econ chapter 3

households

- all those who live together in one roof - demands of households determine supply - before, households consumed most of what they produced, and now only about 2% of families are in the farming industry - households maximize utility

firms

- an economic unit formed by a profit-seeking entrepreneur who combines resources to produce goods and services and who accepts the risk of profit and loss - Industrial Revolution increased productivity of eacc worker - maximize profit

rules for a market economy

- government has influence on the economy - specific individuals usually own the rights to resources -- private property rights guarantee people the right to use their resources as they choose - intellectual property rights: patent and copyright laws - to ensure buyers don't get cheated, governments test and certify the accuracy of various measuring devices (ex. US Bureau of Weights, US FDA, US Department of Agriculture)

US production as a % of US consumption

- if production exceeds consumption, Americans export the difference (vice versa: import the difference) - US production falls short of consumption for oil and metals like copper and lead

Monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. - responsibility of the Board of Governors of the Federal Reserve System - Federal Reserve System used monetary policy to try to stabilize the economy

natural monopolies

a firm when it is cheaper for that firm to serve the market than for multiple firms to do so - if unregulated by the government, maximizes profit by charging a higher price than optimal

Which of the following people would not receive social insurance benefits? (a) a single teenage mother with no employment history (b) a retired teacher (c) an unemployed construction worker (d) a factory worker who has been laid off

a) a single teenage mother with no employment history

At every age, people with more ___?___ earn more income on average than others. (a) education (b) job experience (c) physical skill (d) relatives

a) education

Which of the following is an example of a natural monopoly good? (a) electric power (b) an automobile (c) sheep (d) a jar of salsa

a) electric power

Suppose the government passes a law that makes it illegal to hunt foxes without a license. Foxes can now be described as which of the following? (a) exclusive (b) nonexclusive (c) private (d) negative externality

a) exclusive

In the last half of the nineteenth century, many farmers gave up farming to move to cities because (a) fewer farmers were needed (b) insects attacking crops couldn't be controlled (c) poor soil conditions made farming difficult (d) they started farms in the city.

a) fewer farmers were needed

To combat rising inflation, the government could (a) increase taxes (b) increase government spending (c) increase the amount of money in circulation (d) decrease competition.

a) increase taxes

The government safeguards private property through (a) legal rights of ownership (b) citizen groups (c) consumer publications (d) customer surveys

a) legal rights of ownership

Which of the following was associated with the Industrial Revolution? (a) technological developments increased (b) the popularity of the cottage industry increased (c) there was an increase in rural farms (d) Great Britain benefited greatly from it, but the Industrial Revolution never spread to other countries

a) technological developments increased

What happens to the number of people living in poverty during a recession? (a) The number increases. (b) The number decreases. (c) The number is unaffected. (d) None of these

a) the number increases

Which of the following products does the United States produce more of than it needs? (a) wheat (b) oil (c) aluminum (d) copper

a) wheat

Which of these situations might lead to a positive externality? (a) Your brother decides to go to medical school. (b) A child's mother smokes cigarettes. (c) A new non-biodegradable diaper is introduced to the market. (d) A loud airport is planned for your neighborhood.

a) your brother decides to go to medical school

antitrust laws

attempt to promote competition and reduce anticompetitive behavior - laws prohibit efforts to create a monopoly in a market in which competition is desirable

Which of the following provides health insurance for those with incomes below a certain level? (a) Supplemental Security Income (b) Medicaid (c) Temporary Assistance for Needy Families (d) Medicare

b) Medicaid

Which of the following choices would maximize the utility of a household? (a) A household allows weeds to grow in the driveway. (b) A household repairs a leaky basement. (c) A household refuses to replace old, inefficient windows with new ones. (d) Although a house is infested with rodents, an exterminator is not called.

b) a household repairs a leaky basement

Suppose that a group of companies that produce cars joins together, making it difficult for other firms to compete. Which of these could prevent such a situation? (a) monetary policy (b) antitrust laws (c) fiscal policy (d) private property rights

b) antitrust laws

Which of these supplements wages of the working poor? (a) the income redistribution program (b) earned-income tax credits (c) Supplemental Security Income (d) Medicare

b) earned-income tax credits

Which of the following best defines the term firm? (a) the most important economic decision maker consisting of all those living under one roof (b) economic unit formed by an entrepreneur who combines resources to produce goods and services and accepts risk of profit and loss (c) organization that solicits funds to help the poor (d) none of the previous

b) economic unit formed by an entrepreneur who combines resources to produce goods and services and accepts risk of profit and loss

The federal government determines the official ___?___ and adjusts this benchmark over time to account for inflation. (a) rate of economic mobility (b) poverty rate (c) inflation rate (d) rate of economic decline.

b) poverty rate

Which of the following regulates the safety of over-the-counter drugs? (a) the U.S. Department of Agriculture (b) the U.S. Food and Drug Administration (c) the Consumer Product Safety Commission (d) the U.S. Bureau of Weights and Measures

b) the US Food and Drug Administration

Suppose that you own an ice cream shop. The cost of producing one pint of ice cream is $2.50. The revenue earned is $3.75. What is your profit per ice cream pint? (a) $.25 (b) $1.00 (c) $1.25 (d) $6.25

c) 1.25

What do firms accomplish that self-sufficient households cannot? (a) Firms produce goods that are superior to those produced in self-sufficient households. (b) Firms are able to pay those who produce goods more money than households can. (c) Firms are able to reduce transaction costs for each good. (d) all of the previous

c) Firms are able to reduce transaction costs for each good

A good example of a trademark would be (a) Toni Morrison's next novel (b) a painting by Picasso (c) Target's red target logo (d) new software.

c) Target's red target logo

Which of the following best illustrates the cottage industry system? (a) Two small firms merge together and create electronic equipment. (b) Household members make potholders and sell them. (c) A factory provides a household with cloth, which members use to produce shirts. (d) A student hires a tutor for help with algebra.

c) a factory provides a household with cloth, which members use to produce shirts

Which of these reflects the rise and fall of economic activity relative to the long-term growth trend of the economy? (a) natural monopolies (b) monetary policy (c) economic fluctuations (d) fiscal policy

c) economic fluctuations

To decrease spending, which of these policies would the government enact? (a) inflation (b) monetary (c) fiscal (d) monopoly

c) fiscal

Which of the following statements about the cottage industry is most accurate? (a) Over the years, production evolved from factories that produce most goods under one roof to the cottage industry system to self-sufficient rural households. (b) Over the years, production evolved from self-sufficient rural households to the cottage industry system to factories that produce most goods under one roof. (c) Over the years, production evolved from the cottage industry system to factories that produce most goods under one roof to self-sufficient rural households. (d) Cottage industries no longer exist anywhere in the world.

c) over the years, production evolved from the cottage industry system to factories that produce most goods under one roof

Which of the following describes a deer in a forest in which people hunt? (a) nonrival, nonexclusive (b) nonrival, exclusive (c) rival, nonexclusive (d) rival, exclusive

c) rival, nonexclusive

Which of the following households is at the greatest risk for living in poverty? (a) single fathers (b) married couples who are both present in the home (c) single mothers (d) divorced couples who share custody of children

c) single mothers

Which of the following regulates monetary policy? (a) the Consumer Product Safety Commission (b) the U.S. Department of Monetary Regulation (c) the Federal Reserve System (d) the U.S. Bureau of Weights and Measures

c) the Federal Reserve System

Which of the following best describes median income? (a) the income in a group of incomes that is most common (b) the average income among a group of incomes (c) the middle income when a group of incomes is ranked low to high (d) the poverty level income

c) the middle income when a when a group of incomes is ranked low to high

market competition

competition among businesses - monopoly prices are higher than when business have competition - if a monopoly does not have competition it may be less innovative - antitrust laws

Which of these situations might lead to a positive externality? (a) A large power plant disposes of toxic waste in the local river. (b) The introduction of small electric cars that reduces U.S. reliance on imported oil. (c) A non-biodegradable cleaning product becomes extremely popular with consumers. (d) CPR emergency training

d) CPR emergency training

Which of the following is a type of social insurance program? (a) welfare (b) Medicaid (c) Supplemental Security Income (d) Social Security

d) Social Security

Which of these best defines a means-tested program? (a) advertising the amount the government spends on programs to help the poor (b) help in the form of goods and services (c) a program that makes up for the lost income of people who worked but are now retired, temporarily unemployed, or unable to work because of disability or work-related injury (d) a household's income and assets must fall below a certain level to qualify for benefits

d) a household's income and assets must fall below a certain level to qualify for benefits

Which of these is an example of something that would be copyrighted? (a) the Nike Swoosh (b) McDonald's Golden Arches. (c) the Pepsi logo (d) a new music group's album.

d) a new music group's album

Which of the following is an example of an open-access good? (a) potatoes (b) picture frames (c) television signals (d) deer

d) deer

Which of the following is available to all but can be kept from nonpayers? (a) private goods (b) open-access goods (c) public goods (d) natural monopoly goods

d) natural monopoly goods

Which of these do antitrust laws accomplish? (a) encourage the creation of monopolies (b) influence the political system (c) discourage competition within the market (d) reduce anticompetitive behavior

d) reduce anticompetitive behavior

A fast-food meal can be described by which of the following two terms? (a) nonrival, nonexclusive (b) nonrival, exclusive (c) rival, nonexclusive (d) rival, exclusive

d) rival, exclusive

Private goods are always which of the following? (a) nonrival, nonexclusive (b) nonrival, exclusive (c) rival, nonexclusive (d) rival, exclusive

d) rival, exclusive

Which of the following is a way the government can promote positive externalities? (a) The government relaxes local zoning laws. (b) The government increases the legal amount of waste that can be emptied into rivers and streams. (c) The government enacts antipollution laws. (d) The government provides a variety of free education options.

d) the government provides a variety of free education options

Which of the following was not a feature of the factories that surfaced during the Industrial Revolution? (a) Production was directly supervised. (b) Division of labor was more efficient. (c) Large, specialized machines were used. (d) Transportation costs increased.

d) transportation costs increased

negative externalities

external costs - by-products of production or consumption that impose cost on third parties - private property rights to open-access resources cannot be easily defined and enforced, therefore pollution of open-access resources (air, land, water) arises due to overuse - quantity and quality of open-access resources tends to decline over time

Although much of the population worked on farms in 1850, there was no specialization within the farm structure.

false

An earned-income tax credit benefits the wealthiest 10 percent of the country.

false

Education leads to negative externalities.

false

Fewer than 6 million people lived below the poverty line in 2013.

false

Fish is an example of a natural monopoly good.

false

International trade between the United States and the rest of the world has decreased in recent decades.

false

Less than 1 percent of the U.S. labor force works in the agricultural industry.

false

Monetary policy helps to control fluctuations in the economy through taxation and public spending.

false

Monopolies may harm other businesses, but they rarely damage social welfare.

false

Nonpayers are easily excluded from public goods.

false

Only the federal government can influence fiscal policy.

false

Private property rights don't allow owners to do what they want with their property.

false

Some states allow all welfare recipients to remain on welfare for more than five years.

false

The Industrial Revolution was so successful that there is no longer a need for farmers.

false

The United States has the lowest rate of teenage pregnancy in the developed world.

false

The number of two-earner households has steadily decreased over the past 100 years.

false

Throughout the years, households have become increasingly self-sufficient.

false

Today, families are not allowed to receive welfare benefits for more than one year.

false

Welfare is an example of a social insurance program.

false

Zoning laws try to reduce positive externalities.

false

public utilities

government-owned or government-regulated monopolies

public goods

nonrival and nonexclusive

natural monopoly goods

nonrival but exclusive

positive externalities

occur when the by-products of consumption or production benefit third parties - ex. education

firms maximize....

profit

private goods

rival and exclusive

open-access goods

rival and nonexclusive

Fiscal policy

the use of government spending and revenue collection to influence the economy - when economic activity in the private sector slows down, the government should offset this by cutting takes to simulate consumption and investment - when economists study fiscal policy they usually focus on the federal government even though all governments affect the economy

An example of a positive externality is training others to teach illiterate adults to read.

true

Competition in a particular market promotes lower prices.

true

Encouraging education is one way the government tries to attain positive externalities.

true

Foreign economies can have a significant effect on the U.S. economy.

true

It is costly to exclude people from open-access goods.

true

Less production now occurs in the home and more goods and services are purchased in markets as compared to 100 years ago.

true

Most businesspeople would prefer to be monopolists—that is, to be the only seller of a product.

true

Overall, people with more education earn more on average.

true

Overall, the private sector, operating on its own, produces more negative externalities than positive externalities.

true

Public utilities are government-owned and government-regulated monopolies.

true

Some monopolies are beneficial.

true

Supplemental Security Income may help support people addicted to drugs.

true

The government may protect both private and intellectual property.

true

The government tests firms' measurement standards to ensure the consumer is getting what he or she is paying for.

true

The government usually regulates open-access goods.

true

The household is the most important economic decision maker.

true

The number of women working outside the home has grown during the last century.

true

The qualifying level of income to be accepted by Medicaid varies by state.

true

The quality and quantity of an open-access resource tends to deteriorate over time.

true

Two-parent families use welfare less often than single-parent families.

true

households maximize...

utility - considered to be a single-decision maker - pursue rational self-interest - utility: level of satisfaction (depends on household's personal goals)