Econ202 ch.1

The "invisible hand" directs economic activity through a. advertising. b. prices. c. central planning. d. government regulations.

b. prices.

Suppose the state of Massachusetts passes a law that bans smoking in restaurants. As a result, residents of Rhode Island who do not like breathing second-hand smoke begin driving across the border to Massachusetts to eat at restaurants there. Which of the following principles does this best illustrate? a. People respond to incentives b. Rational people think at the margin c. Trade can make everyone better off d. Markets are usually a good way to organize economic activity

a. People respond to incentives

Economists use the word equality to describe a situation in which a. each member of society has the same income. b. each member of society has access to abundant quantities of goods and services, regardless of his or her income. c. society is getting the maximum benefits from its scarce resources. d. society's resources are used efficiently.

a. each member of society has the same income.

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that.. a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs.

a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

Economics deals primarily with the concept of... a. scarcity.b. money.c. poverty.d. banking.

a. scarcity.

The mainstream view among economists is that a. society faces a tradeoff between unemployment and inflation, but only in the short run. b. society faces a tradeoff between unemployment and inflation, but only in the long run. c. society faces a tradeoff between unemployment and inflation, both in the short run and in the long run. d. no tradeoff exists between unemployment and inflation, either in the short run or in the long run.

a. society faces a tradeoff between unemployment and inflation, but only in the short run.

Economics is the study of a. production methods. b. how society manages its scarce resources. c. how households decide who performs which tasks. d. the interaction of business and government.

b. how society manages its scarce resources.

When a single person (or small group) has the ability to influence market prices, there is a. competition. b. market power. c. an externality. d. a lack of property rights.

b. market power.

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that a. goods are scarce. b. people face tradeoffs. c. income must be earned. d. households face many decisions.

b. people face tradeoffs.

27. The fact that different countries experience different standards of living is largely explained by differences in those countries' a. populations. b. productivity levels. c. locations. d. none of the above; economists are puzzled by differences in standards of living around the world.

b. productivity levels.

Suppose that the Federal Reserve Bank announces that it will be making a change to a key interest rate to increase the money supply. This is likely because a. the Federal Reserve Bank is worried about inflation. b. the Federal Reserve Bank is worried about unemployment. c. the Federal Reserve Bank is hoping to reduce the demand for goods and services. d. the Federal Reserve Bank is worried that the economy is growing too quickly.

b. the Federal Reserve Bank is worried about unemployment.

The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by a. unstable economic conditions in Eastern Europe. b. increased competition from abroad. c. a decline in the rate of increase in U.S. productivity. d. a strong U.S. dollar abroad, hurting U.S. exports.

c. a decline in the rate of increase in U.S. productivity.

Central planning refers to a. markets guiding economic activity. Today many countries that had this system have abandoned it. b. markets guiding economic activity. Today many countries that did not have this system have implemented it. c. government guiding economic activity. Today many countries that had this system have abandoned it. d. government guiding economic activity. Today many countries that did not have this system have implemented it.

c. government guiding economic activity. Today many countries that had this system have abandoned it.

A company that formerly produced software went out of business because too many potential customers bought illegally-produced copies of the software instead of buying the product directly from the company. This instance serves as an example of a. market power. b. inefficient trade. c. inadequate enforcement of property rights. d. the invisible hand at work.

c. inadequate enforcement of property rights.

According to Adam Smith, the success of decentralized market economies is primarily due to a. the basic benevolence of society. b. society's legal system. c. individuals' pursuit of self-interest. d. partnerships that are forged between business and government.

c. individuals' pursuit of self-interest.

Benefits from trade would not include a. the ability of people and nations to specialize. b. a greater variety of goods and services become available. c. less competition. d. lower prices.

c. less competition.

What is the most important factor that explains differences in living standards across countries? a. the quantity of money b. the level of unemployment c. productivity d. equality

c. productivity

Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8 an hour. Her opportunity cost of working is... a. the $24 she earns working. b. the $24 minus the enjoyment she would have received from watching the video c. the enjoyment she would have received had she watched the video. d. nothing, since she would have received less than $24 of enjoyment from the video.

c. the enjoyment she would have received had she watched the video.

In economics, the cost of something is a. the dollar amount of obtaining it. b. always measured in units of time given up to get it. c. what you give up to get it. d. often impossible to quantify, even in principle.

c. what you give up to get it.

29. To raise productivity, policymakers could a. increase spending on education. b. provide tax credits to firms for capital improvements. c. fund research and development. d. All of the above are correct.

d. All of the above are correct.

Government policies can change the costs and benefits that people face. Those policies have the potential to a. alter people's behavior. b. alter people's decisions at the margin. c. produce results that policymakers did not intend. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements does not apply to a market economy? a. Firms decide whom to hire and what to produce. b. The "invisible hand" usually maximizes the well-being of society as a whole. c. Households decide which firms to work for and what to buy with their incomes. d. Government policies are the primary forces that guide the decisions of firms and households.

d. Government policies are the primary forces that guide the decisions of firms and households.

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations? a. There is no such thing as a free lunch. b. People buy more when prices are low than when prices are high. c. No matter how much people earn, they tend to spend more than they earn. d. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

d. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? a. Melissa can attend the concert only if she takes her sister with her. b. Greg is hungry and homeless. c. Brian must repair the tire on his bike before he can ride it to class. d. Kendra must decide between going to Colorado or Cancun for spring break.

d. Kendra must decide between going to Colorado or Cancun for spring break.

After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. The marginal benefit of going to Cancun increases. b. The marginal cost of going to Cancun decreases. c. The marginal benefit of going to Ft. Lauderdale decreases. d. The marginal cost of going to Ft. Lauderdale decreases.

d. The marginal cost of going to Ft. Lauderdale decreases.

30. Inflation is defined as a. a period of rising productivity in the economy. b. a period of rising income in the economy. c. an increase in the overall level of output in the economy. d. an increase in the overall level of prices in the economy.

d. an increase in the overall level of prices in the economy.

Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $12,000. Stan should... a. complete the repairs and sell the car for $12,000. b. sell the car now for $9, 000. c. never try such an expensive project again. d. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it

d. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling

32. Which of the following is an important cause of inflation in an economy? a. increases in productivity in the economy b. the influence of positive externalities on the economy c. lack of property rights in the economy d. growth in the quantity of money in the economy

d. growth in the quantity of money in the economy

Trade between countries tends to a. reduce both competition and specialization. b. reduce competition and increase specialization. c. increase competition and reduce specialization. d. increase both competition and specialization.

d. increase both competition and specialization.

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

d. self-interest and prices.

In most societies, resources are allocated by a. a single central planner. b. a small number of central planners. c. those firms that use resources to provide goods and services. d. the combined actions of millions of households and firms.

d. the combined actions of millions of households and firms.

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market? a. to promote efficiency b. to promote equality c. to enforce property rights d. to protect an industry from foreign competition

d. to protect an industry from foreign competition