Econ Final Exam Quiz and Test Answers

Which of the following is an example of a private good? a. A chicken sandwich. b. National defense. c. An unowned school of fish. d. Watching a movie in a movie theater.

a. A chicken sandwich.

What is the technical definition of capitalism? a. An economic system characterized by private/corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market. b. An economic system in which state-controlled cartels control all aspects of the economy (e.g., manufacturing and agriculture). State planning boards set price controls and dictate to the cartels what is to be produced and how it is to be produced. c. An economic system characterized by mass exploitation of workers in which capitalists own the means of production. The surplus value of workers is stolen by capitalists, who only pay workers subsistence wages. Workers have no bargaining power and are at the mercy of private business owners. d. None of the above.

a. An economic system characterized by private/corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

For a two-person, two-good economy in which one worker has an absolute advantage in the production of both goods, it will still be true in all cases that the less productive worker will still have a comparative advantage in producing something. a. True b. False

True

A situation in which the sum of gains and losses over all people is positive in value is defined as a negative-sum environment. a. True b. False

False

An economy that shows a high degree of generalization in production will be more productive and enjoy a higher standard of living than an economy that shows a high degree of specialization in production. Both economies would still engage in a high degree of generalization in consumption. a. True b. False

False

Every voluntary trade that is made in a society must necessarily have at least one winner and at least one loser. a. True b. False

False

Scarcity is a thing of the past. We live in a post-scarcity society. a. True b. False

False

The average American living nowadays has a much lower standard of living than John D. Rockefeller, who is one of the richest people in history. a. True b. False

False

Although economists might disagree with each other regarding values, they often agree on methodology and analysis, and there are many topics and issues on which many economists tend to agree with each other (at least in terms of the analysis of the issue in question if not a particular normative policy). a. True b. False

True

In the interaction between households and firms in the circular flow diagram, households supply factors of production while firms supply finished goods and services to the irrespective markets. a. True b. False

True

Markets are the only institution in an economic system that is not a rational decisionmaker. a. True b. False

True

The defining characteristic that distinguishes a governmental entity from a firm is the fact that the government has a monopoly on the legitimate, legal use of physical force in a given territory. While consumers have a choice to veto potential transactions with private firms, they do not have that same option with transactions involving governments. a. True b. False

True

In Economics in One Lesson, Hazlitt says that "the whole of economics can be reduced toa single lesson." What is that lesson? a. Economics trains us to examine not only the primary effects of a policy but also the secondary effects of any act or policy; it also trains us to examine the consequences of those actions/policies on all groups of people in society. b. Economics is only useful to policymakers and people in important positions of power in government and large corporations. c. Economics tells us that we could achieve a "post-scarcity" society today if we eliminated the artificial barriers imposed by various government policies that currently protect the capitalist class from being overtaken by the exploited worker class. d. Economics teaches us that a government-provided healthcare system (that is, a healthcare system that operates as a government agency) is the best way to provide and deliver healthcare goods and services to the public.

a. Economics trains us to examine not only the primary effects of a policy but also the secondary effects of any act or policy; it also trains us to examine the consequences of those actions/policies on all groups of people in society.

Assume ceteris paribus for each of the questions associated with the following scenario. When demand increases due to an increase in population (thus causing the demand curve to shift to the right), what happens to the quantity supplied? Does this shift in the demand curve cause a shift in the supply curve? Will the new equilibrium price be higher or lower than the old equilibrium price? a. Increases; no; higher b. Increases; yes; lower c. Decreases; yes; higher d. Decreases; no; lower

a. Increases; no; higher

How could industrialization in the Soviet Union be characterized by a Production Possibilities Frontier (PPF)? Assume the trade-off modeled by this PPF is between industrial production and agricultural production. an outward shift of its PPF driven by technological change, which exemplified its success in implementing socialism. a. It can be shown with an inward shift of its PPF, which exhibits the decrease in overall productive capacity, particularly in the agricultural sector. b. It can be shown with an outward shift of its PPF driven by technological change, which exemplified its success in implementing socialism. c. It can be shown with a movement along the curve of the PPF, but the curve remained unchanged, which shows that preferences among Soviet producers simply shifted away from agricultural production to industrial production. d. None of the above.

a. It can be shown with an inward shift of its PPF, which exhibits the decrease in overall productive capacity, particularly in the agricultural sector.

During China's "Great Leap Forward" (i.e., communist China's attempt to "leap" intocommunism), two of the nationwide schemes that the agricultural authority of theChinese Communist Party imposed were the practices of "close cropping" and "deepplowing." What effect did these practices have on China's agricultural output? a. Local knowledge about the best farming practices in different regions all throughout China's farmlands was discarded in favor of a single plan dictated to the farmers by the central planning authority. b. These practices improved output, but it was lower than it otherwise would have been had they not been implemented at the same time. c. Local government officials did not fully implement Beijing's plans because they were busy trying to outdo each other when it came to agricultural output, so output fell. d. Thanks to the scientific accuracy of the plan and the technical knowledge of the central planners, these practices successfully increased agricultural output across the country.

a. Local knowledge about the best farming practices in different regions all throughout China's farmlands was discarded in favor of a single plan dictated to the farmers by the central planning authority.

What is the role of profits and losses (i.e., negative profits) in a market system? a. Profits serve as signaling mechanisms that incentivize market actors to marshal resources to their most valuable uses. b. Profits exist to enrich the capitalist class at the expense of workers. c. Profits are a signal that suppliers are charging too much for their products. d. Companies that earn profits should have a tax imposed on them; the role of profits, therefore, is to fund public works through the taxes that are collected.

a. Profits serve as signaling mechanisms that incentivize market actors to marshal resources to their most valuable uses.

A straw man fallacy occurs when one person takes another person's argument/point, distorts it/exaggerates it in some kind of extreme way, and then attacks the extreme distortion as if that distortion is really the claim the first person is making without actually addressing the original argument raised. a. True b. False

a. True

For a two-person, two-good economy in which one worker has an absolute advantage inthe production of both goods, it will still be true in all cases that the less productiveworker will still have a comparative advantage in producing something. a. True b. False

a. True

In order for a person to be able to purchase goods and services (i.e., act as consumers) in a market, he must first produce a good or service (i.e., act as a supplier) in another market. In other words, the value of goods and services that he can purchase is equal to the value of what he supplies in other markets. Therefore, production must always precede consumption. a. True b. False

a. True

The labor theory of value is an "objective" theory of value that measures the value of a good according to the quantity of "socially necessary labor-time" required for its production. a. True b. False

a. True

When interpreting a Production Possibilities Frontier (PPF), a combination of goods is unattainable if it cannot possibly be produced with the currently available resources and technology. a. True b. False

a. True

The Selick (2003) article "There's No Such Thing as a Nonprofit Organization" states the following: "[I]n fact, every single employee of a nonprofit institution is actually a 'profit center' in himself." Is that statement true? Why/why not? a. True. Employees of nonprofits still incur personal expenses in order to work, which they seek to minimize, while they seek to maximize their personal income, which results in their personal profit. b. True. Employees of nonprofits are more altruistically inclined than employees of for-profit organizations, so they view their personal profit as being tied up with the success or failure of the organization. c. False. Employees of nonprofits face no incentives to maximize their persona income since the managers of the nonprofits have personal stakes in minimizing the organization's expenses. d. False. Employees of nonprofits on average earn less than their private-sector counterparts, which shows how much more dedicated they are to the mission of their organizations.

a. True. Employees of nonprofits still incur personal expenses in order to work, which they seek to minimize, while they seek to maximize their personal income, which results in their personal profit.

A government policy that attempts to internalize an externality can be generally described as... a. a policy which introduces a cost (or foregone gain) that would be realized by a decision maker who generates an externality. b. a policy which completely bans an activity that generates an externality. c. a policy which mandates the exact level of an activity that decision makers must engage in. d. None of the above.

a. a policy which introduces a cost (or foregone gain) that would be realized by a decision maker who generates an externality.

Ceteris paribus, a decrease in income will result in an increase in demand for... a. an inferior good. b. a normal good. c. a complementary good. d. a substitute good.

a. an inferior good.

A government agency can be said to suffer from regulatory capture when... a. private businesses influence the decisions of that agency to such a degree that the agency protects the interests of the firms and not the public. b. government regulators from one federal agency displace the regulators of another federal agency. For example, the Environmental Protection Agency claims jurisdiction from the Department of Agriculture when farm pesticides are being regulated. c. government regulators from one federal agency displace the regulators of a state level agency. For example, the federal Dept. of Transportation claims jurisdiction from the Georgia Dept. of Transportation whenever interstate highways are regulated. d. federal courts mandate that an agency change its rules or regulations to conform with federal law.

a. private businesses influence the decisions of that agency to such a degree that the agency protects the interests of the firms and not the public.

Mike Tyson bought a white tiger from Joe Exotic for $71,000 (in early '90s dollars). Mike's reservation price was $101,000, and a total social surplus of $50,000 was generated by the trade. Therefore, Joe Exotic realized a _____ from this trade. a. producer surplus of $20,000 b. producer surplus of $50,000 c. consumer surplus of $20,000 d. consumer surplus of $30,000

a. producer surplus of $20,000

A common pool resource is... a. rival in consumption and non-excludable. b. rival in consumption and excludable. c. non-rival in consumption and excludable. d. non-rival in consumption and non-excludable.

a. rival in consumption and non-excludable.

The stagflationary "Great Inflation" period refers to a time of high inflation and high unemployment in the U.S. during... a. the early 1970s through the early 1980s (from roughly August 1973 to July 1982). b. the time between the end of Great Depression and the start of WW-II (from roughly August 1937 through October 1942). c. the Kennedy and Johnson Administrations from 1960 through 1967. d. part of President Obama's first term (from roughly March 2009 to July 2011).

a. the early 1970s through the early 1980s (from roughly August 1973 to July 1982).

Which of the following are NOT a key core component of Marxism? a. The labor theory of value b. Alienation c. False consciousness d. All of the above are core components of Marxism.

d. All of the above are core components of Marxism.

The Rothbard (1956) article Demonstrated Preference begins with the following: "Human action is the use of means to arrive at preferred ends. Such action contrasts to the observed behavior of stones and planets, for it implies purpose on the part of the actor." What can we deduce about the preferences of a person who chooses to spend two hours at a concert rather than a movie? a: That person places going to the concert higher in his value scale/preference order than going to the movie. b: That person places going to the movie higher in his value scale/preference than going to the concert. c: That person enjoys going to the concert three times as much as he enjoys going to the movie. d: That person enjoys going to the movie three times as much as he enjoys going to the concert.

a: That person places going to the concert higher in his value scale/preference order than going to the movie.

Which of the following is a statement of normative economics? a: The government should run deficits to cure economic slumps and lower unemployment. b: Gas prices will fall if the government reduces certain regulations on the fossil fuel industry. c: An increase in the minimum wage will increase the standard of living of all low-wage workers. d: There will be no unintended consequences from President Biden's decision to forgive up to $10,000 of student loan debt.

a: The government should run deficits to cure economic slumps and lower unemployment.

The law of _____ means that the additional value that a person gets from consuming an additional unit of a good decreases as the person consumes more of it. a: diminishing marginal utility. b: scarcity c: unintended consequences d: demand

a: diminishing marginal utility.

The Incentive Principle states that... a: if the marginal benefit of an activity increases, then a rational person will engage in more of the activity; if the marginal cost of an activity increases, then a rational person will engage in less of the activity. b: scarcity is a universal phenomenon that arises because resources are limited. c: an action should be taken if and only if the additional benefits from taking the action are at least as great as that action's additional costs. d: having more of one thing usually means getting by with less of something else.

a: if the marginal benefit of an activity increases, then a rational person will engage in more of the activity; if the marginal cost of an activity increases, then a rational person will engage in less of the activity.

The Law of Demand... a. ...refers to the principle that people prefer to purchase fewer goods when the price falls, and they purchase more goods when the price rises. b. ...refers to the principle that people prefer to purchase more goods when the price falls, and they purchase fewer goods when the price rises. c. ...only applies to people raised in capitalist countries. People raised in other cultures do no "obey" the law of demand. d. ...is a law passed by Congress that provides certain protections on the part of consumers.

b. ...refers to the principle that people prefer to purchase more goods when the price falls, and they purchase fewer goods when the price rises.

Consider a country in which there are 157.4 million people employed, 12.5 million people in the labor force who do not have jobs, and 112.6 million people who are not in the labor force. The unemployment rate of this country is approximately... a. 4.4% b. 7.4% c. 7.9% d. 11.1%

b. 7.4%

Chapter 4 of Economics in One Lesson discusses some of the consequences of public works projects that the government puts into action using tax dollars specifically for the purpose of providing employment. One such hypothetical is the construction of a "bridge to nowhere" that will cost $1 million (in 1950s dollars) and provide 500 jobs for a year but otherwise has no practical use (i.e., it will not be used very frequently by the public after it is built). What are some of the unseen opportunity costs of this government? a. A portion of that $1 million will be spent on those 500 workers, who will now be able to spend their incomes on various goods and services. b. Because public works must be paid with taxes, that $1 million must come from taxpayers. What is not seen is what those taxpayers would have done with that $1million, which might have been spent on cars, refrigerators, etc. They would also alter their behavior in response to the tax being imposed upon them. c. Taxpayers that provide the $1 millions of tax dollars to the government weren't going to spend that money, anyway, so there is no cost to taxing it away from them. d. All of the above.

b. Because public works must be paid with taxes, that $1 million must come from taxpayers. What is not seen is what those taxpayers would have done with that $1million, which might have been spent on cars, refrigerators, etc. They would also alter their behavior in response to the tax being imposed upon them.

_____ refers to a decrease in the rate of increase in the overall price level. a. Inflation b. Disinflation c. Hyperinflation d. Deflation

b. Disinflation

A typical market is characterized by having multiple equilibria. a. True b. False

b. False

Ceteris paribus, a change in the price of a good in a market would result in a shifting of either the entire supply curve or the entire demand curve. A change in price results in a change in demand/supply rather than quantity demanded/quantity supplied. a. True b. False

b. False

Fascist governments did not infringe on the rights of private property owners such as the right to control and the right to transfer their own property; these governments supported the purest expression of unfettered capitalism possible. a. True b. False

b. False

Supercomputers combined with artificial intelligence can "solve" the economic calculation problem. a. True b. False

b. False

What were some ways that fascist governments infringed upon the rights of private property owners and the natural workings of the free market? a. They abolished money and prices completely as they nationalized all industries across the economy. Private ownership of the means of production was completely abolished. They also subordinated their national sovereignty to political control by fascists in other countries. b. Fascist governments-imposed price controls and enforced cartels that controlled all aspects of manufacturing, commerce, finance, agriculture, etc. They also essentially abolished the rights of private individuals to control and transfer their own property. c. Aside from a few interventions like minimum wages and some basic regulations, their interventions were somewhat mild. d. The premise of the question is wrong. Fascist governments supported the purest expression of unfettered capitalism possible.

b. Fascist governments-imposed price controls and enforced cartels that controlled all aspects of manufacturing, commerce, finance, agriculture, etc. They also essentially abolished the rights of private individuals to control and transfer their own property.

_____ are the rational decision makers whose primary objective is to obtain benefits from consuming goods and services. a. Politicians b. Households c. Firms d. Entrepreneurs

b. Households

Choose the answer option that best explains the following apparent paradox regarding price gouging: "The only way to guarantee low prices is to allow sellers to charge high prices." a. Price ceilings do not cause shortages. They prevent greedy sellers from raising their prices too high during times of crisis. b. If sellers are not allowed to charge high prices, there won't be the necessary market signals that would entice new sellers to enter the market and provide new supply while allocating existing supply to buyers who needed it the most. Therefore, for sellers to receive the correct signals to increase supply, they must be allowed to charge high prices. c. Sellers who charge high prices would be arrested and prosecuted by local authorities enforcing anti-price gouging laws, which would signal to other sellers not to increase their prices drastically during natural disasters. d. If sellers are not allowed to charge high prices, consumers would not know which sellers were looking to exploit them during times of crisis; therefore, consumers might accidentally patronize unvirtuous sellers.

b. If sellers are not allowed to charge high prices, there won't be the necessary market signals that would entice new sellers to enter the market and provide new supply while allocating existing supply to buyers who needed it the most. Therefore, for sellers to receive the correct signals to increase supply, they must be allowed to charge high prices.

"Demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions." What, exactly, does that mean? a. Consumers and producers both need to use money in every market transaction. b. In order for people to be able to purchase something in one market (that is, act as consumers), they must first provide something of value (that is, act as producers) to other consumers that they can sell for money, which they could then use to exercise their demand for other goods and services. c. Producers try to produce things that perfectly match people's demand for things they say they want. Therefore, consumption precedes production; it is demand that drives economic growth. d. From the moment someone supplies something to the economy, there will inevitably be a demand for it. Therefore, production precedes consumption, andeverything that is produced will eventually be consumed.

b. In order for people to be able to purchase something in one market (that is, act as consumers), they must first provide something of value (that is, act as producers) to other consumers that they can sell for money, which they could then use to exercise their demand for other goods and services.

What is the labor theory of value? a. It is a "subjective" theory of value which states that the value of a good emerges from perceptions of its usefulness for satisfying wants. b. It is an "objective" theory of value that measures the value of a good according to the quantity of "socially necessary labor-time" required for its production. c. It is a theory which states that the only factor of production that matters in a good's production process is labor since there are plenty of goods that are produced without needing capital to produce them. d. None of the above.

b. It is an "objective" theory of value that measures the value of a good according to the quantity of "socially necessary labor-time" required for its production.

According to chapter 7 of Economics in One Lesson, what has been one of the long-run effects of increased automation on employment and the economy? a. Since capital and labor are substitutes, automation displaces many workers and destroys jobs. None of those workers are able to get hired in other industries since machines and automation will just continue to take over more sectors of the economy. b. Labor-saving devices and automation allow for lower production costs and greater output. Consumers thus have greater purchasing power that they can use to spend on other industries, which allows those industries to expand and create employment opportunities that did not previously exist. c. Population growth has outpaced job growth, which means that more and more people compete for fewer and fewer jobs. d. The premise of the question is incorrect. The economy has not become more automated in the long run.

b. Labor-saving devices and automation allow for lower production costs and greater output. Consumers thus have greater purchasing power that they can use to spend on other industries, which allows those industries to expand and create employment opportunities that did not previously exist.

A good that is used in the production process that is not itself a final good or service is... a. a permanent good b. an intermediate good c. an inferior good d. a necessary good

b. an intermediate good

A good is rival if... a. consumption by one person does not diminish the quantity/quality of consumption by others. b. consumption by one person diminishes the quantity/quality of consumption by others. c. it is difficult (or very costly) to prevent consumption by those who do not pay for the good. d. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good.

b. consumption by one person diminishes the quantity/quality of consumption by others.

market equilibrium price... a. prevents the efficient quantity of trade from arising. b. determines the split of total gains from trade between buyers and sellers at the market outcome. c. determines if Deadweight Loss is positive or negative at the market outcome. d. None of the above answers are correct.

b. determines the split of total gains from trade between buyers and sellers at the market outcome.

A rational decision maker should... a. always takes every action for which there is a positive marginal benefit. b. takes an action if and only if the marginal benefit of the action is at least as great as the marginal cost of the action. c. never take any action for which there is a positive marginal cost. d. All of the above.

b. take an action if and only if the marginal benefit of the action is at least as great as the marginal cost of the action.

A market failure can be described as a situation in which... a. a single seller of a good has little to no control over the price of the good. b. the free-market outcome is NOT efficient. c. government intervention leads to a greater Deadweight-Loss than the free-market outcome. d. government imposes progressive taxes in order to redistribute income.

b. the free-market outcome is NOT efficient.

market failure can be described as a situation in which... a. a single seller of a good has no control over the price of the good. b. the free-market outcome results in a deadweight loss. c. government intervention leads to a greater deadweight loss than the free-market outcome. d. government imposes progressive taxes in order to redistribute income.

b. the free-market outcome results in a deadweight loss.

Which of the following is a statement of positive economics? a: The federal minimum wage should be eliminated completely. b: The federal minimum wage is currently $2,000 per hour for all industries. c: The federal minimum wage should be increased to $15 per hour. d: The federal minimum wage should only apply to heavily populated areas.

b: The federal minimum wage is currently $2,000 per hour for all industries.

Why would economists say that the Ford Motor Company has never made a choice or a decision? a: They're wrong. Ford answers to greedy shareholders. b: To remind non-economists of methodological individualism - the concept that only individuals within an organization, rather than the organization itself, make choices. c: Ford doesn't make choices - only the U.S. automobile industry does. d: Ford answers to the United Auto Workers union.

b: To remind non-economists of methodological individualism - the concept that only individuals within an organization, rather than the organization itself, make choices.

The Cost-Benefit principle states that... a: scarcity is a universal phenomenon that arises because resources are limited. b: a person should undertake an action if and only if the marginal benefit of the action is greater than the marginal cost of the action. c: if the marginal benefit of an activity increases, then a rational decision maker will engage in more of the activity. d: having more of one thing usually means getting by with less of something else.

b: a person should undertake an action if and only if the marginal benefit of the action is greater than the marginal cost of the action.

An output combination is characterized by productive efficiency if... a: it is possible to produce the output combination, and it is possible to increase the amount produced of some good without decreasing the amount produced of any other good. b: it is possible to produce the output combination, and it is not possible to increase the amount produced of any good without decreasing the amount produced of any other good. c: it cannot possibly be produced (given the limits imposed by the scarcity of resources and current technology) d: one single worker possesses a comparative advantage in producing every good that is a part of the output combination.

b: it is possible to produce the output combination, and it is not possible to increase the amount produced of any good without decreasing the amount produced of any other good.

When economists speak of "land" as a factor of production, they are referring... a: only to the unexploited surface of the earth that can be farmed or built upon. b: to both the surface of the earth and all natural resources on it or beneath it. It is a synonym for unexploited natural resources. c: to the single most important resource used in modern economies. d: to the only resource an economy needs to produce goods and services.

b: to both the surface of the earth and all natural resources on it or beneath it. It is a synonym for unexploited natural resources.

The Law of Supply... a. ...is also based on the laws of the U.S. Constitution. The Constitution of the U.S. makes the law of supply mandatory in all 50 states. b. ...postulates that in a world of self-interest, businesses will only increase their production if prices are falling. c. ...states that, ceteris paribus, producers will sell more of a good as its price increases; producers will sell less of a good as its price decreases. d. ...is based on the theory of "Economic Man," or homo economicus. EconomicMan responds to higher prices by reducing production.

c. ...states that, ceteris paribus, producers will sell more of a good as its price increases; producers will sell less of a good as its price decreases.

If, over the course of a year, the value of a country's Consumer Price Index increased from 186.4 to 193.9, the country's realized rate of inflation was approximately... a. 380.3% b. 3.87% c. 4.02% d. 7.50%

c. 4.02%

Which of the following is an example of a negative externality? a. A farmer's cattle operation is fouling his own pond where he gets irrigation water for his corn crop. b. Customers of McDonalds gain weight from eating too much unhealthy food. c. A nightclub opens near a residential neighborhood. The neighborhood suffers from noise at late hours, but it is not compensated by the club owner. d. Construction company owners have a higher injury rate for workers than retail companies. The higher injury rate is, therefore, a negative externality for construction workers.

c. A nightclub opens near a residential neighborhood. The neighborhood suffers from noise at late hours, but it is not compensated by the club owner.

Which of the following is an example of a positive externality? a. A power plant produces electricity for its customers who get a benefit from having lights in their houses. b. A factory hires an engineering firm to help it reduce its fuel consumption in order to save money. In the process, the engineering firm earns higher profits. c. An outdoor concert venue frequently hosts rock concerts that can be heard at a nearby public park. The venue is not otherwise disturbing any residents in the area. d. Engineers working for Tide detergent invent a new cleaner. Tide's customers get much better-looking clothes that don't need to be replaced as often.

c. An outdoor concert venue frequently hosts rock concerts that can be heard at a nearby public park. The venue is not otherwise disturbing any residents in the area.

Maurice is a citizen of Canada but lives, works, and attends college in the United States. Last year, he went on vacation to Mexico during Spring Break. He works at a daycare in Roswell, GA. Last year, he provided daycare services valued at $22,500. The value of these services would be included in the calculation of GDP for... a. only Mexico since that is where he went to relax on vacation, which was a necessary activity for him to be able to work hard in school and on the job throughout the rest of the year. b. only Canada since he is a Canadian citizen. c. only the United States since that is where the production took place. d. all three countries (i.e., Canada, Mexico, and the United States) since he has an economic tie to each.

c. only the United States since that is where the production took place.

According to George Reisman, why does socialism "positively require" (that is, from an objective, analytical standpoint) a totalitarian police state? a. Before the next generations of children can be raised to become New Soviet Menand New Soviet Women, the generation that saw the transition from capitalism into socialism might still be self-motivated. b. Since the means of production belong to the government, socialist governments needed to protect their property from capitalists who might return to take back their expropriated property. c. If socialist states did not implement strict enforcement of their economic policies, people would be incentivized to transact in black markets, which are markets in which goods are illegally bought and sold. d. Reisman is wrong; socialism does not require a totalitarian dictatorship to implement.

c. If socialist states did not implement strict enforcement of their economic policies, people would be incentivized to transact in black markets, which are markets in which goods are illegally bought and sold.

What are some of the consequences of a price ceiling set at a binding level below the market equilibrium price for a particular good? a. Scarcity is an artificial construct; nothing negative happens. b. Greedy producers are forced to sell the good at a socially just price. c. Production of that good is discouraged as profit margins are reduced/wiped out and marginal producers are driven out of business. d. All of the above.

c. Production of that good is discouraged as profit margins are reduced/wiped out and marginal producers are driven out of business.

Money exists to solve what central economic problem? a. High transaction costs associated with barter. b. You want what I have, but I don't want what you have. c. Buyers want to purchase something, but sellers won't accept what buyers have to offer in exchange (or vice versa) d. All of the above

d. All of the above

Suppose the government were to pay for an increase in military spending financed by money printing. The suppliers of the government's newly ordered additional materiel (i.e., defense contractors) would be the initial recipients of this newly printed money. The government announces this program publicly, so the rest of the public is fully aware of all details of the program. The suppliers of any goods and services that the employees of these defense contractors would purchase are second-order recipients of that newly printed money. According to chapter 22 of Economics in One Lesson, what would be some of the economic effects when the defense contractors spend their increased incomes into the economy? a. The defense contractors will see no change in prices since the second-order recipients would be able to employ more workers. Thus, there is a "multiplier "effect where each dollar printed and spent into the economy adds to overall economic productivity. b. The defense contractors will find that the aggregate price level has already adjusted to the announced increase in the money supply. Since the public knows all of the program's details, the second-order recipients as well as prospective third-order, fourth order, etc. recipients have already raised their prices. c. The second-order recipients would be able to increase their prices and spend their increased incomes elsewhere (and so on). This process would continue until the inflationary process stops at the source. However, not all prices increase at the same time, nor do all incomes increase at the same time, so the initial recipients of that new money would benefit at the expense of the last recipients. d. None of the above.

c. The second-order recipients would be able to increase their prices and spend their increased incomes elsewhere (and so on). This process would continue until the inflationary process stops at the source. However, not all prices increase at the same time, nor do all incomes increase at the same time, so the initial recipients of that new money would benefit at the expense of the last recipients.

Which of the following is an accurate characterization of Say's Law? a. People can benefit mutually from specialization and trade. b. Destruction of goods does not breed economic prosperity. c. The value of goods and services anyone can purchase is equal to the market value of what he/she supplies. d. Supply creates its own demand.

c. The value of goods and services anyone can purchase is equal to the market value of what he/she supplies.

Perhaps as many as 55 million people died between 1958 and 1962 during China's "Great Leap Forward" (i.e., communist China's attempt to "leap" into communism). Why? a. Many new strains of incurable diseases ravaged the Chinese countryside. b. A drought caused by climate change caused prolonged large-scale crop failures. c. When the Chinese Communist Party attempted to collectivize and centrally administer all agriculture throughout the Chinese economy, a deadly combination of Mises's "economic calculation problem" and Hayek's "knowledge problem" arose in agriculture, which resulted in an otherwise avoidable man-made famine. d. China was invaded by foreign enemies and lost massive numbers of soldiers and civilians in war.

c. When the Chinese Communist Party attempted to collectivize and centrally administer all agriculture throughout the Chinese economy, a deadly combination of Mises's "economic calculation problem" and Hayek's "knowledge problem" arose in agriculture, which resulted in an otherwise avoidable man-made famine.

Consider a market for apples. If there is an excess supply of apples at a price of $5 per bushel, the equilibrium price must be... a. above $5 per bushel b. exactly equal to $5 per bushel c. below $5 per bushel d. Not enough information

c. below $5 per bushel

The Misery Index... a. is computed by multiplying the unemployment rate by the inflation rate. b. measures the fraction of population that is clinically depressed. c. does not include GDP in its calculation. d. All of the above.

c. does not include GDP in its calculation.

When considering potential government policies, it is important to recognize that... a. most businesses are not run by "rational decision makers." b. voluntary trade generally makes sellers better off but buyers worse off. c. if a policy alters the costs and/or benefits for a decision maker, then the decisionmaker might change his behavior as a result of the policy. d. voters are self-interested, but politicians are not.

c. if a policy alters the costs and/or benefits for a decision maker, then the decisionmaker might change his behavior as a result of the policy.

A movie playing at a local movie theater is an example of an activity that is... a. non-excludable b. rival c. non-rival d. More than one (perhaps all) of the above answers is correct.

c. non-rival

The fundamental difference between government and markets in answering the three fundamental economic questions is that... a. government activity is necessary in a socialist system but is not necessary in a capitalist system. b. government is based on voluntary interaction while the market requires coercion. c. the market is based on voluntary interaction while government is based on coercion. d. governments are responsive to consumer desires whereas markets are not.

c. the market is based on voluntary interaction while government is based on coercion.

The fundamental difference between government and market in answering the three fundamental economic questions is that... a. government activity is necessary in a socialist system but is not necessary in a capitalist system. b. government is based on voluntary interaction while the market requires coercion. c. the market is necessarily based on voluntary interaction while the government is necessarily based on coercion. d. governments are responsive to consumer desires whereas markets are not.

c. the market is necessarily based on voluntary interaction while the government is necessarily based on coercion.

The Manne (2014) article All Education Is For-Profit Education states the following: "[T]here is a significant difference in these two forms of organization (i.e., for-profit and non-profit enterprises) that neither Hansmann nor Shireman acknowledges." What is that significant difference? a: Property rights in the assets and stream of income of a for-profit organization exist, but they are not transferable; property rights in the assets and stream of income of a nonprofit organization do not exist at all. b: The managers of a for-profit organization are incentivized to maximize their own personal wealth and total compensation; the managers of nonprofit organizations are much more altruistically inclined and, thus, are incentivized to maximize revenue for their organizations. c: Property rights in the assets and stream of income of the nonprofit organizations are not transferable; property rights in the assets and stream of income of a for-profit organization are transferable. d: Nonprofit organizations are, always and everywhere, better than for-profit organizations. This fact is especially true in the world of education.

c: Property rights in the assets and stream of income of the nonprofit organizations are not transferable; property rights in the assets and stream of income of a for-profit organization are transferable.

what is the first most basic lesson in economics? a: Prices are determined in markets by the interaction of supply and demand. b: Value is subjective; there is no such thing as an "objective" value of anything. c: Scarcity - there is never enough of anything to satisfy all those who want it. d: As consumption of a good increases, the marginal utility of each additional unit declines

c: Scarcity - there is never enough of anything to satisfy all those who want it.

Why are pencils cheap? a: Pencils do not have many inputs and can be made using only a few workers in a factory. b: Capitalist pencil factory owners are exploiting workers by paying low wages in sweatshop conditions to make cheaper pencils. c: The worldwide division of labor and interconnectedness through markets allows people to specialize in the production of specific goods and services, which lowers input production costs over time. d: Protectionist trade policies have kept American pencil manufacturers in business, which allows them to produce goods cheaply.

c: The worldwide division of labor and interconnectedness through markets allows people to specialize in the production of specific goods and services, which lowers input production costs over time.

What is the technical definition of socialism? a. An anarchist, moneyless economic system in which the state has withered away, private ownership of the means of production has been abolished, and consumer goods are distributed equitably. b. A society where goods and services of all kinds are plentiful thanks to various government decrees that have abolished scarcity. c. An economic system in which the government plays some key roles while others are left to private individuals to interact with each other in markets. For example, some key industries (e.g., education and health care) are owned and operated completely by the government, but others are left to the market. d. A centrally planned economy in which private property has been abolished, and the state owns and controls the means of production and distribution of goods. Itis an intermediate stage of societal development during which a "dictatorship of the proletariat" would reign.

d. A centrally planned economy in which private property has been abolished, and the state owns and controls the means of production and distribution of goods. Itis an intermediate stage of societal development during which a "dictatorship of the proletariat" would reign.

According to Marxism, profit itself is exploitative by definition. They believed that workers were being systemically exploited by business owners. What is one counterargument to this belief? a. Relationships between workers and firms were voluntary. b. Those firms would not exist if not for the risk-taking and initiative of the businessowners. c. Nothing is stopping those workers from leaving those firms and starting up their own to compete. d. All of the above.

d. All of the above.

Assume that the taxes discussed in question #9 are collected through 1) personal income taxes imposed as a percentage of an individual taxpayer's income, and 2) corporate income taxes imposed as a percentage of a corporation's income. According to chapter 5of Economics in One Lesson, what else is true regarding the imposition of those taxes on the economy? a. Both corporations and taxpayers still lose 100% of every dollar lost in investments that do not pan out. b. The taxes will change the incentives of corporations and taxpayers to produce/invest since they do not gain 100% of every dollar "won" from making worthwhile investments. c. A tax rate of 50% is equivalent to working for the government for six months out of a year; a tax rate of 75% is equivalent to working for the government for nine months out of a year. d. All of the above.

d. All of the above.

What are some of the effects of a minimum wage? a. Workers whose work is not valued by at least as much as the minimum wage will not be employed at all. b. If producers try to pass the cost of the minimum wage on through to their customers simply by raising their prices, some consumers will substitute away from their products while others purchase less of it. c. Marginal producers that cannot pass the cost of the minimum wage on through to their customers will be forced to go out of business. d. All of the above.

d. All of the above.

Which of the following is part of the Coasian solution to the problem of externalities? a. Clearly and fully define property rights. b. Make individuals pay compensation if they infringe upon the property rights of others. c. Allow parties to negotiate with one another regarding infringements on property rights caused by externalities. d. All of the above.

d. All of the above.

The _____ function of government can be described as government production of goods or regulation of business, aimed at getting the right mix of products produced, each in the ideal quantity and at the ideal quality. a. Distribution b. Stabilization c. Taxation d. Allocation

d. Allocation

Country A is more productive (i.e., has more production possibilities) in every industry than Country B. Which statement most clearly illustrates the concept of comparative advantage? a. Country A will lose out in the long run if each country chooses to specialize in its lowest opportunity cost industry; both countries should cut off trade and work on improving their productivity until their production possibilities are both equal. b. Country A will lose out in the long run and should impose a tariff on cheaper imports from Country B in order to protect workers in Country A's industries. c. Country B will gain at the expense of Country A as workers who are willing to accept lower salaries and wages migrate from Country B to Country A and send funds (i.e., remittances) back to their families in Country B. d. Both countries can still benefit from specialization and voluntary trade as long as Country A has a lower opportunity cost than Country B in some industry.

d. Both countries can still benefit from specialization and voluntary trade as long as Country A has a lower opportunity cost than Country B in some industry.

Which of the following is a fair summation of the "action axiom"? a. Through the process of trial and error, people will take risks in the market to try to solve problems and make corrections over time. b. People only act in groups, so majority rule represents the will of the people. c. Greed is good; greed will meet the need. d. Humans employ means according to values and ideas to achieve ends.

d. Humans employ means according to values and ideas to achieve ends.

Which markets are represented in the Basic Circular Flow Diagram? a. Markets for imports and exports and markets for factors of production b. Markets for goods and services and markets for financial assets c. Markets for financial assets and markets for imports and exports d. Markets for goods and services and markets for factors of production

d. Markets for goods and services and markets for factors of production

Which of the following is a common example of a market failure? a. Pricing by firms with market power. b. Market provision of private goods. c. Market provision of a good which generates an externality. d. More than one (perhaps all) of the above answers are correct.

d. More than one (perhaps all) of the above answers are correct.

Which of the following is NOT one of the primary functions of money? a. Medium of exchange b. Unit of account c. Store of value d. Must be denominated in dollars.

d. Must be denominated in dollars.

The opening chapters of Economics in One Lesson explain how destruction can bring about economic prosperity. How could disasters like hurricanes or wars improve the standard of living of an economy? a. It explains that the window maker would not have received the income from the shopkeeper had the young hoodlum not thrown the brick through the shopkeeper's window. The window maker is therefore worse off without the destruction wrought by the hoodlum. b. War brings with it many innovations in new technologies. These developments could not have come about through more peaceful ways. c. Hurricanes bring with them an economic boon to the construction companies and suppliers of the goods that were destroyed as the localities affected by the disaster try to rebuild and recover. d. To quote Bryce Harper, "That's a clown question, bro." The opening chapters make the exact opposite case that the question asserts. Disasters and wars are net negatives for the economy as a whole. What is unseen is what sort of economic development might have taken place had those examples of destruction and death not taken place.

d. To quote Bryce Harper, "That's a clown question, bro." The opening chapters make the exact opposite case that the question asserts. Disasters and wars are net negatives for the economy as a whole. What is unseen is what sort of economic development might have taken place had those examples of destruction and death not taken place.

Person A has a(n) _____ in the production of a good if that person can produce more of the good than Person B with the same amount of inputs. a: tradeoff b: opportunity cost c: comparative advantage d: absolute advantage

d: absolute advantage

What is the "economic calculation problem" that formed the basis of Ludwig von Mises' economic critique of socialism? a. Lazy workers would free ride on the labor of highly motivated workers, who would have to carry the weight of society on their backs. b. Mises thought that socialism could work in practice if there were the right people in charge who could know the preferences of all individuals in society. c. With the advent of supercomputers and artificial intelligence, there is no "economic calculation problem." d. Without private ownership of the means of production, there is no exchange ->without exchange, there are no prices -> without prices, there is no economic calculation -> without economic calculation, production decisions are made in the dark. When that happens, basic needs go unmet.

d. Without private ownership of the means of production, there is no exchange->without exchange, there are no prices -> without prices, there is no economic calculation -> without economic calculation, production decisions are made in the dark. When that happens, basic needs go unmet.

The open-ended fallacy is... a. a logical error that assumes that because something is true of the part of a whole, it must also be true of the whole. b. a logical error that assumes that because a later event took place after an earlier event first occurred, that earlier event must have caused that later event to occur. c. the idea that whenever a producer begins a production process for some good, it should always complete production of that good before moving on to something else. d. a logical error whereby someone incorrectly concludes that simply because there are benefits (to some people) from higher levels of an activity, more of the activity is always better.

d. a logical error whereby someone incorrectly concludes that simply because there are benefits (to some people) from higher levels of an activity, more of the activity is always better.

Suppose that between 2020 and 2021, Australia's unemployment rate increased, and itsinflation rate decreased. Therefore, the value of Australia's Misery Index in 2021 _____the value of its Misery Index in 2020. a. must be greater than b. must be less than c. must be exactly equal to d. could be greater than or less than

d. could be greater than or less than

Assume goods X and Y are complements of each other. Therefore, if the price of good X were to increase, the equilibrium price of good Y would _____, and the equilibrium quantity of good Y would _____. a. increase; increase b. increase; decrease. c. decrease; increase d. decrease; decrease.

d. decrease; decrease.

A production possibilities frontier... a: shows that tradeoffs are never required except when an economy is operating inefficiently. b: shows that there is no economic cost due to moving from one point on the curve to another point. c: illustrates a "free lunch" by moving from one spot on the maximum curve of the frontier to another one. d: can illustrate an opportunity cost by moving from one point on the maximum curve to another, thus representing a reduction of the production of one good in order to increase the production of the other good.

d: can illustrate an opportunity cost by moving from one point on the maximum curve to another, thus representing a reduction of the production of one good in order to increase the production of the other good.