homework 1

The property of society getting the most it can from its scarce resources is called a. efficiency. b. externality. c. equality. d. productivity.

a. efficiency.

Consider Luis's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Luis's cost of going to college is a. $49,800. b. $57,000. c. $42,600. d. $33,800.

c. $42,600.

In a market economy, economic activity is guided by a. central planners. b. the government. c. self-interest and prices. d. public-interest groups.

c. self-interest and prices.

Which of the following is the most correct statement about the relationship between inflation and unemployment? a. In the short run, falling inflation is associated with rising unemployment. b. In the short run, falling inflation is associated with falling unemployment. c. In the long run, falling inflation is associated with falling unemployment. d. In the long run, falling inflation is associated with rising unemployment.

a. In the short run, falling inflation is associated with rising unemployment.

Market power refers to the a. power of a single person or small group to influence market prices. b. ability of a person or small group to successfully market new products. c. power of the government to regulate a market. d. importance of a certain market in relation to the overall economy.

a. power of a single person or small group to influence market prices

Which of these activities will most likely result in an external benefit? a. An executive purchases a book to read on a business trip. b. An elderly woman plants a flower garden on the vacant lot next to her house. c. A college student buys a deck of cards to play solitaire in her dorm room. d. A ten-year-old uses his allowance to buy new Nike shoes.

b. An elderly woman plants a flower garden on the vacant lot next to her house.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? a. The amount you value the first movie + $9 b. The amount you value the first movie + $3 c. $9 d. $3

b. The amount you value the first movie + $3

The term used to describe a situation in which markets do not allocate resources efficiently is a. equilibrium. b. market failure. c. the effect of the invisible hand. d. economic meltdown.

b. market failure.

Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of attending college: a. even if the amount she would have to pay for room and board if she didn't attend college rose by the same amount. An increase in opportunity cost reduces Chloe's incentive to attend college. b. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend college. c. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost increases Chloe's incentive to attend college. d. even if the amount she would have to pay for room and board if she didn't attend college rose by the same amount. An increase in opportunity cost increases Chloe's incentive to attend college.

b. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend college.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the average cost. b. sell the ticket because the marginal benefit exceeds the marginal cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. not sell the ticket because the marginal benefit is less than the average cost.

b. sell the ticket because the marginal benefit exceeds the marginal cost.

A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages? a. Vietnam has a low-wage policy to make its textile industry more competitive in world markets. b. U.S. textile workers belong to a union, whereas Vietnamese textile workers do not belong to a union. c. Labor is more productive making cotton cloth with a mechanical loom than with a hand loom. d. There is little demand for cotton cloth in Vietnam and great demand in the United States.

c. Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.

In the short run, which of the following is not correct? a. Increasing the money supply encourages firms to hire more workers. b. Lowering the money supply leads to a higher level of unemployment. c. Policies that encourage higher employment will also induce a lower rate of inflation. d. Increasing the money supply increases the demand for goods and services.

c. Policies that encourage higher employment will also induce a lower rate of inflation.

The basic principles of economics suggest that a. government should become involved in markets when trade between countries is involved. b. markets are seldom, if ever, a good way to organize economic activity. c. government should become involved in markets when those markets fail to produce efficient or fair outcomes. d. government should never become involved in markets.

c. government should become involved in markets when those markets fail to produce efficient or fair outcomes.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a. rational people think at the margin. b. improvements in efficiency sometimes come at the expense of equality. c. people face tradeoffs. d. people respond to incentives.

c. people face tradeoffs.

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by a. a strong reliance on prices and individuals' self-interests. b. a market economy. c. the actions of government central planners. d. a system of large privately owned firms.

c. the actions of government central planners.

The primary determinant of a country's standard of living is a. the country's ability to prevail over foreign competition. b. the average age of the country's labor force. c. the country's ability to produce goods and services. d. the total supply of money in the economy.

c. the country's ability to produce goods and services.

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate? a. Trade can make everyone better off. b. Rational people think at the margin. c. Markets are usually a good way to organize economic activity. d. People respond to incentives.

d. People respond to incentives.

Productivity is defined as the a. amount of labor that can be saved by replacing workers with machines. b. number of workers required to produce a given amount of goods and services. c. actual amount of effort workers put into an hour of working time. d. amount of goods and services produced from each unit of labor input.

d. amount of goods and services produced from each unit of labor input.

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce a. productivity. b. equality. c. efficiency. d. externalities.

d. externalities.

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker a. increased by 4.75 percent between 1998 and 2008. b. decreased by 1.7 percent between 1998 and 2008. c. remained unchanged between 1998 and 2008. d. increased by 6.25 percent between 1998 and 2008.

d. increased by 6.25 percent between 1998 and 2008.