Micro Quiz 1

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision? A The marginal benefit of going to Spain increases. B The marginal cost of going to Spain increases. C The marginal benefit of going to Ireland increases. D The marginal cost of going to Ireland decreases.

A

The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by A government actions that distort prices. B increased competition in markets. C enforcement of property rights. D too much attention paid to efficiency.

A

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of A a market failure caused by an externality. B a market failure caused by market power. C a market failure caused by equality. D There is no market failure in this case.

A

An increase in the overall level of prices in an economy is referred to as A the income effect. B inflation. C deflation. D the substitution effect.

B

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome, A an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide. B an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. C a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide. D a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

B

People are willing to pay more for a diamond than for a bottle of water because A the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. B the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. C producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. D water prices are held artificially low by governments, since water is necessary for life.

B

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because A the Federal Reserve is worried about inflation. B the Federal Reserve is worried about unemployment. C the Federal Reserve is hoping to reduce the demand for goods and services. D the Federal Reserve is worried that the economy is growing too quickly.

B

Suppose your finance professor has been offered a corporate job with a 25 percent pay increase. He has decided to take the job. For him, the marginal A cost of leaving was greater than the marginal benefit. B benefit of leaving was greater than the marginal cost. C benefit of teaching was greater than the marginal cost. D benefit of teaching was negative.

B

The term used to describe a situation in which markets do not allocate resources efficiently is A economic meltdown. B market failure. C equilibrium. D the effect of the invisible hand.

B

Efficiency: A and equality both refer to how much a society can produce with its resources. B and equality both refer to how fairly the benefits from using resources are distributed between members of a society. C refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society. D refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources.

C

Making rational decisions at the margin means that people A make those decisions that do not impose a marginal cost. B evaluate how easily a decision can be reversed if problems arise. C compare the marginal costs and marginal benefits of each decision. D always calculate the dollar costs for each decision.

C

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth A is more efficient and more equal for society. B is more efficient but less equal for society. C is more equal but less efficient for society. D is less equal and less efficient for society.

C

The basic principles of economics suggest that A markets are seldom, if ever, a good way to organize economic activity. B government should become involved in markets when trade between countries is involved. C government should become involved in markets when those markets fail to produce efficient or fair outcomes. D government should never become involved in markets.

C

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that A trade can make everyone better off. B rational people think at the margin. C people face tradeoffs. D people respond to incentives.

C

You are considering staying in college another semester so that you can complete a major in finance. In deciding whether or not to stay you should A compare the total cost of your education to the total benefits of your education. B compare the total cost of your education to the benefits of staying one more semester. C compare the cost of staying one more semester to the benefits of staying one more semester. D compare the total benefits of your education to the cost of staying one more semester.

C

The phenomenon of scarcity stems from the fact that A most economies' production methods are not very good. B in most economies, wealthy people consume disproportionate quantities of goods and services. C governments restrict production of too many goods and services. D resources are limited.

D

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market? A To promote efficiency B To promote equality C To enforce property rights D To protect an industry from foreign competition

D

Which of the following is an important cause of inflation in an economy? A Increases in productivity in the economy B The influence of positive externalities on the economy C Lack of property rights in the economy D Growth in the quantity of money in the economy

D