Chapter 1 Quiz

In the short run, a. an increase in inflation temporarily increases unemployment. b. a decrease in inflation temporarily increases unemployment. c. inflation and unemployment are unrelated. d. the business cycle has been eliminated. e. None of the above is true.

b. a decrease in inflation temporarily increases unemployment.

A rational person does not act unless a. the action makes money for the person. b. the action is ethical. c. the action produces marginal costs that exceed marginal benefits. d. the action produces marginal benefits that exceed marginal costs. e. None of the above is true.

d. the action produces marginal benefits that exceed marginal costs.

Economics is the study of how a. to reduce our wants until we are satisfied. b. to fully satisfy our unlimited wants. c. society manages its unlimited resources. d. to avoid having to make trade-offs. e. society manages its scarce resources.

e. society manages its scarce resources.

Raising taxes and increasing welfare payments a. proves that there is such a thing as a free lunch. b. reduces market power. c. improves efficiency at the expense of equality. d. improves equality at the expense of efficiency. e. does none of the above.

d. improves equality at the expense of efficiency.

Which of the following involve a trade-off? a. Buying a new car b. Going to college c. Watching a football game on Saturday afternoon d. Taking a nap e. All of the above involve trade-offs.

e. All of the above involve trade-offs.

Foreign trade a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. b. allows a country to avoid trade-offs. c. makes the members of a country more equal. d. increases the scarcity of resources. e. is none of the above.

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

Productivity can be increased by a. improving the education of workers. b. restricting trade with foreign countries. c. raising minimum wages. d. raising union wages.

a. improving the education of workers.

An increase in the price of beef provides a. information that tells producers to produce more beef. b. information that tells consumers to buy more beef. c. no information because prices in a market system are managed by planning boards. d. information that tells consumers to buy less pork.

a. information that tells producers to produce more beef.

Trade-offs are required because wants are unlimited and resources are a. scarce. b. economical. c. efficient. d. unlimited.

a. scarce.

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, a. students will shift majors from education to accounting. b. students will shift majors from accounting to education. c. fewer students will attend college. d. None of the above is true.

a. students will shift majors from education to accounting.

Which of the following is not part of the opportunity cost of going on vacation? a. the money you spent on food b. the money you spent on airline tickets c. the money you could have made if you had stayed home and worked d. the money you spent on a Broadway show

a. the money you spent on food

Which of the following activities is most likely to produce an externality? a. A student eats a hamburger in the student union. b. A student has a party in her dorm room. c. A student sits at home and watches television. d. A student reads a novel for pleasure.

b. A student has a party in her dorm room.

Which of the following situations describes the greatest market power? a. Volvo's impact on the price of autos b. Microsoft's impact on the price of desktop operating systems c. a student's impact on college tuition d. a farmer's impact on the price of corn

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

High and persistent inflation is caused by a. OPEC raising the price of oil too much. b. governments increasing the quantity of money too much. c. unions increasing wages too much. d. regulations raising the cost of production too much.

b. governments increasing the quantity of money too much.

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 a. nothing, because you found the money. b. $20 (because you could have used the $20 to buy other things). c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. d. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game. e. none of the above.

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

Which of the following statements is true about a market economy? a. The strength of a market system is that it tends to distribute resources evenly across consumers. b. With a large enough computer, central planners could guide production more efficiently than markets. c. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. d. Taxes help prices communicate costs and benefits to producers and consumers.

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

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.) a. There is not enough information to answer this question. b. No. c. Yes.

c. Yes.

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than a. $100. b. $300. c. $500. d. $800. e. none of the above.

d. $800.

Which of the following products would be least capable of producing an externality? a. Cigarettes b. Stereo equipment c. Inoculations against disease d. Food e. Education

d. Food

Workers in the United States enjoy a high standard of living because a. unions in the United States keep the wage high. b. we have protected our industry from foreign competition. c. the United States has a high minimum wage. d. workers in the United States are highly productive. e. None of the above is true.

d. workers in the United States are highly productive.