Econ Final

When the War on Poverty programs were instituted and transfer payments expanded in the last half of the 1960s, what happened to the poverty rate?

After falling for several decades, the official poverty rate has been relatively constant since the late 1960s.

If food is more important than recreation, then why would a person spend money on recreation?

As people consume more food, the value of an additional dollar spent on food will eventually decline and fall below that of a dollar spent on recreation.

Entreprenuers have a strong incentive to

Avoid projects that reduce the value of the resources.

Which of the following best explains why Americans produce and earn approximately thirty times more per person today than in 1750?

Capital formation, improvements in technology, and gains from trade have made higher incomes possible.

What would be a secondary effect of increasing the tariff rate imposed on foreign-made automobiles?

Fewer exports of U.S.-made goods and services

How does the invisible hand principle explain why self-interested individuals will generally pursue activities that benefit others?

The pursuit of profit and income gives individuals a strong incentive to provide goods and services that are highly valued by others.

In 2014, the federal debt of the United States was about $18 trillion. Most members of Congress indicate they believe the federal debt is too high, and yet they continue to pass budgets with deficits. Why do they do this?

There is a strong political incentive to support government spending that provides visible short-term benefits at the expense of longer-term costs that are less visible.

What effects do specialization and trade have on the allocation of resources and the level of production of a society?

They create a more efficient allocation of resources and an increase in the level of production.

If higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur?

U.S. exports will decline because foreigners will be earning fewer of the dollars needed to purchase goods and services from Americans.

The argument that import restrictions save jobs and promote prosperity fails to recognize that

U.S. imports provide people in other countries with the purchasing power required for the purchase of U.S. exports.

Professional sports teams will trade the services of players only if

both teams expect to benefit from the trade.

Which of the following is a key characteristic of economic freedom?

institutions and policies supportive of voluntary exchange freedom to compete protection of people and their property from aggressors

Which of the following characteristics of monetary policy is most important for the promotion of growth and prosperity?

keeping inflation low and the general price level relatively stable

The basic ingredients of an economic choice are

scarcity and choice.

Your opportunity cost of attending a baseball game is

the highest valued alternative forgone because of the time and money required to attend the game.

If the United States reduced tariff rates and other trade barriers,

the income levels of Americans would be higher.

When new technology replaces an established product, such as when digital music replaced CDs and records,

the new technologies and improved products will promote economic progress.

The price of smart phones will tend to fall when

there is excess supply of the phones

When people specialize in the production of goods and services they can provide at a low cost

they can trade those goods for revenues and use the revenues to purchase goods that would have been costly to produce for themselves.

In Africa, poachers kill many elephants for their tusks. Which of the following policies is the best way to protect elephants?

Give legally protected ownership of the elephants to people who live near them

Government leaders in California are concerned about high rents and housing prices. What would be the result(s) of a law that would lower rents below the market equilibrium price? I. Initially rents would be lower. II. More apartments would be built in the future. III. In the long run, there would be a shortage of apartments and fewer incentives to maintain them.

I and III

Why is the market process more likely to approve productive, and reject unproductive, projects than the political process?

In the market, projects will continue to be undertaken only if they generate revenues that are sufficient to cover their costs.

Which one of the following statements most accurately indicates the basic motivation for behavior?

Individuals are motivated by a variety of forces; however, changes in personal benefits and costs influence the choices of both selfish and humanitarian individuals.

Celina worked her way through law school as a typist. She now makes $200 per hour as a lawyer. As the result of a heavy workload, she hires a typist at $25 per hour, but Celina discovers she can type twice as fast as her new employee. Should Celina do her own typing?

No, even though Celina types faster than her new employee, her opportunity cost of doing any given amount of typing will exceed that of her new employee.

Which of the following economic environments is most consistent with economic growth and prosperity?

Open markets and a legal system that enforces contracts in an even-handed manner

Which of the following statements is correct?

Opportunity costs will always be incurred when scarce resources are used to produce a good.

Given your knowledge of the incentives created by private ownership, which of the following statements is true?

People will be more likely to pick up dog droppings in their front lawn than in a common area.

How does the invisible hand ensure that an economy will not run out of a renewable resource?

Price increases due to the diminishing supply of a resource will both curb consumption and provide incentive for producers to expand supply.

Which of the following is true?

Projects that increase the value of resources will expand output and increase income.

What is the cause of inflation?

Rapid increases in the money supply

Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value.

Suppose persistent obesity leads to a ban on soda served in large containers. Which of the following will result?

The demand for soda served in small containers will increase.

In a market economy, why will some people earn higher incomes than others?

The high earners find ways to provide valuable goods and services to others in exchange for income.

Which of the following is most likely to result in cost-effective production methods, innovation, and quality goods at economical prices?

a business environment of dynamic competition

Which of the following is most likely to lead to expansions in output and higher income levels per person?

a high rate of investment

Which of the following is the most likely result of a quota that limits the importation of steel into the United States?

a reduction in output and employment in domestic industries that utilize steel as a resource

When the government raises tax rates, the result will be

a reduction in the incentive to earn and invest because people get to keep less of what they earn.

The economic way of thinking is

a set of basic concepts that helps one understand human choices

Which of the following is most important for the achievement of price stability?

a slow growth rate of the money supply

When economists say that market equilibrium is consistent with economic efficiency, they mean that

all gains from trade between producers and consumers have been realized.

Governments encourage lobbying and favor seeking when they

are heavily involved in the granting of subsidies and tax breaks that favor some segments of the population at the expense of others.

Private ownership allows people to decide how they will use their property,

as long as they do not invade or damage the property of others.

When government regulations in a country determine which businesses can enter and compete in a market,

bribes, political favoritism, and corruption are likely to be widespread.

In a free market economy, innovative products or services will ultimately be judged

by the consumer's willingness to purchase the product or service.

The economic way of thinking assumes that

changes in the personal benefits and costs associated with an activity will exert a predictable influence on the behavior of both those who are selfish and those who are unselfish.

When recipients must own an asset in order to qualify for receipt of a subsidy,

competition will increase the price of the asset, thereby reducing much of the net value derived by the recipients.

A recent study by Isabel Sawhill and Ron Haskins of the Brookings Institution found that a person could reduce their chances of living in poverty from 12 percent to 2 percent by

completing high school (at a minimum), working full time, and getting married before having a child.

The economic way of thinking requires that opportunity cost be

considered as part of making a decision.

The producer's decision to direct resources to the production of a good or service will be profitable when

consumers are willing to pay a price greater than the per-unit cost of production.

When gas prices rise sharply, as they did in 2007-2008, the "incentives matter" postulate of economics indicates that

consumers will adjust their driving habits, eventually reducing the quantity demanded for gas.

The invisible hand principle indicates that individuals will have a strong incentive to

cooperate with others by helping them in exchange for income.

Private ownership allows owners to

decide how the property will be used as long as they do not invade or physically damage the property of others.

In a market economy, profits

encourage productive projects and losses weed out unproductive ones.

When the government levies taxes to subsidize the producers of corn-based sugar, the subsidies will

exert little impact on net employment because expansion of employment in corn production will be partially offset by less employment in other sectors as the result of the taxes.

When it comes to spending, members of Congress have a strong incentive to

fight for expenditures benefiting their constituents, but only a weak incentive to oppose spending benefiting others.

When political authority overrides the rule of law and freedom of contract,

gains from trade will be undermined and diminished.

In a market economy, individuals have a strong incentive to develop skills and improve their productivity because

greater productivity enhances their ability to earn income.

The opportunity cost of building a civic center in your hometown would be the

highest valued bundle of other goods and services that must be forgone because of the civic center construction.

Economics is primarily the study of

how individuals make choices because of scarcity.

When people change their employment status or alter purchasing decisions because of high marginal tax rates,

inefficiencies result because people take jobs and purchase goods they would not have chosen if taxes had not distorted the benefits and costs accompanying their choices.

Volatility in the inflation rate will undermine prosperity because

it will generate uncertainty and therefore individuals will spend less time producing and more time attempting to protect their wealth against inflation and the fluctuations in the value of the currency.

The rational-ignorance effect refers to the

lack of incentive voters have to become well-informed about candidates and issues because their vote is unlikely to affect the outcome of an election.

Which of the following contributed to the severity of the Great Depression of the 1930s?

large increases in tax rates in 1932 and again in 1936

Scarcity implies that when a resource is used to produce a good

less of that resource will be available to produce other goods.

What is the "invisible hand" that coordinates the actions of individuals referred to by Adam Smith?

market prices.

Regulations, subsidies, and tax breaks that favor specific industries, regions, or groups

often have unintended consequences that affect taxpayers and consumers as a whole.

Which of the following would be most likely to enhance the economic growth of a nation?

open and competitive markets

When a market is characterized by a monopoly,

output will generally be less than the output that is ideal from the standpoint of economic efficiency.

When investment funds are directed by political decision makers rather than by the market,

political influence, rather than market returns, will decide which projects will be undertaken.

Gains from trade are highest when:

producers trade freely and on the basis of comparative advantage.

In a market economy, you will likely earn a high income if you find a way to

provide others with goods and services that they value highly.

When price is the rationing criterion, individuals have a strong incentive to

provide services to others in exchange for income.

What is the source of persistent inflation?

rapid growth of the money supply

In the long run, tariffs

reduce both imports and exports.

High transaction costs will tend to

reduce the number of mutually beneficial exchanges that occur.

A marginal change usually is a

small, incremental adjustment.

When a good is scarce,

some method must be used to allocate the good among users.

Special-interest issues are politically attractive because

special interest groups feel strongly about these issues, while most other voters are poorly informed.

The law of comparative advantage explains why

specialization and exchange will make it possible for trading partners to expand their joint output.

Other things constant, countries with higher investment rates will

tend to have higher incomes in the future.

To an economist, scarcity means that

the amount of resources freely available from nature to produce the goods desired by humans are limited..

As the tax rate imposed on a good or service increases,

the buyer pays more and the seller receives less when the good or service is purchased.

In a market economy, when a consumer is willing to purchase a unit at the market price, this indicates that

the consumer values the unit as much or more than the market price.

Realization of gains from trade, entrepreneurial discovery, and investment are largely dependent on

the presence of institutions and policies consistent with economic freedom.

When the government finances a job creation project through taxes or borrowing,

the reduction in private sector employment will partially, if not entirely, offset the jobs created by government.

When property is privately owned, people have a strong incentive to use their property in ways that are highly valued by others because

the revenues generated by the property will be higher when it is used in this manner.

The price that a person is willing to pay for a product or service is a good indication of

the value of that product or service to the buyer.

The supply curve illustrates

the various quantities of a good or service producers are willing to supply at alternative prices.

When the price of a resource is high, this indicates that

there are alternative uses for the resource, which create a strong demand for it.

In order to prosper, entrepreneurs must

undertake projects that create wealth and increase the value of resources.

Markets coordinate output decisions by pushing price

upward when there is a shortage.

The secondary mortgage market is a market

where mortgages originated by a lender are sold to another financial institution.

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that

Florida has a comparative advantage in producing oranges.

Which of the following resulted from the Smoot-Hawley trade bill of 1930

The unemployment rate, which stood at 7.8% when the bill was passed, soon soared to double-digit levels.