Eco Final

Economic information _____ a. is usually scarce and costly to acquire. b. is usually not required for rational decision making. c. must be complete before any decision is made. d. is usually available free to any decision maker. e. is usually useful only to governments.

A) is usually scarce and costly to acquire.

Microeconomics is the study of _____ a. the economic behavior of individual decision makers. b. the government's role as a distributor in an economy. c. the government's role as a producer in an economy. d. the effect of an increase in interest rates on the level of investment in an economy. e. the effect of an increase in money supply on interest rates.

A) the economic behavior of individual decision makers

A tariff is: a. a tax on imports. b. a voluntary limit on the quantities of goods that can be imported. c. a legal limit on the quantities of goods that can be imported. d. a subsidy for exports. e. a quality restriction on imports.

A. a tax on imports. Correct. A tariff is a tax on imports, and it leads to an increase in the price of the imported good in the domestic market. See 3-4: The Rest of the World

A cottage industry is one that: a. carries out production in workers' homes. Correct. The cottage industry system is one where profit-seeking entrepreneurs "put out" raw materials to rural households that turn them into finished products. See 3-2: The Firm b. produces cottage cheese. c. uses highly specialized resources in a complex production process. d. takes advantage of division of labor. e. produces rural housing.

A. carries out production in workers' homes. Correct. The cottage industry system is one where profit-seeking entrepreneurs "put out" raw materials to rural households that turn them into finished products. See 3-2: The Firm

A country has an absolute advantage in the production of a good if that country: a. ​can produce the good using fewer resources than another country would require. b. ​has the lowest opportunity cost of producing the good and can produce it with the fewest resources. c. ​has the lowest opportunity cost of producing the good, regardless of whether it is produced with the fewest resources. d. ​has the greatest opportunity cost of producing the good and produces it with the fewest resources. e. ​has the greatest opportunity cost of producing the good, regardless of whether it is produced with the fewest resources.

A. ​can produce the good using fewer resources than another country would require. Correct. Absolute advantage is the ability to produce a good using fewer resources than other producers. See 2-2:

Households ____ a. supply goods and services. b. own and sell resources. c. are the largest purchasers of resources. d. play a very minor role in an economy. e. set the price for goods.

B) own and sell resources.

A resource is something that _____ a. is always available free of cost. b. is used to produce goods and services. c. must be produced by a firm. d. exists in unlimited quantities in developed countries. e. is provided by nature, and not produced by society.

B. is used to produce goods and services.

Economics is best defined as the study of how _____ a. to change the class structure of an economy. b. governments can influence the social structure. c. people make decisions in a world of scarcity. d. to separate the executive from the legislature and the judiciary. e. individuals can participate in electing their representatives to the government.

C) people make decisions in a world of scarcity.

The term "utility" refers to: a. productivity. b. adaptability. c. satisfaction. d. a low-valued good. e. efficiency.

C. satisfaction. Correct. Utility is the satisfaction derived from consumption. See 3-1: The Household

Macroeconomics is the study of _____ a. the behavior of large firms in a market. b. how to use the least amount of natural resources to produce goods and services. c. the behavior of the economy as a whole. d. the profit-maximizing behavior of producers. e. utility-maximization by consumers.

C. the behavior of the economy as a whole.

Points outside the production possibilities frontier represent: a. ​combinations that are attainable only if all resources are used fully and efficiently. b. ​the only currently attainable combinations from which society must choose. c. ​currently unattainable combinations of outputs. Correct. Points on the production possibilities frontier indicate combinations of goods that can be produced when all available resources are employed efficiently. Points inside the production possibilities frontier are inefficient, and points outside are unattainable with current resources. See 2-3: The Economy's Production Possibilities d. ​inefficient use of resources. e. ​unemployment of resources.

C. ​currently unattainable combinations of outputs. Correct. Points on the production possibilities frontier indicate combinations of goods that can be produced when all available resources are employed efficiently. Points inside the production possibilities frontier are inefficient, and points outside are unattainable with current resources. See 2-3: The Economy's Production Possibilities

In the circular-flow model, households supply all of the following except _____ a. labor. b. natural resources. c. entrepreneurial ability. d. goods and services. e. capital.

D)goods and services.

Which of the following is an example of a durable good? a. Motor oil b. Gasoline c. Food eaten at a restaurant d. Binoculars Correct. Durable goods are expected to last three or more years. See 3-1: The Household e. Food cooked at home

D. Binoculars Correct. Durable goods are expected to last three or more years. See 3-1: The Household

A public good is one that is supplied to: a. only people who do not pay for it. b. foreign governments by the federal government. c. all people, regardless of whether they pay for it or not. Correct. A public good is nonrival and nonexclusive; once produced, it is available for all to consume, regardless of who pays and who does not. See 3-3: The Government d. only people who pay for it. e. the government by private firms.

D. all people, regardless of whether they pay for it or not. Correct. A public good is nonrival and nonexclusive; once produced, it is available for all to consume, regardless of who pays and who does not. See 3-3: The Government

Opportunity cost exists because: a. ​the value of lost opportunities varies from person to person. b. ​efficiency is measured by the monetary cost of an activity. c. ​the law of comparative advantage is working. d. ​resources are scarce but wants are unlimited. e. ​technology is fixed at any point in time.

D. ​resources are scarce but wants are unlimited.

The law of comparative advantage says that a person should produce a good if he or she: a. ​has a comparative advantage in a related activity. b. ​has an absolute advantage in a related activity. c. ​has the greatest desire to consume that good. d. ​is equally good at producing this good as someone else is. e. ​has the lowest opportunity cost of producing that good. Correct. According to the law of comparative advantage, the person with the lowest opportunity cost of producing a good should specialize in producing it. See 2-2: Comparative Advantage, Specialization, and Exchange

E. ​has the lowest opportunity cost of producing that good. Correct. According to the law of comparative advantage, the person with the lowest opportunity cost of producing a good should specialize in producing it. See 2-2: Comparative Advantage, Specialization, and Exchange

Externalities are defined as: a. managers' dealings with stockholders outside a firm. b. policies that firms adopt to sell products outside a country. c. any transaction external to a firm. d. costs or benefits that fall on third parties. e. costs of maintaining plant and equipment to avoid the scrutiny of external auditors.

a cost or benefit that falls on a third party. A negative externality imposes an external cost, whereas a positive externality confers an external benefit. See 3-3: The Government

Households act as suppliers when they provide: a. resources to firms and governments. Correct. Households act as resource suppliers when they sell their resources in the resource market. See 3-1: The Household b. tax payments to governments. c. demand for goods and services produced by firms. d. goods and services to firms and governments. e. money to firms in exchange for goods and services.

a. resources to firms and governments. Correct. Households act as resource suppliers when they sell their resources in the resource market. See 3-1: The Household

Jennifer expects the price of chewing gum to go up by 10 percent next week. Which of the following is the most likely result of such an expectation? a. b. Jennifer's demand for chewing gum will increase during this week. Correct. A consumer who expects the price of a good to increase during the following week will buy additional units during the current week and store them for future use. This will shift the current demand curve for the good to the right. See 4-2: What Shifts a Demand Curve c. Jennifer's demand for chewing gum will increase during the following week. d. Jennifer's demand for chewing gum will decrease during this week. e. Jennifer's demand for chewing gum will decrease during the following week.

b. Jennifer's demand for chewing gum will increase during this week. Correct. A consumer who expects the price of a good to increase during the following week will buy additional units during the current week and store them for future use. This will shift the current demand curve for the good to the right. See 4-2: What Shifts a Demand Curve

Gross domestic product is the market value of: a. all exchanges made during the course of a year. b. all final goods produced during the course of a year. c. all intermediate goods sold during the course of a year. d. all monetary transactions during the course of a year. e. all the goods produced during the course of a year over and above what is required to maintain the population and the stock of capital.

b. all final goods produced during the course of a year.

Households act as demanders when they demand: a. payments for the goods and services they sell to firms and governments. b. goods and services from firms and governments. c. that corporate executives and government officials be held accountable for their actions. d. dividends from the stocks they hold. e. interest and capital gains from the bonds they hold.

b. goods and services from firms and governments. Correct. Households act as demanders in the product market when they spend their income on durable goods, nondurable goods, and services. See 3-1: The Household

Which of the following statements about a demand curve is true? a. If a supply curve shifts, thereby changing price, the demand curve will shift as well. b. The demand curve for a good will not shift when the money income of consumers increases. c. The demand curve for a good will not shift when price changes. d. If price increases, the demand curve will shift to the right. e. If a demand curve shifts, the supply curve will shift as well, whether or not the price changes.

c. The demand curve for a good will not shift when price changes. Correct. A change in price causes a change in the quantity demanded of a good and not a change in its demand. See 4-1: Demand

The law of demand states that _____ a. price is the only factor that influences the quantity that people are willing and able to buy. b. other things constant, the demand curve shifts whenever the price of a good changes. c. other things constant, quantity demanded varies inversely with price. d. other things constant, price and quantity demanded are positively related. e. by producing a product, firms create a demand for it.

c. other things constant, quantity demanded varies inversely with price. Correct. The law of demand states that the quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things constant. See 4-1: Demand

Suppose a consumer can choose to consume either apples or oranges. Which of the following is likely to occur if the price of each fruit increases by 15 percent? a. The income effect of the price change will be positive. b. The consumer will demand more of both of the goods. c. The consumer will substitute oranges for apples. d. The consumer will substitute apples for oranges. e. The substitution effect of the price change will be zero.

e. The substitution effect of the price change will be zero. Correct. When the prices of all substitute goods change by the same percentage, the relative prices remain constant. Thus, there is no substitution effect. See 4-1: Demand

The difference between fiscal policy and monetary policy is that: a. fiscal policy involves the promotion of competition, but monetary policy involves collecting money to pay for taxes. b. monetary policy is a macroeconomic policy, but fiscal policy is a microeconomic policy. c. fiscal policy is a macroeconomic policy, but monetary policy is a microeconomic policy. d. fiscal policy involves regulation of natural monopolies, but monetary policy involves the provision of public goods. e. monetary policy involves regulation of the money supply, but fiscal policy involves government spending and taxing.

e. monetary policy involves regulation of the money supply, but fiscal policy involves government spending and taxing. Correct. Fiscal policy involves taxing and spending, while monetary policy involves regulating the money supply. See 3-3: The Government

Adam Smith's term "the invisible hand" refers to: a. ​the unseen work of the financial markets that facilitates trade. b. ​the most capable entrepreneurs in the economy. c. ​the hidden role of government in setting regulations that govern trading in markets. d. ​the role of technological change and random events in the economy. e. ​market forces. Correct. According to Adam Smith, market forces allocate resources as if by an "invisible hand"—an unseen force that harnesses the pursuit of self-interest to direct resources where they can earn the greatest reward. See 2-4: Economic Systems

e. ​market forces. Correct. According to Adam Smith, market forces allocate resources as if by an "invisible hand"—an unseen force that harnesses the pursuit of self-interest to direct resources where they can earn the greatest reward. See 2-4: Economic Systems