Econ Ch 1

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..

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

In the short run...

A decrease in inflation temporarily increases unemployment. an increase in inflation temporarily increases unemployment.

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

Raising taxes and increasing welfare payments...

Improves equality at the expense of efficiency.

Productivity can be increased by...

Improving the education of workers.

An increase in the price of beef provides...

Information that tells producers to produce more beef.

Which of the following situations describes the greatest market power?

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

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

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

High and persistent inflation is caused by...

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...

$800

Which of the following involve a trade-off?

1. Going to college 2. Correct All of these involve trade-offs. 3. Taking a nap 4. Buying a new car 5. Watching a football game on Saturday afternoon Correct Answer #2

Which of the following activities is most likely to produce an externality?

A student has a party in her dorm room.

Foreign trade...

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

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

False

Which of the following products would be least capable of producing an externality?

Food.

Which of the following statements is true about a market economy?

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

Trade-offs are required because wants are unlimited and resources are...

Scarce

Economics is the study of how...

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...

Students will shift majors from education to accounting.

A rational person does not act unless...

The action produces marginal benefits that exceed marginal costs.

Which of the following is not part of the opportunity cost of going on vacation?

The money you spent on food

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

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

Workers in the United States enjoy a high standard of living because...

Workers in the United States are highly productive.

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.)

Yes