Principles of business.

Business cycle

Fluctuations in economic activity.

d

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.

Market failure

A situation in which the market fails to allocate resources efficiently.

Market economy

An economic system where interaction of households and firms in markets determines the allocation of resources.

Inflation

An increase in the overall level of prices.

c

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

b

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

a

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 a country to equitable. d) increase the scarcity of resources. e) is none of the above.

c

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

e

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.

Marginal changes

Incremental adjustments to an existing plan.

Scarcity

Limited resources and unlimited wants.

c

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

d

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 equity. d) improves equity at the expense of efficiency. e) does none of the above.

Market power

The ability of an individual or group to substantially influence market prices.

Property rights

The ability of an individual to own and exercise control over scarce resources.

Productivity

The amount of goods and services produced per hour by a worker.

Monopoly

The case in which there is only one seller in the market.

Invisible hand

The principle that self-interested market participants may unknowingly maximize the welfare of society as a whole.

Efficiency

The property of society getting the most from its scarce resources.

c

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

False

True or False// A tax on liquors raises the price of liquor and provides an incentive for consumers to drink more.

False

True or False// An individual farmer is likely to have mart power in the market for wheat.

a

You have spent $1000 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 are costless to you.) a) yes. b) no. c) there is not enough information to answer this question.

d

Referring to question 17, 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.

a

Since people respond to incentives, we would expect that if the average salary of accountants increase by 50% while the average salary of teachers increases by 20%... 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.

Incentive

Something that induces a person to act.

Economics

Study of how society manages its scarce resources.

c

Suppose you find $20. If you choose to use $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.

Rational

Systematically and purposefully doing the best you can to achieve your objectives.

False

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

False

True or 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.

True

True or 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

True or False// High and persistent inflation tends to cause a reduction in unemployment.

False

True or False// In the short run, a reduction in inflation tends to cause a reduction in unemployment.

True

True or False// 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.

False

True or False// The United States will benefit economically if we eliminate trade with Asian counter tries because we will be forced to produce more of our own cars and clothes.

True

True or False// When economists say, "There is no such thing as a free lunch," they mean that all economic decisions involve trade-offs.

False

True or False// When the government redistributes income with taxes and welfare, the economy becomes more efficient.

False

True or False// Workers in the United States have a relative high standard of living because the United States has a relatively high minimum wage.

True

True or False// rational people act only when the marginal benefit of the action exceeds the marginal cost.

True

True or False// 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.

Opportunity cost

Whatever is given up to get something else.

Externality

When one person's actions have an impact on a bystander.

b

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 reads a move for please. d) a student eats a hamburger in the student union.

e

Which of the following involve a trade-off? a) buying a new car. b) going to college. c) watching a football game on Saturday afternoon. d) taking a nap. e) all of the above involve trade-offs.

b

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

d

Which of the following products would be least capable to produce an externality? a) cigarettes. b) stereo equipment. c) inoculations against disease. d) education. e) food.

c

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

a

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

d

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. e) none of the above is true.