Micro Chapter 1 Application

Which of the following involve a trade-off? 1. Going to college 2. Taking a nap 3. Buying a new car 4. Watching a football game on Saturday afternoon 5. All of the above

5. All of the above

A tax on liquor raises the price of liquor and provides an incentive for consumers to drink more.

False

Adam Smith's "invisible hand" concept describes how corporate business reaches into the pockets of consumers like an "invisible hand."

False

An auto manufacturer should continue to produce additional autos as long as the firm is profitable, even if the cost of the additional units exceeds the price received.

False

An individual farmer is likely to have market power in the market for wheat.

False

In the short run, a reduction in inflation tends to cause a reduction in unemployment.

False

The United States will benefit economically if we eliminate trade with Asian countries because we will be forced to produce more of our own cars and clothes.

False

When the government redistributes income with taxes and welfare, the economy becomes more efficient.

False

Workers in the United States have a relatively high standard of living because the United States has a relatively high minimum wage.

False

An unintended consequence of public support for higher education is that low tuition provides an incentive for many people to attend state universities even if they have no desire to learn anything.

True

High and persistent inflation is caused by excessive growth in the quantity of money in the economy.

True

Rational people act only when the marginal benefit of the action exceeds the marginal cost.

True

Sue is better at cleaning, and Bob is better at cooking. It will take fewer hours to eat and clean if Bob specializes in cooking and Sue specializes in cleaning than if they share the household duties evenly.

True

To a student, the opportunity cost of going to a basketball game would include the price of the ticket and the value of the time that could have been spent studying.

True

When a jet flies overhead, the noise it generates is an externality.

True

When economists say, "There ain't no such thing as a free lunch," they mean that all economic decisions involve trade-offs.

True

Foreign trade... a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. b. allows a country to avoid trade-offs. c. makes the members of a country more equal. d. increases the scarcity of resources. e. is none of the above.

a. Allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.

Which of the following products would be least capable of producing an externality? a. Food b. Inoculations against disease c. Education d. Cigarettes e. Stereo equipment

a. Food.

Productivity can be increased by.. a. improving the education of workers. b. raising minimum wages. c. restricting trade with foreign countries. d. raising union wages.

a. Improving the education of workers.

Trade-offs are required because wants are unlimited and resources are... a. scarce. b. efficient. c. unlimited. d. economical. e. marginal.

a. Scarce

Economics is the study of how... a. society manages its scarce resources. b. to reduce our wants until we are satisfied. c. to avoid having to make trade-offs. d. to fully satisfy our unlimited wants. e. society manages its unlimited resources

a. Society manages its scarce resources.

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent... a. students will shift majors from education to accounting. b. students will shift majors from accounting to education. c. fewer students will attend college. d. None of the above is true

a. Students will shift majors from education to accounting.

Which of the following is not part of the opportunity cost of going on vacation? a. the money you spent on food b. the money you spent on a Broadway show c. the money you spent on airline tickets d. the money you could have made if you had stayed home and worked

a. The money you spent on food

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.) a. yes b. no c. not enough info

a. Yes

In the short run... a. an increase in inflation temporarily increases unemployment. b. a decrease in inflation temporarily increases unemployment. c. inflation and unemployment are unrelated. d. the business cycle has been eliminated. e. None of the above is true.

b. A decrease in inflation temporarily increases unemployment.

Which of the following activities is most likely to produce an externality? a. A student sits at home and watches television. b. A student has a party in her dorm room. c. A student eats a hamburger in the student union. d. A student reads a novel for pleasure.

b. A student has a party in her dorm room.

An increase in the price of beef provides... a. information that tells consumers to buy less pork. b. information that tells producers to produce more beef. c. information that tells consumers to buy more beef. d. no information because prices in a market system are managed by planning boards

b. Information that tells producers to produce more beef.

Which of the following statements is true about a market economy? a. Taxes help prices communicate costs and benefits to producers and consumers. b. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. c. The strength of a market system is that it tends to distribute resources evenly across consumers. d. With a large enough computer, central planners could guide production more efficiently than markets.

b. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being.

Which of the following situations describes the greatest market power? a. Volvo's impact on the price of autos b. Microsoft's impact on the price of desktop operating systems c. a student's impact on college tuition d. a farmer's impact on the price of corn

b. Microsoft's impact on the price of desktop operating systems.

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is.. a. nothing, because you found the money. b. $20 (because you could have used the $20 to buy other things). c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. d. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game. e. none of the above.

c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

High and persistent inflation is caused by... a. regulations raising the cost of production too much. b. unions increasing wages too much. c. governments increasing the quantity of money too much. d. OPEC raising the price of oil too much.

c. Governments increasing the quantity of money too much.

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. (Assume that the hot dogs are cost you nothing.) Using the information given your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than... a. $100. b. $300. c. $500. d. $800. e. none of the above

d. $800

Raising taxes and increasing welfare payments... a. proves that there is such a thing as a free lunch. b. reduces market power. c. improves efficiency at the expense of equality. d. improves equality at the expense of efficiency. e. does none of the above.

d. Improves equality at the expense of efficiency.

Workers in the United States enjoy a high standard of living because... a. unions in the United States keep the wage high. b. we have protected our industry from foreign competition. c. the United States has a high minimum wage. d. workers in the United States are highly productive.

d. Workers in the United States are highly productive.

A rational person does not act unless... a. the action makes money for the person. b. the action is ethical. c. the action produces marginal costs that exceed marginal benefits. d. the action produces marginal benefits that exceed marginal costs. e. None of the above is true.

d. the action produces marginal benefits that exceed marginal costs