Econ Finals Study Guide Questions

You should decide to go to a movie:

if the marginal benefit of the movie exceeds its marginal cost.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Purposeful behavior suggests that: (hint: individuals....)

individuals may make different choices because of different desired outcomes.

Economics involves marginal analysis because:

most decisions involve changes from the present situation.

Purposeful behavior means that: (hint: people...)

people weigh costs and benefits to make decisions.

In corporations, owners are __________________ and managers are ________________.

principals; agents

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

The French term "laissez-faire" means:

"let it be."

A person should consume more of something when its marginal:

Benefit exceeds its marginal cost

If someone produced too much of a good, this would suggest that:

the good was produced past the point where its marginal cost exceeded its marginal benefit.

Of the following countries, which one best exhibits the characteristics of a market economy? Canada. Cuba. North Korea. Belarus.

Canada

Which of the following is a distinguishing feature of a command system?

Central planning.

The study of economics is primarily concerned with:

Choices that are made in seeking the best use of resources

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:

Examples of command economies are:

Cuba and North Korea.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

Income effect

According to economists, economic self-interest:

Is the reality that underlies economic behavior

When economists say that people act rationally in their self- interest, they mean that individuals:

Look for and pursue opportunities to increase their utility

Which of the following is a distinguishing feature of laissez-faire capitalism?

Minimal government intervention.

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says "at least I didn't lose any money on my financial investment." His economist friend points out that in affect he did lose money because he could have received a 3% return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

Opportunity costs

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because:

Productive resources are limited

Economists may best be defined as the:

Social science concerned with how individuals, institutions, and society makes optimal choices under conditions of scarcity

The economic perspective entails:

a comparison of marginal benefits and marginal costs in decision making.

If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true? a. The benefit surpluses shared between consumers and producers will be maximized. b. The benefit surpluses received by consumers and producers will be equal. c. There will be no consumer or producer surplus. d. Consumer surplus will be maximized, and producer surplus will be minimized.

a. The benefit surpluses shared between consumers and producers will be maximized.

Economic systems differ according to which two main characteristics? a. Who owns the factors of production and the methods used to coordinate economic activity. b. The technology used in production and the quantity and quality of natural resources. c. How goods are produced and who gets them. d. The political system in place and the degree of scarcity facing the economy.

a. Who owns the factors of production and the methods used to coordinate economic activity.

Inflation is defined as: a. an increase in the overall level of prices. b. the rate of growth in nominal GDP. c. a situation where all prices in the economy rise simultaneously. d. the growth phase of the business cycle.

a. an increase in the overall level of prices.

As disposable income goes up, the: a. average propensity to consume falls. b. average prosensity to save falls. c. volume of consumption declines absolutely. d. volume of investment diminishes.

a. average propensity to consume falls.

An unexpected increase in total spending will cause an increase in GDP: a. if prices are sticky. b. if prices are fully flexible. c. regardless of whether prices are sticky or fully flexible. d. only if prices are stuck in the long term.

a. if prices are sticky.

The many layers of the federal government in the United States: a. lead to economic inefficiencies because of difficulty aggregating and conveying information. b. enhance government's ability make effective decisions quickly. c. better allow the invisible hand to direct government resources to their best uses. d. improve accountability of government officials, thus leading to more efficient policies.

a. lead to economic inefficiencies because of difficulty aggregating and conveying information.

The system that measures the economy's overall performance is formally known as: a. national income accounting. b. business cycle measurement. c. GDP assessment. d. final output and income statistics.

a. national income accounting.

As it relates to owners and managers, the principal-agent problem results from the: a. separation of corporate ownership and control. b. double taxation of corporate profit. c. limited liability of corporate owners. d. differing interests of corporate stockholders and bondholders.

a. separation of corporate ownership and control.

The assertion that "there is no free lunch" means that:

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Between 1950 and 2012, U.S. real GDP grew at an average annual rate of about: a, 2.0 percent. b. 3.1 percent. c. 5.1 percent. d. 8.6 percent.

b. 3.1 percent.

The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the: a. Council of Economic Advisers. b. Bureau of Economic Analysis. c. National Bureau of Economic Research. d. Bureau of Labor Statistics.

b. Bureau of Economic Analysis.

What two conditions must hold for a competitive market to produce efficient outcomes? a. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. b. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. c. Firms must minimize production costs, and consumers must minimize total expenditures. d. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay.

b. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation? a, Purchasing power parity. b. The quantity of resources available to the economy. c. Population size. d. Different currency values.

b. The quantity of resources available to the economy.

The APC is calculated as: a. change in consumption/change in income. b. consumption/income. c. change in income/change in consumption. d. income/consumption.

b. consumption/income.

Property rights are important because they: a. ensure an equal distribution of income. b. encourage cooperation by improving the chances of mutually agreeable transactions. c. guarantee that any exchange will make all parties better off than prior to the exchange. d. allow the government to control how resources are allocated.

b. encourage cooperation by improving the chances of mutually agreeable transactions.

The National Income and Product Accounts (NIPA) help economists and policymakers to: a. determine which firms are likely to succeed or fail. b. follow the long-run course of the economy to determine whether it has grown or stagnated. c. measure what is occurring in each specific labor market. d. accomplish all of these.

b. follow the long-run course of the economy to determine whether it has grown or stagnated.

An economic system: a. requires a grouping of private markets linked to one another. b. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. c. requires some sort of centralized authority (such as government) to coordinate economic activity. d. is a plan or scheme that allows a firm to make money at some other firm's expense.

b. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

Growth is advantageous to a nation because it: a. promotes faster population growth. b. lessens the burden of scarcity. c. eliminates the economizing problem. d. slows the growth of wants.

b. lessens the burden of scarcity.

Before the period of modern economic growth: a. only civilizations such as the Roman Empire experienced economic growth. b. rates of population growth virtually matched rates of output growth. c. most economies realized high rates of growth in output per person. d. output and population growth were stagnant.

b. rates of population growth virtually matched rates of output growth.

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: a. military goods and capital goods. b. services and nondurable consumer goods. c. clothing and education. d. capital goods and durable consumer goods.

b. services and nondurable consumer goods.

As it relates to corporations, the principal-agent problem is that: a. the goals of the corporate managers (the principals) may not match the goals of the corporate owners (the agents). b. the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals). c. the federal government (the agent) taxes both corporate profits and the dividends paid to stockholders (the principals). d. it is costly for the corporate owners (the principals) to obtain a corporate charter from government (the agent). References

b. the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

For comparing changes in potential military strength and political preeminence, the most meaningful measure of economic growth would be changes in: a. total nominal output. b. total real output. c. per capita output. d. per family output.

b. total real output.

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle: a. under the demand curve and below the actual price. b. under the demand curve and above the actual price. c. above the supply curve and above the actual price. d. above the supply curve and below the actual price.

b. under the demand curve and above the actual price.

Real per capita GDP in the United States in 2012 was approximately: a. $13,300. b. $39,800. c. $49,500. d. $13.3 trillion.

c. $49,500.

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that: a. GDP in 2010 is $450 billion. b. NDP in 2010 is $450 billion. c. GDP in 2010 is $500 billion. d. inventories in 2010 fell by $50 billion.

c. GDP in 2010 is $500 billion.

Which of the following is a source of government failure? a. The invisible hand. b. The lack of bureaucracy in government. c. The enormous size and scope of government. d. Excessive flexibility.

c. The enormous size and scope of government.

The 45-degree line on a graph relating consumption and income shows: a. all the points where the MPC is constant. b. all the points at which saving and income are equal. c. all the points at which consumption and income are equal. d. the amounts households will plan to save at each possible level of income.

c. all the points at which consumption and income are equal.

A decline in disposable income: a. increases consumption by moving upward along a specific consumption schedule. b. decreases consumption because it shifts the consumption schedule downward. c. decreases consumption by moving downward along a specific consumption schedule. d. increases consumption because it shifts the consumption schedule upward.

c. decreases consumption by moving downward along a specific consumption schedule.

A producer's minimum acceptable price for a particular unit of a good: a. is the same for all units of the good. b. will, for most units produced, equal the maximum that consumers are willing to pay for the good. c. equals the marginal cost of producing that particular unit. d. must cover the wages, rent, and interest payments necessary to produce the good but need not include profit.

c. equals the marginal cost of producing that particular unit.

Factors that impede the attainment of economic efficiency in the public sector are called: a. market failures. b. externalities. c. government failures. d. voting irregularities.

c. government failures.

The term "laissez-faire" suggests that: a. land and other natural resources should be privately owned, but capital should be publicly owned. b. land and other natural resources should be publicly owned, but capital should be privately owned. c. government should not interfere with the operation of the economy. d. government action is absolutely necessary if the economy is to achieve full employment and full production.

c. government should not interfere with the operation of the economy.

Government officials tend to make: a. better economic decisions than private individuals because of the wealth of information at their disposal. b. better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy. c. inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs. d. inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs.

c. inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.

Producer surplus: a. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. b.rises as equilibrium price falls. c. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. d. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

c. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

Tom Atoe grows fruits and vegetables for home consumption. This activity is: a. excluded from GDP in order to avoid double counting. b. excluded from GDP because an intermediate good is involved. c. productive but is excluded from GDP because no market transaction occurs. d. included in GDP because it reflects production.

c. productive but is excluded from GDP because no market transaction occurs.

The consumption schedule is such that: a. both the APC and the MPC increase as income rises. b. the APC is constant and the MPC declines as income rises. c. the MPC is constant and the APC declines as income rises. d. the MPC and the APC must be equal at all levels of income.

c. the MPC is constant and the APC declines as income rises.

Command systems are also known as:

communism.

The government's ability to coerce can enhance economic efficiency by:

correcting market failures.

Between 1950 and 2012, U.S. real GDP per capita grew at an average annual rate of about: a. 5.5 percent. b. 4.2 percent. c. 3.2 percent. d. 2.0 percent.

d. 2.0 percent.

Suppose Smith pays $100 to Jones. a. We can say with certainty that the GDP has increased by $100. b. We can say with certainty that the GDP has increased, but we cannot determine the amount. c. We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased. d. We need more information to determine whether GDP has changed.

d. We need more information to determine whether GDP has changed.

Economists use the term "demand" to refer to: a. a particular price-quantity combination on a stable demand curve. b. the total amount spent on a particular commodity over a fixed time period. c. an upsloping line on a graph that relates consumer purchases and product price. d. a schedule of various combinations of market prices and amounts/quantities demanded.

d. a schedule of various combinations of market prices and amounts/quantities demanded.

In representative democracy, voters are ____________ and politicians are ______________. a. agents; principals b. logrollers; principals c. agents; employees d. principals; agents

d. principals; agents

Modern economic growth refers to countries that have experienced an increase in: a. real GDP over time. b. nominal GDP over time. c. real output spread evenly across all sectors of the economy. d. real output per person.

d. real output per person.

Individual accountability within the government bureaucracy: a. tends to be greater than in private firms, making government more efficient than private firms. b. is not a problem because government bureaucrats are not affected by the self-interest that affects private sector individuals. c. is easy to monitor because of the small size and scope of government. d. tends to be lacking because of civil service protections and the complexity of government.

d. tends to be lacking because of civil service protections and the complexity of government.

A demand curve:

indicates the quantity demanded at each price in a series of prices.

Opportunity costs exist because:

the decision to engage in one activity means forgoing some other activity.

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:

the division of output is decided by central planning rather than by individuals operating freely through markets.