Chapter 1 Microeconomics

A reason for government involvement in a market economy is:

markets sometimes fail to produce an efficient allocation of resources. ---------All of these answers are correct. markets sometimes fail to produce a fair distribution of economic resources. property rights have to be enforced to promote innovation in an economy.

The concept of guns vs. butter represents the classic societal trade-off between spending on

military goods vs. consumer goods.

Every time we choose to do one thing, we give up doing something else. This best describes the economic principle of:

opportunity cost.

In economics, the phrase "no such thing as a free lunch" means

people face trade offs

Adam has $200 to spend and wants to buy either a new amplifier for his guitar or a new cell phone. Both the amplifier and the cell phone cost $200, so he can only buy one. This illustrates the basic concept that:

people face trade-offs.

Monica has $500 to spend and wants to buy either a new snowboard or a new laptop. Both the snowboard and the laptop cost around $500, so she can only buy one. This illustrates the basic concept that:

people face trade-offs.

The standard of living in a country is most closely tied to its

productivity

A direct or positive relationship exists between a country's

productivity and its standard of living.

Reasons why we need government, even in a market economy, include

property rights need to be protected to serve as an incentive for innovation. ---------these are all reasons we need a government in a market economy. the market may sometimes fail to allocate resources properly. the invisible hand is not perfect.

Which of the following is a way in which the government helps enforce property rights?

providing the court system

The term "productivity"

refers to the quantity of goods and services each unit of labor can produce.

The main reason households and societies must make many decisions is because

resources are scarce.

A fundamental concept in economics is the idea of

scarcity

In response to the Great Recession of 2007-2009, the US Congress and the Federal Reserve attempted to stimulate the economy by

the Congress and the Federal Reserve used all of these methods in an attempt to stimulate the economy.

Suppose a publishing company is deciding whether or not to print 50,000 additional copies of an economic textbook. The company should print the textbooks if:

the marginal benefit (additional revenue) from selling the extra books is greater than the marginal cost of printing the books.

Kurt decides to spend 2 hours working rather than hanging out with his friends. He earns $10 per hour for work. His opportunity cost of working is

the utility or enjoyment he would have gotten from hanging out with his friends.

Both the production of goods and services and the unemployment rate are used to measure the business cycle.

true

Historically, real income in the United States has risen about 2 percent per year.

true

Marginal thinking involves:

weighing the small incremental benefits against the small incremental cost of a decision.

In economics, we measure the cost of something as

what you give up to get it.

China is an example of a centrally-planned economy.

false

Efficiency means our economic pie is divided into equal slices

false

In the United States, inflation was much higher during the 1990s than it was during the 1970s.

false

Incentives are not important in economics.

false

Normal cost of living expenses, such as room and board, are included in the opportunity cost of attending college.

false

Productivity is not important in economics.

false

There is no relationship between a country's productivity and its standard of living.

false

When countries trade, one country wins and the other country loses.

false

Which of the following is an important cause of inflation?

growth in the quantity of money

If the Federal Reserve announces that it will be increasing the money supply through its monetary policy tools, it tells us the Federal Reserve is

hoping to stimulate demand for goods and services.

Adam Smith's 'invisible hand' refers to:

how households and firms, acting in their own self-interest, manage to make everyone better off.

The increase in living standards of Americans over the past century is mainly due to

improvements in productivity.

A record company went out of business because too many of its customers downloaded its music illegally from the internet rather than purchasing the digital copy from the record company. This instance serves as an example of:

inadequate enforcement of property rights.

When the government intervenes in the economy to promote efficiency, it means that the government is trying to:

increase the size of the economic pie.

In the short run, if the money supply increases, which of the following is NOT likely to happen?

lead to a lower rate of inflation.

One of the reasons that people tend to eat more in an "all you can eat" buffet is because the

marginal benefit from an extra plate of food is greater than the marginal cost of the additional food.

The last time the United States experienced prolonged high inflation was during

1970s

In the United States, real incomes have increased about 2 percent per year. At this growth rate, average income doubles every

35 years

Which of the following is something an economist might study?

Claire sells her physics textbook from last semester to her roommate for half the price she paid for it. --------All of these answers are correct. Phil decides to work overtime to earn extra income for his upcoming family vacation. Roger reads a newspaper article about the decline of the unemployment rate in the United States over the past few years.

Which of the following will happen in the short run if the money supply decreases?

Decreasing the money supply will lead to a lower rate of inflation.

Which of the following is true?

Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.

There is no need for a government in a market economy.

False

According to the FYI insert in your textbook, in The Wealth of Nations, Adam Smith made which of the following observations?

Households and firms, acting in their own self-interest, seem guided by an "invisible hand" that leads them to desirable market outcomes.

Which of the following statements about trade is the most accurate?

International trade has the potential to make all countries better off.

Which of the following is true about market economies?

Market economies are more efficient than centrally-planned economies.

If a tax on unhealthy food items like soda and candy bars causes people to purchase less of these items and eat more healthful alternatives. Which principle of economics does this illustrate?

People respond to incentives.

Suppose the state of Ohio increases the tax on a pack of cigarettes and, in response to the policy change, Ohio smokers decide to buy cigarettes in neighboring states. Which principle of economics does this illustrate?

People respond to incentives.

Which of the following best summarizes a basic difference between market economies and centrally- planned economies?

Self-interest and prices serve to allocate resources in a market economy while a central planner typically attempts to allocate resources in a centrally-planned economy.

The idea that trade can make everyone better off applies to which of the following:

States within the United States. ------All of these answers are correct. Families. Different countries

A main cause of large or persistent inflation is

excessive growth in the money supply.

To measure a business cycle we look at what is happening to

The production of goods and services

An incentive is anything that is designed to change behavior.

True

Economics is the study of the choices people make in attempting to manage their scarce resources.

True

Germany's hyperinflation after World War I was primarily due to the rapid increase in the supply of money.

True

Given an objective to minimize time spent shopping, deciding which "check-out" line to get into is an everyday example of marginal thinking.

True

Most countries on the planet use a market-based approach to organizing economic activity.

True

The government plays an important role in a market economy.

True

The last time the United States experienced high inflation was during the 1970s.

True

When countries trade, it is possible for both countries to benefit.

True

US citizens have better nutrition, better healthcare, and a longer life expectancy than citizens of Nigeria. Which of the following conclusions can be drawn from this statement?

US citizens have a higher standard of living than Nigerians. -----------All of these conclusions are correct. Average income in the US is higher than the average income Nigeria. Productivity in the US is higher than productivity in Nigeria.

In the short run, an increase in the money supply will likely cause

a decrease in the unemployment rate and an increase in inflation.

Thousands of people develop asthma and breathing problems from exposure to air pollution. This is an example a:

a market failure caused by an externality.

A marginal change is best described as:

a small, incremental change from the present situation.

In the 1990s, inflation in the United States was

about 3 percent per year.

A key feature of market economies is that market economies:

allocate resources by everyone acting in their own self-interest.

Productivity is defined as the

amount of output produced from each unit of labor input.

Nick is a guitar teacher and Raul is an accountant. If Nick teaches Raul to play the guitar in exchange for Raul helping with Nick's bookkeeping:

both Nick and Raul are made better off by the trade.

Fluctuations in economic activity are known as

business cycle

The economy of the North Korea is best described as a

centrally planned economy

Public policy such as changes in the amount of taxes and subsidies can alter people's behavior by:

changing the benefits and the costs of an activity. -------------------All of these answers are correct. offering an incentive or a disincentive to engage in an activity changing the opportunity cost of an activity.

If the Federal Reserve announces it will be decreasing the money supply through its monetary policy tools, it tells us the Federal Reserve is

concerned about inflation.

When the government intervenes in the economy to promote equality, it means that the government is trying to:

create a more fair distribution of income.