Econ Exam 1

Which of the following is a positive economic statement? -A tax on butter will reduce the quantity of butter bought and sold, all else equal -The rich do not pay enough in taxes -People in poor countries should not work for less than $5 per hour -All of the above are positive economic statements

A tax on butter will reduce the quantity of butter bought and sold, all else equal

The value of a good is -objective or intrinsic, independent of the buyer or seller -subjective; value is placed on the good according to the "subject" or the buyer or seller -determined by a government statistical agency -determined by its cost of production

subjective; value is placed on the good according to the "subject" or the buyer or seller

The opportunity cost of an action is -the monetary payment the action required -the total time spent by all parties in carrying out the action -the value of the best opportunity that must be sacrificed in order to take the action -the cost of all alternative actions that could have been taken, added together

the value of the best opportunity that must be sacrificed in order to take the action

Which one of the following statements is most clearly inconsistent with the economic way of thinking? -"If you give a person a fish, you feed them for a day; if you teach them to fish, you feed them for lifetime." -"If the government provides a good free to citizens, then the opportunity cost of the good is zero." -"If you derive the exact same satisfaction from a hamburger as a chicken sandwich, then it makes sense to have the cheaper alternative for lunch." -"When it is cheaper to have someone else mow your lawn than to mow it yourself, hiring someone else to do the job for you is consistent with economizing behavior."

"If the government provides a good free to citizens, then the opportunity cost of the good is zero."

Which of the following could be considered to be a secondary effect (unintended consequence) caused by making drugs such as marijuana, cocaine, heroin and meth illegal? -The higher black-market prices that result from making drugs illegal results in more property theft by users who could not otherwise afford the drugs -The usage of scarce police and law enforcement resources to enforce drug laws leads to less enforcement (and thus a higher amount) of other crimes -Without the ability to use the legal system (courts of law) to enforce contracts in these underground markets, violence between buyers and sellers often results when one party to a drug deal does not live up to their end of the bargain, thus the amount of violence in society often increases by making drugs illegal -When supplying the demand for a product that has been decreed illegal by the government, the supplier has no incentive to refrain from other illegal and equally punishable behaviors, thus increasing overall crime by making drugs illegal -All of the above would be considered valid and important secondary effects of making drugs illegal

All of the above would be considered valid and important secondary effects of making drugs illegal

Which of the following is a positive economic statement? -An increase in the minimum wage will reduce employment of low-skill workers -The minimum wage should be increased to $18/hour -Social justice will be served by increasing the minimum wage -Thoughtful people oppose an increase in the minimum wage

An increase in the minimum wage will reduce employment of low-skill workers

Legislation to protect red-cockaded woodpeckers by making their trees off limits to loggers created incentives that resulted in the widespread cutting and premature harvesting of trees in which these woodpeckers were most likely to nest. This is an example of which of the following pitfalls in economics? -Correlation is not causation -The fallacy of composition -The zero-sum fallacy -Good intentions do not always lead to desirable outcomes; the problem of secondary effects

Good intentions do not always lead to desirable outcomes; the problem of secondary effects

Which of the following is a positive economic statement? -Government control of rent is a fair way to help poor people afford housing -Government control of rental housing keeps landlords from charging too much rent -Government price controls on rent decreases the number of new apartments constructed -Government control of rent is a social injustice

Government price controls on rent decreases the number of new apartments constructed

Which of the following is a positive economic statement? -Too much government spending is the biggest problem facing the U.S. economy -Creating jobs is the most serious problem facing the U.S. economy -Raising taxes provides additional revenue that should be used to finance health care -If tax rates at all levels of government exceed 50 percent of national income, job creation will decline, all else constant

If tax rates at all levels of government exceed 50 percent of national income, job creation will decline, all else constant

Which of the following is often referred to as the basic postulate of economics? -Individuals act only out of selfish motives -Incentives matter: individuals respond in predictable ways to changes in personal costs and benefits -The accuracy of the assumptions is the best test of an economic theory -The value of a good is objective; it is equal to the cost of producing the good

Incentives matter: individuals respond in predictable ways to changes in personal costs and benefits

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference? -Harold must enjoy washing and ironing more than Sarah -Harold must be better at washing and ironing than Sarah -The opportunity cost of washing and ironing is greater for Harold than for Sarah -Sarah has a higher opportunity cost than Harold in terms of the time spent washing and ironing her clothes

Sarah has a higher opportunity cost than Harold in terms of the time spent washing and ironing her clothes

The economic way of thinking is -a set of historical generalizations that indicates which specific goods should be produced at different times -a body of statistical data that indicates how an economy should be organized and run -a set of basic concepts that helps one understand human choices and actions under scarcity constraints -a set of highly abstract theories that provides persons skilled in statistics with the information necessary to tell others what choices they should make

a set of basic concepts that helps one understand human choices and actions under scarcity constraints

Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry. Which of the following could be considered a secondary effect of these trade restrictions? -The price to consumers of the good in question will be higher as a result of the restriction, all else equal, meaning consumers will realize less consumer surplus and thereby be worse off -If consumers must spend more money to purchase the good, there will be employment losses in other domestic industries as consumers cut back on their spending on other things, ceteris paribus -Because there is a link between a country's imports and its exports, less imports from other countries will result in lower domestic employment in export industries (a.k.a. the "Lerner symmetry theorem") -all of the above

all of the above

Economic analysis assumes that -individuals act only out of selfish motives -although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted -people are basically humanitarian and altruistic, and their actions are, therefore, impossible to predict -changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior

changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior

The economic way of thinking suggests that if the government imposed a $1,000 tax on owners of red automobiles, ceteris paribus -fewer red automobiles would be produced and sold -more red automobiles would be produced and sold -there would be no change in the number of red automobiles produced and sold -red automobiles would cease to existed altogether

fewer red automobiles would be produced and sold

For the typical college student, taking an introductory course in economics should -turn the student into an economist -teach the student solutions to all social problems -teach the student all the answers to the most complex social questions -help the student learn to rationally analyze and systematically think about social problems -all of the above

help the student learn to rationally analyze and systematically think about social problems

According to Adam Smith, individual self-interest -is a powerful force for economic progress when individuals are wisely directed by a strong central government -is a major factor in restraining the economic progress of humankind -is a powerful force for economic progress when it is directed by competitive markets -could be either a positive or negative force for economic progress, depending on the moral influences of political leaders

is a powerful force for economic progress when it is directed by competitive markets

Economic theory -is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clearer in economics -is like a guidebook in that it points out what to look for -provides economists with a common language and way of thinking about how the world works -is like a "rule book" that lays out the "rules of the game" of human action but without determining the outcome of the game -is all of the above

is all of the above

If an economy is operating at a point inside the production possibilities curve, -its resources are not being used efficiently -the curve will begin to shift inward -the curve will begin to shift outward -This is a trick question because an economy cannot produce at a point inside the production possibilities curve

its resources are not being used efficiently

The economizing problem is essentially one of deciding how to make the best use of -limited resources to satisfy limited wants -unlimited resources to satisfy limited wants -limited resources to satisfy virtually unlimited wants -unlimited resources to satisfy virtually unlimited wants

limited resources to satisfy virtually unlimited wants

The basic difference between macroeconomics and microeconomics is that -macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents) -macroeconomics is concerned with policy decisions, while microeconomics applies only to theory -microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents) -opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics

macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents)

James enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the greater potential for injury it creates by not wearing one in the uncertain event he is in an accident. To an economist, James is -making an irrational choice -making a rational choice -not fully considering the personal costs and benefits of his decision -not responding to the incentives he faces

making a rational choice

The difference between microeconomics and macroeconomics is that -microeconomics involves mathematical relationships, and macroeconomics is predominantly a verbal analysis -microeconomics deals with the principle of scarcity, and macroeconomics deals with the problem of poverty -microeconomics deals with narrowly defined economic units, and macroeconomics focuses on highly aggregated economic markets -microeconomics is normative, and macroeconomics is positive

microeconomics deals with narrowly defined economic units, and macroeconomics focuses on highly aggregated economic markets

Economists use the term ceteris paribus to indicate that -supply and demand are in balance -other things are assumed to be held constant -the analysis is true for the individual but not for the economy as a whole -their conclusions are based on normative economics rather than positive economic analysis

other things are assumed to be held constant

Because information is scarce and costly to acquire, -people will rationally choose not to become 100% fully informed before making decisions -people will generally choose to become 100% fully informed before making decisions -people will generally choose to acquire no information that would be relevant to their decisions -most people cease to make decisions

people will rationally choose not to become 100% fully informed before making decisions

In economics, human-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as -final consumer goods -physical capital goods -marginal goods -infrastructures

physical capital goods

The difference between positive economic statements and normative economic statements is that -positive statements are based on opinion while normative statements are based on facts -positive statements are true and normative statements are often false -positive statements are often false and normative statements are true -positive statements are based on facts and are testable, while normative statements are based on opinion and are not testable -both B and D

positive statements are based on facts and are testable, while normative statements are based on opinion and are not testable

When market prices act as the rationing criterion under scarcity, individuals have a strong incentive to -ignore the wishes of others when making decisions about how to use their resources -provide valued services to others in exchange for income in the form of wages, salary, profits, rent, or interest -avoid exchanges because in every exchange there will be one person who gains and another who loses -substitute promises for the consistent delivery of a quality product -avoid market trade and attempt to become self-sufficient

provide valued services to others in exchange for income in the form of wages, salary, profits, rent, or interest

Adam Smith believed that if people were free to pursue their own interests, -less would be produced than if altruism were the guiding principle -public interest would be served quite well by voluntary self-interested trading -they would generally apply their talents to unproductive activities that would generate little value to society -they would have little incentive to undertake productive activities

public interest would be served quite well by voluntary self-interested trading

Economic choice and competitive behavior both are the result of -scarcity -poverty -public ownership of resources -private ownership of resources -all of the above

scarcity

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare -the sum of the benefits expected from two cars with the total cost of both -the additional benefits expected from a second car with the cost of the two cars -the dollar cost of the two cars with the potential income that the cars will generate -the additional benefits of the second car with the additional cost of the second car

the additional benefits of the second car with the additional cost of the second car

Economics is primarily the study of -why people like to make money -the management of a business -the choices people make as the result of scarcity -how to make money in the stock market

the choices people make as the result of scarcity

"The money and resources currently being devoted to preventing and treating the spread of various strands of the coronavirus reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following concepts? -the fallacy of composition -the idea that correlation is not causation -the concepts of scarcity and opportunity cost -the difference between positive and normative economics

the concepts of scarcity and opportunity cost

Goods are scarce because -of greed; if human beings were not so selfish, goods would not be scarce -the desire for goods is far greater than their availability from nature -of competition; if people were not so competitive, it would be possible to satisfy people's desire for material goods through communal sharing -of private property; if things were not owned privately, scarcity could be eliminated by communal living arrangements

the desire for goods is far greater than their availability from nature

If a good is scarce, -there will be persistent shortages of it if the good is rationed by market price signals -the good will have a price in a market setting -there will be enough of the good freely available from nature to satisfy the human desire for it -all of the above

the good will have a price in a market setting

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

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water

A rational decision maker takes an action if, and only if -the marginal benefit of the action exceeds the marginal cost of the action -the marginal cost of the action exceeds the marginal benefit of the action -the marginal cost of the action is zero -the opportunity cost of the action is zero

the marginal benefit of the action exceeds the marginal cost of the action

Your professor enjoys his work, teaching economics. He has been offered other positions in the corporate world that would increase his monetary income by as much as 25 percent, but he has decided to continue working as a professor. His decision to continue teaching rather than taking other positions would not change unless -the marginal cost of teaching increased above the marginal benefit -the marginal benefit of teaching increased above the marginal cost -the marginal cost of teaching decreased -the marginal benefit of a corporate job decreased

the marginal cost of teaching increased above the marginal benefit

In economics the term "utility" refers to -the subjective benefit or satisfaction a person expects to receive from a choice or course of action -the number of possible uses for a scarce resource -the fact that human desire for goods is unlimited while the resources available to meet those desires is limited -the highest valued alternative that must be sacrificed when a choice is made

the subjective benefit or satisfaction a person expects to receive from a choice or course of action

To say that people make marginal decisions, or that they "make decisions at the margin," means that -they usually wait until the last minute before making a decision to buy -they weigh the additional costs and additional benefits of various activities before they make a decision -most people just barely get by on the incomes they earn, living from day to day on the very edge of subsistence -they consider the total costs and total benefits of various activities before they make a purchase

they weigh the additional costs and additional benefits of various activities before they make a decision