another federal agency. For example, the Environmental Protection Agency claims jurisdiction from the Department of Agriculture when farm pesticides are being regulated. c. government regulators from one federal agency displace the regulators of a state level agency. For example, the federal Dept. of Transportation claims jurisdiction from the Georgia Dept. of Transportation whenever interstate highways are regulated. d. federal courts mandate that an agency change its rules or regulations to conform with federal law.

a. private businesses influence the decisions of that agency to such a degree that the agency protects the interests of the firms rather than the public.

The stagflationary "Great Inflation" period refers to a time of high inflation and high unemployment in the U.S. during... (Chapter 9) a. the early 1970s through the early 1980s (from roughly August 1973 to July 1982). b. the time between the end of Great Depression and the start of WW-II (from roughly August 1937 through October 1942). c. the Kennedy and Johnson Administrations from 1960 through 1967. d. part of President Obama's first term (from roughly March 2009 to July 2011).

a. the early 1970s through the early 1980s (from roughly August 1973 to July 1982).

If people in this economy wanted to produce 1,350 bushels of corn, then its maximum output of tanks would be... (chapter 2) a. zero. b. more than 300 but less than 320. c. more than 320 but less than 420. d. exactly 600.

a. zero.

Consider a country in which there are 157.4 million people employed, 12.5 million people in the labor force who do not have jobs, and 112.6 million people who are not in the labor force. The unemployment rate of this country is approximately... (Chapter 9, p. 236, #8) a. 4.4% b. 7.4% c. 7.9% d. 11.1%

b. 7.4%

What is this consumer's marginal cost of consumption? (chapter 1) a. $0 b. $3 c. $30 d. $24

b. $3

Assume that in some year in the recent past, high school graduates earned $10,000 more per year than non-high school graduates. If this difference had instead been $15,000, then, ceteris paribus, we would expect... (chapter 1, #3) a. ...more people to drop out of high school before graduating. b. ...fewer people to drop out of high school before graduating. c. ...that people would not change their behavior whatsoever. d. Not enough information.

b. ...fewer people to drop out of high school before graduating.

If the consumer were to apply the Cost-Benefit principle to his behavior, how many bottles of Coke would he consume? (chapter 1) a. 1 b. 3 c. 5 d. 7

b. 3

What is the technical definition of socialism? (Chapters 3 and 6; Capitalism vs. Socialism lecture) a. An anarchist, moneyless, classless economic system in which the state has withered away, private ownership of the means of production has been abolished, and consumer goods are distributed equitably. b. A centrally planned economy in which private property has been abolished, and the state owns and controls the means of production and distribution of goods. In Marxist theory, it is an intermediate stage of societal development during which a "dictatorship of the proletariat" would reign. c. A society where goods and services of all kinds are plentiful thanks to various government decrees that have abolished scarcity. d. An economic system in which the government plays some key roles while others are left to private individuals to interact with each other in markets. For example, some key industries (e.g., ed

b. A centrally planned economy in which private property has been abolished, and the state owns and controls the means of production and distribution of goods. In Marxist theory, it is an intermediate stage of societal development during which a "dictatorship of the proletariat" would reign.

Chapter 4 of Economics in One Lesson discusses some of the consequences of public works projects that the government puts into action using tax dollars specifically for the purpose of providing employment. One such hypothetical is the construction of a "bridge to nowhere" that will cost $1 million (in 1950s dollars) and provide 500 jobs for a year but otherwise has no practical use (i.e., it will not be used very frequently by the public after it is built). According to Hazlitt, what are some of the unseen opportunity costs of this government project that might be overlooked if observers only focus on what is directly seen? a. A portion of that $1 million will be spent on those 500 workers, who will now be able to spend their incomes on various goods and services. b. Because public works must be paid with taxes, that $1 million must come from taxpayers. What is not seen is what those taxpayers would have done w

b. Because public works must be paid with taxes, that $1 million must come from taxpayers. What is not seen is what those taxpayers would have done with that $1 million, which might have been spent on cars, refrigerators, etc. They would also alter their behavior in response to the tax being imposed upon them.

Of the following factors that affect income, which one does a person not have control over? (Chapter 13) a. Effort at work b. Business cycle fluctuations c. Skills acquisition by going to school, getting on-the-job training, or enrolling in an apprenticeship program d. There are no factors that affect a person's income that are under his/her control.

b. Business cycle fluctuations

_____ refers to a decrease in the rate of increase in the overall price level. (Chapter 8) a. Inflation b. Disinflation c. Hyperinflation d. Deflation

b. Disinflation

What is the area of the deadweight loss of the tax? (Chapter 11) a. IKGJ b. EKG c. DFE d. BEKM

b. EKG

In Economics in One Lesson, Hazlitt says that "the whole of economics can be reduced to a single lesson." What is that lesson? (E1L chapter 1) a. Economics is only useful to policymakers and people in important positions of power in government and large corporations. b. Economics trains us to examine not only the primary effects of a policy but also the secondary effects of any act or policy; it also trains us to examine the consequences of those actions/policies on all groups of people in society. c. Economics tells us that we could achieve a "post-scarcity" society today if we eliminated the artificial barriers imposed by various government policies that currently protect the capitalist class from being overtaken by the exploited worker class. d. Economics teaches us that a government-provided healthcare system (that is, a healthcare system that operates as a government agency) is the best way to provid

b. Economics trains us to examine not only the primary effects of a policy but also the secondary effects of any act or policy; it also trains us to examine the consequences of those actions/policies on all groups of people in society.

1) Supercomputers combined with artificial intelligence can "solve" the economic calculation problem. (Article) a. True b. False

b. False

A situation in which the sum of gains and losses over all people is positive in value is defined as a negative-sum environment. (chapter 4) a. True b. False

b. False

A typical market is characterized by having multiple equilibria. (chapter 4) a. True b. False

b. False

An economy that shows a high degree of generalization in production and specialization in consumption will be more productive and enjoy a higher standard of living than an economy that shows a high degree of specialization in production and generalization in consumption. (chapter 2) a. True b. False

b. False

An economy that shows a high degree of generalization in production will be more productive and enjoy a higher standard of living than an economy that shows a high degree of specialization in production. Both economies would still engage in a high degree of generalization in consumption. (Chapter 2; exam 1, #32) a. True b. False

b. False

By some metrics, the average American living nowadays has a much lower standard of living than John D. Rockefeller, who is one of the richest people in history. (Article) a. True b. False

b. False

Ceteris paribus, a change in the price of a good in a market would result in a shifting of either the entire supply curve or the entire demand curve. A change in price results in a change in demand/supply rather than quantity demanded/quantity supplied. (Chapter 4) a. True b. False

b. False

Every voluntary trade that is made in a society must necessarily have at least one winner and at least one loser. (chapter 4) a. True b. False

b. False

It is not possible for an economy to consume outside its PPF even if it is able to trade with another economy that has an absolute advantage in the production of all goods. (Chapter 2) a. True b. False

b. False

Scarcity is a thing of the past. We live in a post-scarcity society. (Intro) a. True b. False

b. False

Suppose the government imposes a per unit tax on buyers in a market. After the market fully adjusts in response to the tax, the end result would be a larger reduction in the final equilibrium quantity of trades than if the government had decided to impose the tax on sellers in the market. (Chapter 11) a. True b. False

b. False

There are no actual profits to be found anywhere in the income and expense streams of nonprofit entities, which is why they are legally defined as nonprofits. (Articles) a. True b. False

b. False

"Demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions." What, exactly, does that mean? (E1L chapter 3) a. Consumers and producers both need to use money in every market transaction. b. In order for people to be able to purchase something in one market (that is, act as consumers), they must first provide something of value (that is, act as producers) to other consumers that they can sell for money, which they could then use to exercise their demand for other goods and services. c. Producers try to produce things that perfectly match people's demand for things they say they want. Therefore, consumption precedes production; it is demand that drives economic growth.

b. In order for people to be able to purchase something in one market (that is, act as consumers), they must first provide something of value (that is, act as producers) to other consumers that they can sell for money, which they could then use to exercise their demand for other goods and services.

According to chapter 7 of Economics in One Lesson, what has been one of the long-run effects of increased automation on employment and the economy? a. Since capital and labor are substitutes, automation displaces many workers and destroys jobs. None of those workers are able to get hired in other industries since machines and automation will just continue to take over more sectors of the economy. b. Labor-saving devices and automation allow for lower production costs and greater output. Consumers thus have greater purchasing power that they can use to spend on other industries, which allows those industries to expand and create employment opportunities that did not previously exist. c. Population growth has outpaced job growth, which means that more and more people compete for fewer and fewer jobs. d. The premise of the question is incorrect. The economy has not become more automated in the long run.

b. Labor-saving devices and automation allow for lower production costs and greater output. Consumers thus have greater purchasing power that they can use to spend on other industries, which allows those industries to expand and create employment opportunities that did not previously exist.

Which of the following is a statement of positive economics? (chapter 1) a. The federal minimum wage should be eliminated completely. b. The federal minimum wage is currently $2,000 per hour for all industries. c. The federal minimum wage should be increased to $15 per hour. d. The federal minimum wage should only apply to heavily populated areas.

b. The federal minimum wage is currently $2,000 per hour for all industries.

Which of the following is an accurate characterization of Say's Law? (chapter 4) a. People can benefit mutually from specialization and trade. b. The value of goods and services anyone can purchase is equal to the market value of what he/she supplies. c. Destruction of goods does not breed economic prosperity. d. Supply creates its own demand.

b. The value of goods and services anyone can purchase is equal to the market value of what he/she supplies.

Why would economists say that the Ford Motor Company has never made a choice or a decision? (Intro) a. They're wrong. Ford answers to greedy shareholders. b. To remind non-economists of methodological individualism - the concept that only individuals within an organization, rather than the organization itself, make choices c. Ford doesn't make choices - only the U.S. automobile industry does. d. Ford answers to the United Auto Workers union.

b. To remind non-economists of methodological individualism - the concept that only individuals within an organization, rather than the organization itself, make choices

The Cost-Benefit principle states that... (chapter 1) a. scarcity is a universal phenomenon that arises because resources are limited. b. a person should undertake an action if and only if the marginal benefit of the action is greater than the marginal cost of the action. c. if the marginal benefit of an activity increases, then a rational decision maker will engage in more of the activity. d. having more of one thing usually means getting by with less of something else.

b. a person should undertake an action if and only if the marginal benefit of the action is greater than the marginal cost of the action.

A good that is used in the production process that is not itself a final good or service is... (Chapter 7) a. a permanent good b. an intermediate good c. an inferior good d. a necessary good

b. an intermediate good

A good is rival if... (Chapter 10) a. consumption by one person does not diminish the quantity/quality of consumption by others. b. consumption by one person diminishes the quantity/quality of consumption by others. c. it is difficult (or very costly) to prevent consumption by those who do not pay for the good. d. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good.

b. consumption by one person diminishes the quantity/quality of consumption by others.

Starting at point A, if people in this economy wanted to produce 120 more tanks as well as 425 more bushels of corn, then... (chapter 2) a. it could increase its output of corn, but that would have to come at the expense of existing production of tanks. b. it could increase its output of both of these goods to the desired levels without having to sacrifice existing production of either good. c. it could increase its output of tanks, but that would have to come at the expense of existing production of corn. d. It is not possible to increase its production from its current level.

b. it could increase its output of both of these goods to the desired levels without having to sacrifice existing production of either good.

A market failure can be described as a situation in which... (Chapter 10) a. a single seller of a good has no control over the price of the good. b. the free-market outcome results in a deadweight loss. c. government intervention leads to a greater deadweight loss than the free-market outcome. d. government imposes progressive taxes in order to redistribute income.

b. the free-market outcome results in a deadweight loss.

If, over the course of a year, the value of a country's Consumer Price Index increased from 186.4 to 193.9, the country's realized rate of inflation was approximately... (Chapter 9, p. 235, #4) a. 380.3% b. 3.87% c. 4.02% d. 7.50%

c. 4.02%

If, ceteris paribus, the price of the Coke bottles were to fall by 50% and he were still to apply the Cost-Benefit principle, how many bottles would he consume? (chapter 1) a. 3 b. 4 c. 5 d. 6

c. 5

In 1959, a mid-tier washing machine cost about $209 at a time when the average hourly manufacturing wage was $2.09. Today, a mid-tier washing machine costs about $425; today's average hourly manufacturing wage is about $25. Based on the time prices of the washing machine in each different era, how many fewer hours would a manufacturing worker have to work today to afford one mid-tier washing machine? (Note: do not worry about adjusting for inflation; just use the nominal prices.) (Chapter 12) a. 117 b. 100 c. 83 d. 17

c. 83

Which of the following is an example of a negative externality? (Chapter 10) a. A farmer's cattle operation is fouling his own pond where he gets irrigation water for his corn crop. b. Customers of McDonalds gain weight from eating too much unhealthy food. c. A nightclub opens near a residential neighborhood. The neighborhood suffers from noise at late hours, but it is not compensated by the club owner. d. Construction company owners have a higher injury rate for workers than retail companies. The higher injury rate is, therefore, a negative externality for construction workers.

c. A nightclub opens near a residential neighborhood. The neighborhood suffers from noise at late hours, but it is not compensated by the club owner.

What is the technical definition of capitalism? (Chapters 3 and 6; Capitalism vs. Socialism lecture) a. An economic system in which state-controlled cartels control all aspects of the economy (e.g., manufacturing and agriculture). State planning boards set price controls and dictate to the cartels what is to be produced and how it is to be produced. b. An economic system characterized by mass exploitation of workers in which capitalists own the means of production. The surplus value of workers is stolen by capitalists, who only pay workers subsistence wages. Workers have no bargaining power and are at the mercy of private business owners. c. An economic system characterized by private/corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market. d. None of the above.

c. An economic system characterized by private/corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

Country A is more productive (i.e., has more production possibilities) in every industry than Country B. Which statement most clearly illustrates the concept of comparative advantage? (chapter 2) a. Country A will lose out in the long run if each country chooses to specialize in its lowest opportunity cost industry; both countries should cut off trade and work on improving their productivity until their production possibilities are both equal. b. Country A will lose out in the long run and should impose a tariff on cheaper imports from Country B in order to protect workers in Country A's industries. c. Both countries can still benefit from specialization and voluntary trade as long as Country A has a lower opportunity cost than Country B in some industry.

c. Both countries can still benefit from specialization and voluntary trade as long as Country A has a lower opportunity cost than Country B in some industry.

Which point represents the combination of output that is unattainable? (chapter 2) a. A b. B c. C d. D

c. C

_____ are the rational decision makers whose primary objective is to obtain benefits from consuming goods and services. (chapter 2, p. 41, #10) a. Firms b. Politicians c. Households d. Entrepreneurs

c. Households

What are some of the consequences of a price ceiling set at a binding level below the market equilibrium price for a particular good? (Chapter 11; price gouging lecture; E1L chapter 17) a. Scarcity is an artificial construct; nothing negative happens. b. Greedy producers are forced to sell the good at a socially just price. c. Production of that good is discouraged as profit margins are reduced/wiped out and marginal producers are driven out of business. d. All of the above.

c. Production of that good is discouraged as profit margins are reduced/wiped out and marginal producers are driven out of business.

The Manne (2014) article All Education Is For-Profit Education states the following: "[T]here is a significant difference in these two forms of organization (i.e., for-profit and non-profit enterprises) that neither Hansmann nor Shireman acknowledges." What is that significant difference? a. Property rights in the assets and stream of income of a for-profit organization exist, but they are not transferable; property rights in the assets and stream of income of a nonprofit organization do not exist at all. b. The managers of a for-profit organization are incentivized to maximize their own personal wealth and total compensation; the managers of nonprofit organizations are much more altruistically inclined and, thus, are incentivized to maximize revenue for their organizations. c. Property rights in the assets and stream of income of the nonprofit organizations are not transferable; property rights in the asse

c. Property rights in the assets and stream of income of the nonprofit organizations are not transferable; property rights in the assets and stream of income of a for-profit organization are transferable.

What is the first, most basic lesson of economics? (chapter 1) a. Prices are determined in markets by the interaction of supply and demand b. Value is subjective; there is no such thing as an "objective" value of anything c. Scarcity - there is never enough of anything to satisfy all those who want it d. As consumption of a good increases, the marginal utility of each additional unit declines

c. Scarcity - there is never enough of anything to satisfy all those who want it

1) Suppose the government were to pay for an increase in military spending financed by money printing. The suppliers of the government's newly ordered additional materiel (i.e., defense contractors) would be the initial recipients of this newly printed money. The government announces this program publicly, so the rest of the public is fully aware of all details of the program. The suppliers of any goods and services that the employees of these defense contractors would purchase are second-order recipients of that newly printed money. According to chapter 22 of Economics in One Lesson, what would be some of the economic effects when the defense contractors spend their increased incomes into the economy? a. The defense contractors will see no change in prices since the second-order recipients would be able to employ more workers. Thus, there is a "multiplier" effect where each dollar printed and spent into the e

c. The second-order recipients would be able to increase their prices and spend their increased incomes elsewhere (and so on). This process would continue until the inflationary process stops at the source. However, not all prices increase at the same time, nor do all incomes increase at the same time, so the initial recipients of that new money would benefit at the expense of the last recipients.

Why are pencils cheap? (Intro) a. Pencils do not have many inputs and can be made using only a few workers in a factory. b. Capitalist pencil factory owners are exploiting workers by paying low wages in sweatshop conditions to make cheaper pencils. c. The worldwide division of labor and interconnectedness through markets allows people to specialize in the production of specific goods and services, which lowers input production costs over time. d. Protectionist trade policies have kept American pencil manufacturers in business, which allows them to produce goods cheaply.

c. The worldwide division of labor and interconnectedness through markets allows people to specialize in the production of specific goods and services, which lowers input production costs over time.

The Laffer Curve illustrates how total tax revenue... (Chapter 13, p. 359, #12) a. will always increase when the tax rate is increased. b. will always decrease when the tax rate is increased. c. could either increase or decrease when the tax rate is increased. d. is not tied to the actual tax rate at all.

c. could either increase or decrease when the tax rate is increased.

The Misery Index... (Chapter 9) a. is computed by multiplying the unemployment rate by the inflation rate. b. measures the fraction of population that is clinically depressed. c. does not include GDP in its calculation. d. All of the above.

c. does not include GDP in its calculation.

In a simple model of the supply and demand for pizza, when buyers' income increases, the price of pizza _____ and the quantity purchased _____ (note: assume that pizza is a normal good). (chapter 4) a. increases; decreases b. decreases; increases c. increases; increases d. decreases; decreases

c. increases; increases

A movie playing at a local movie theater is an example of an activity that is... (Chapter 10) a. non-excludable b. rival c. non-rival d. More than one (perhaps all) of the above answers is correct.

c. non-rival

Money exists to solve what central economic problem? (chapter 4) a. High transaction costs associated with barter b. You want what I have, but I don't want what you have c. Buyers want to purchase something, but sellers won't accept what buyers have to offer in exchange (or vice versa) d. All of the above

d. All of the above

Maurice is a citizen of Canada but lives, works, and attends college in the United States. Last year, he went on vacation to Mexico during Spring Break. He works at a daycare in Roswell, GA. Last year, he provided daycare services valued at $22,500. The value of these services would be included in the calculation of GDP for... (Chapter 7, p. 189, #20) a. only Mexico since that is where he went to relax on vacation, which was a necessary activity for him to be able to work hard in school and on the job throughout the rest of the year. b. only Canada since he is a Canadian citizen. c. only the United States since that is where the production took place. d. all three countries (i.e., Canada, Mexico, and the United States) since he has an economic tie to each.

c. only the United States since that is where the production took place.

When economists speak of "land" as a factor of production, they are referring... (chapter 2) a. only to the unexploited surface of the earth that can be farmed or built upon. b. to the single most important resource used in modern economies. c. to both the surface of the earth and all natural resources on it or beneath it. It is a synonym for unexploited natural resources. d. to the only resource an economy needs to produce goods and services.

c. to both the surface of the earth and all natural resources on it or beneath it. It is a synonym for unexploited natural resources.

Assume that the taxes discussed in question #9 are collected through 1) personal income taxes imposed as a percentage of an individual taxpayer's income, and 2) corporate income taxes imposed as a percentage of a corporation's income. According to chapter 5 of Economics in One Lesson, what else is true regarding the imposition of those taxes on the economy? a. Both corporations and taxpayers still lose 100% of every dollar lost in investments that do not pan out. b. The taxes will change the incentives of corporations and taxpayers to produce/invest since they do not gain 100% of every dollar "won" from making worthwhile investments. c. A tax rate of 50% is equivalent to working for the government for six months out of a year; a tax rate of 75% is equivalent to working for the government for nine months out of a year. d. All of the above.

d. All of the above.

Consider a country which imposes a "negative" income tax according to the following formula: T = (I - 50,000) * 20%, where T is the amount of taxes paid, and I is the individual's income. Under this taxation system, ... (Chapter 12, p. 333, #17) a. someone earning $30,000 receives a $4,000 transfer payment from the government. b. someone earning $100,000 has to pay $10,000 in taxes. c. Low-income earners receive transfer payments from the government, but high-income earners must pay taxes. d. All of the above.

d. All of the above.

What were some ways that fascist governments infringed upon the rights of private property owners and the natural workings of the free market? (Capitalism vs. Socialism lecture) a. The premise of the question is wrong. Fascist governments supported the purest expression of unfettered capitalism possible. b. They abolished money and prices completely as they nationalized all industries across the economy. Private ownership of the means of production was completely abolished. They also subordinated their national sovereignty to political control by fascists in other countries. c. Aside from a few interventions like minimum wages and some basic regulations, their interventions were somewhat mild. d. Fascist governments imposed price controls and enforced cartels that controlled all aspects of manufacturing, commerce, finance, agriculture, etc. They also essentially abolished the rights of private individuals to cont

d. Fascist governments imposed price controls and enforced cartels that controlled all aspects of manufacturing, commerce, finance, agriculture, etc. They also essentially abolished the rights of private individuals to control and transfer their own property.

Which of the following is a fair summation of the "action axiom"? (Intro) a. Through the process of trial and error, people will take risks in the market to try to solve problems and make corrections over time. b. People only act in groups, so majority rule represents the will of the people. c. Greed is good; greed will meet the need. d. Humans employ means according to values and ideas to achieve ends.

d. Humans employ means according to values and ideas to achieve ends.

According to George Reisman, why does socialism "positively require" (that is, from an objective, analytical standpoint) a totalitarian police state? (Article/video lecture) a. Reisman never makes any positive statements. All of his claims are simply normative statements on why he does not like socialism and why it should not be implemented. b. Before the next generations of children can be raised to become New Soviet Men and New Soviet Women, the generation that saw the transition from capitalism into socialism might still be self-motivated. c. Since the means of production belong to the government, socialist governments needed to protect their property from capitalists who might return to take back their expropriated property. d. If socialist states did not implement strict enforcement of their economic policies, people would be incentivized to transact in black markets, which are markets in which goods are

d. If socialist states did not implement strict enforcement of their economic policies, people would be incentivized to transact in black markets, which are markets in which goods are illegally bought and sold.

_____ states that the fairest distribution of income and consumption is the one realized when the government simply establishes and enforces a fair legal code which respects all voluntary economic interactions between individuals in a society. (Chapter 12, p. 331, #8) a. Rawlsian justice b. Utilitarian justice c. Street justice d. Libertarian justice

d. Libertarian justice

Which markets are represented in the basic circular flow diagram? (chapter 4) a. Markets for imports and exports and markets for factors of production. b. Markets for goods and services and markets for financial assets. c. Markets for financial assets and markets for imports and exports d. Markets for goods and services and markets for factors of production

d. Markets for goods and services and markets for factors of production

Which of the following is NOT one of the primary functions of money? (chapter 4) a. Medium of exchange b. Unit of account c. Store of value d. Must be denominated in dollars

d. Must be denominated in dollars

Upon which side of the market is the government imposing the tax: producers or consumers? Does this matter for determining which side bears the burden of the tax? (Chapter 11) a. Producers; yes. b. Consumers; yes. c. Consumers; no. d. Producers; no.

d. Producers; no.

Consider the U.S. Social Security Payroll Tax. Under this tax, the first $168,600 of income earned is taxed at a marginal rate of 12.4% while income above this level is not taxed. It follows that over all income ranges, this tax is a... (Chapter 13, p. 361, #19) a. Rawlsian tax. b. Progressive tax. c. Proportional tax. d. Regressive tax.

d. Regressive tax.

The term "Deadweight Loss" refers to... (chapter 5, p. 131, #4) a. the negative profits (i.e., losses) that firms make in a free-market economy when their costs of production are too high. b. the burden that consumers incur from having to pay for goods, instead of getting them for free. c. the negative impact of industrial production on our environmental resources. d. the difference between maximum possible Total Social Surplus and realized Total Social Surplus.

d. the difference between maximum possible Total Social Surplus and realized Total Social Surplus.

The opening chapters of Economics in One Lesson explain how destruction can bring about economic prosperity. How could disasters like hurricanes or wars improve the standard of living of an economy? (E1L chapters 1-3) a. It explains that the window maker would not have received the income from the shopkeeper had the young hoodlum not thrown the brick through the shopkeeper's window. The window maker is therefore worse off without the destruction wrought by the hoodlum. b. War brings with it many innovations in new technologies. These developments could not have come about through more peaceful ways. c. Hurricanes bring with them an economic boon to the construction companies and suppliers of the goods that were destroyed as the localities affected by the disaster try to rebuild and recover. d. To quote Bryce Harper, "That's a clown question, bro." The opening chapters make the exact opposite case that the

d. To quote Bryce Harper, "That's a clown question, bro." The opening chapters make the exact opposite case that the question asserts. Disasters and wars are net negatives for the economy as a whole. What is unseen is what sort of economic development might have taken place had those examples of destruction and death not taken place.

Person A has a(n) _____ in the production of a good if that person can produce more of the good than Person B with the same amount of inputs. (chapter 2) a. opportunity cost b. tradeoff c. comparative advantage d. absolute advantage

d. absolute advantage

A production possibilities frontier... (chapter 2) a. shows that tradeoffs are never required except when an economy is operating inefficiently. b. shows that there is no economic cost due to moving from one point on the curve to another point. c. illustrates a "free lunch" by moving from one spot on the maximum curve of the frontier to another one. d. can illustrate an opportunity cost by moving from one point on the maximum curve to another, thus representing a reduction of the production of one good in order to increase the production of the other good.

d. can illustrate an opportunity cost by moving from one point on the maximum curve to another, thus representing a reduction of the production of one good in order to increase the production of the other good.

Suppose that between 2020 and 2021, Australia's unemployment rate increased, and its inflation rate decreased. Therefore, the value of Australia's Misery Index in 2021 _____ the value of its Misery Index in 2020. (Chapter 9) a. must be greater than b. must be less than c. must be exactly equal to d. could be greater than or less than

d. could be greater than or less than

Mike Tyson bought a white tiger from Joe Exotic for $71,000 (in early '90s dollars). Mike's reservation price was $101,000, and a total social surplus of $50,000 was generated by the trade. Therefore, Joe Exotic realized a _____ from this trade. (chapter 5) a. consumer surplus of $20,000 b. consumer surplus of $30,000 c. producer surplus of $50,000 d. producer surplus of $20,000

d. producer surplus of $20,000

The _____ effect of the law of unintended consequences is how the people affected by the policy change their behavior. (chapter 1) a. intended b. major c. primary d. secondary

d. secondary