Econ 102 Midterm 1 (part 2)
how are economic resources allocated in a market economy?
by the decisions of households and firms interacting in markets
The U.S. Postal Service (USPS) charges Amazon about $2 to deliver a package. The USPS argues that its contract with Amazon allows it to reduce the loss it suffers on its overall operations. A business writer for the Washington Post observes: "Looked at from the standpoint of incremental revenue (huge) minus these incremental expenses (modest), the Postal Service could very easily have come to the conclusion that, even at $2 a package, the Amazon contract was likely to be highly profitable." Sources: Eli Rosenberg, "Trump Said Amazon Cost The the USPS 'Billions.' But the Post Office Has a Different Explanation." Washington Post, May 11, 2018. What does the writer mean by "incremental revenue" and "incremental cost"? Why would he focus on incremental revenue and incremental cost rather than on total revenue and total cost? "Incremental" means the same thing as?
"marginal." If the marginal revenue exceeds the marginal cost, the USPS's profit will increase. If the marginal cost exceeds the marginal revenue, the USPS's profit will decrease
Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions?
Macroeconomics
Which of the following areas of economics studies issues such as ways to reduce teenage smoking?
Microeconomics
Productive efficiency means that?
a good or service is produced at the lowest possible cost
Which of the following statements is true?
all individuals face a scarcity of time and need to make choices how to allocate it.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." Source: Barbara E. Walvoord and Virginia Johnson Anderson, Effective Grading: A Tool for Learning and Assessment in College, 2nd edition, San Francisco: Jossey-Bass, 2010, p. 1. The grading system used by a teacher can affect the incentives of students to learn the course material by?
altering the payoffs to achieving success on the various components of the course
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
Which of the following statements is correct?
an innovation is the practical application of an invention
According to the FBI Bank Crime Statistics, there were more than 3,900 bank robberies in the United States in 2017. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Sources: U.S. Department of Justice, Federal Bureau of Investigation, "Bank Crime Statistics 2017"; and Richard Cowen, "FBI: Banks Are to Blame for Rise in Robberies," NorthJersey.com, March 10, 2009. Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
banks have no economic incentives to install the barriers
In a market system, how does society decide what goods and services will be produced?
consumers, firms, and the government determine what goods and services will be produced by the choices they make
Any attempt to determine whether or not this is a good system must focus on its?
costs and benefits
If teachers put too little weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by?
de-emphasizing that part of the course
When an employer offers a wellness program to its employees, the health insurance premiums the employer pays on behalf of the employees are likely to?
decrease
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
economics assumes that consumers and firms are rational, not that they always make the right decisions
Which of the following statements about economics as a social science is correct?
economics studies the actions of individuals
In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors state: "We find evidence that EconomicsLOADING... is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Sources: Patricia M. Flynn and Michael A. Quinn, "Economics: A Good Choice of Major for Future CEOs," Social Science Research Network, November 28, 2006; and Famous Economics Majors, Marietta College, Marietta Ohio, May 15, 2012. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
economics teaches us how to look at the tradeoffs involved in every decision
Which of the following statements is correct?
economists use the terms firm, company, and business interchangeably
What role do they play in the working of a market system? Private property rights:
encourage a significant number of people to be willing to risk funds by investing them in business and encourage firms to spend money on research and development
Scarcity is central to the study of economics because it implies that?
every choice involves an opportunity cost
Allocative efficiency means that?
every good or service is produced up to the point where marginal benefit is equal to marginal cost
What do economists mean by the word "marginal"?
extra or additional
Economists assume that the only reason people take the actions they do is in response to economic incentives?
false
b. Why would the columnist argue that the act was more likely to hurt than help low-income families?
firms that might otherwise have hired a low-wage worker may now be reluctant to do so because the firms could be liable for paying the tax
An opinion columnist in the Washington Post argues that the Stop Bad Employers by Zeroing Out Subsidies Act is "virtually guaranteed to hurt the very low-income working families its sponsors want to help." Source: Catherine Rampell, "Tax Bezos. Help Workers. But Not Like This." Washington Post, September 6, 2018. a. What was the main provision of this act?
firms whose employees received assistance from government benefits, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), would be required to pay a tax equal to cost of the assistance
Suppose that France is currently producing 1 bottle of wine and 6 pounds of cheese and Germany is currently producing 3 bottles of wine and 6 pounds of cheese. Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 8 pounds of cheese. After specialization and trade, France gains by consuming the same amount of wine and _____ additional pound(s) of cheese and Germany gains by consuming the same amount of wine and____additional pound(s) of cheese.
first _____ is 2 second _____ is 1
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
for markets to work, people must be free to pursue their self-interest
Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day.Who has the comparative advantage in producing wine and who has the comparative advantage in producing cheese?
france has a comparative advantage producing wine and Germany has a comparative advantage producing cheese
In the United States, to receive a medical license, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a Residency Review Committee (RRC), which is made up of physicians in that specialty. A hospital that does not abide by the rulings of the RRC runs the risk of losing its accreditation from the Accreditation Council for Graduate Medical Education (ACGME). The ACGME and the RRCs argue that this system makes it possible to ensure that residency programs do not expand to the point where they are not providing residents with high-quality training. Sources: Brian Palmer, "We Need More Doctors, Stat!" Slate, June 27, 2011; Sean Nicholson, "Barriers to Entering Medical Specialties," Wharton School, September 2003. This system may help protect consumers by ensuring that?
future doctors receive high-quality training
If a country has a comparative advantage in the production of a good, then that country?
has a lower opportunity cost in the production of that good
Microeconomics is the study of?
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Scarcity implies that every society and every individual face trade-offs because scarcity means that?
human wants are greater than what available resources can produce
Late in the semester, a friend tells you, "I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course I decided not to drop it." Is your friend's reasoning correct or incorrect? Your friend's reasoning is?
incorrect
As part of his 2016 federal budget proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous question, do you think President Obama was likely to have recommended changes that would increase, or changes that would decrease, the payments that borrowers would have to make? President Obama was likely to have recommended changes that would?
increase the payments that borrowers would have to make so that the government would be paid back sooner
The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan programs: (1) Payments were capped at 10 percent of a borrower's discretionary income; (2) any unpaid balances for people working for the government or in the non-profit sector were forgiven after 10 years; and (3) people working in the private sector had their loans forgiven after 20 years. Sources: Allesandra Lanza, "What Obama's 2016 Budget Proposal Means for Student Borrowers," usnews.com, February 11, 2015; and Josh Mitchell, "Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Costs, Higher Tuition," Wall Street Journal, April 22, 2014. As a result of these changes in the federal student loan program, you would predict that the total amount students' borrowed under these programs would have?
increased because the terms of repayment have been made more generous
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by?
increasing the grade weight assigned to being prepared
What does increasing marginal opportunity costs mean?
increasing the production of a good requires larger and larger decreases in the production of another good
today, which of the following countries has a centrally planned economy?
north korea
The effect of higher income taxes on the total amount of consumer spending. This is a?
macroeconomic issue
The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a
macroeconomic issue
Which of the following statements about microeconomics and macroeconomics is correct?
macroeconomics is the study of the economy as a whole
The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a?
microeconomic issue
The reasons for low rates of profit in the airline industry. This is a
microeconomic issue
A primary difference between macroeconomics and microeconomics is
microeconomics examines individual markets while macroeconomics examines the economy as a whole
Which of the following statements about microeconomics and macroeconomics is correct?
microeconomics involves the study of how households and firms make choices
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
prices
The incentive of employees to improve or maintain their health once they obtain health insurance may be?
negatively impacted
The late Nobel Prize-winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market system, "may be very different from, and even opposed to, intentions is surely the most important intellectual contribution that economic thought has made." Source: Kenneth J. Arrow, "Economic Equilibrium," Encyclopedia of the Social Sciences, 1968. Encyclopedia.com. (May 23, 2015). It is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because?
neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person
The federal government should spend more on AIDS research. This represents?
normative analysis
The price of coffee at Starbucks is too high. This represents?
normative analysis
Which of the following statements about normative analysis is correct?
normative analysis is concerned with what ought to be.
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents?
positive analysis
Rising paper prices will increase textbook prices. This represents?
positive analysis
Which of the following statements about positive analysis is correct?
positive analysis is concerned with what is
Absolute advantage is the ability of an individual, a firm, or a country to?
produce more of a good or service than competitors using the same amount of resources
A market system prevents people from getting as many goods and services as they want due to which of the following?
their income
Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. "There is nothing morally unattractive about saying: We need to analyze which way of spending money on health care will produce more benefit and which less, and using our money as efficiently as we can. I don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible costs." Source: David Wessel, "Precepts from Professor Summers," Wall Street Journal, October 17, 2002. It would be more moral to reduce pollution,?
taking the cost into account because money spent on pollution reduction is not available for other worthy activities
What is comparative advantage?
the ability to produce a good or service at a lower opportunity cost than other producers
What is absolute advantage?
the ability to produce more of a good or service than competitors using the same amount of resources
Macroeconomics is the study of?
the economy as a whole, including topics such as inflation, unemployment, and economic growth
Which of the following statements about the idea that people are rational is correct?
the idea assumes that consumers and firms use all available information as they act to achieve their goals
This idea is an important intellectual contribution because?
the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards
economists believe that an activity should be continued up to the point where?
the marginal benefit from the activity is equal to the marginal cost
When it comes to assessing how this system affects the financial interests of doctors and the well being of consumers, it may be that the former gain more simply because?
there are far fewer of them, hence each stands to gain much from supply restrictions
What are the implications of this idea for the shape of the production possibilities frontier?
the production possibilities frontier will be bowed outward
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Is it likely that the production possibilities frontier in this situation would be a straight line: click on the icon for an example or bowed out: click on the icon for an example?
the production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods
What are private property rights? Private property rights are:
the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property
c. If the columnist is correct, why did the sponsors of the act in Congress write the act the way that they did?
the sponsors of the legislation may have hoped that firms would raise the wages of low-income workers, which would make it unnecessary for these workers to apply for government benefits
Suppose economists develop an economic model and find that "it works great in theory, but it fails in practice." Which of the following should the economists do next?
they should revise the model in light of its failure to explain or predict real world events
Economists assume that people are rational in the sense that?
they use all available information as they take actions intended to achieve their goals
Economists use models?
to answer questions and analyze issues
Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
to make their decisions free of influence from other parts of the government, to make their decisions free of influence from people with powerful political connections, to make their decisions free of intimidation by criminal gangs, and to make their decisions based on the law
What is the role of an entrepreneur?
to take risks, to bring together the factors of production—labor, capital, and natural resources, and to operate a business that produces a good or service
Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary, but typically consist of employees completing a health assessment, receiving a healthy living program, and monitoring their monthly health activities. Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce?
translates into lower costs, in part by reducing illness-related absenteeism and premature retirements and performs more efficiently, thereby improving overall productivity in the workplace
The basis for trade is comparative advantage, not absolute advantage.?
true
The basis for trade is the comparative advantage, not the absolute advantage?
true
President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs because they?
underestimated the number of students who would take advantage of the programs
Which of the following best describes scarcity?
unlimited wants exceed the limited resources available
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good?
will have a comparative advantage if it has a lower opportunity cost of producing that good
Leonard Fleck, a philosophy professor at Michigan State University, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." Source: Leonard Fleck, Just Caring: Health Care Rationing and Democratic Deliberation. New York: Oxford University Press, 2009. Is it necessary for all economic systems to limit services such as health care?
yes
According to Forbes magazine, in 2019, Jeff Bezos was the world's richest person, with wealth of $136 billion. Source: Noah Kirsch, "Jeff Bezos, World's Richest Person, Announces Divorce After 25 Years of Marriage," forbes.com, January 9, 2019. Does Jeff Bezos face scarcity?
yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite
In discussing dividing up household chores, Emily Oster, an economist at the University of Chicago, advises that: "No, you shouldn't always unload the dishwasher because you're better at it." Source: Emily Oster, "The Wrong Person Is Probably Doing the Dishes in Your Home," Slate, November 21, 2012. Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because?
you may be even better at some other household task and must consider the opportunity cost?
Suppose you were building an economic model to forecast the number of people employed in U.S. manufacturing in 2026. Should your model take into account the possibility of changes in economic policy enacted by the president and Congress?
yes, the model should account for economic policy because it could affect employment in manufacturing
