econ test 1

"invisible hand" is defined as

"the free market" because of flexible prices

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? A. Economics assumes that consumers and firms are​ rational, not that they always make the right decisions. B. Economics does assume that consumers and firms always make the correct decisions. C. Economics is a proven field of​ study, and it has already solved this problem. D. Economics has a lot of problems such as those that caused the Great Recession.

A. Economics assumes that consumers and firms are​ rational, not that they always make the right decisions.

Which of the following areas of economics studies issues such as ways to reduce teenage​ smoking? A. Microeconomics B. Macroeconomics C. Both microeconomics and macroeconomics give equal emphasis to these problems. D. This cannot be determined by the information given.

A. Microeconomics

What do economists mean by the word​ "marginal"? A. extra or additional B. first C. small D. unimportant

A. extra or additional

Consider an organization dedicated to helping​ low-income people. The members of the organization are discussing alternative methods of aiding the​ poor, when a proponent of one particular method​ asserts: ​"If even one poor person is helped with this​ method, then all our time and money would have been worth​ it." If you were a member of the​ organization, what reply best represents clear economic​ thinking? This attitude... A. ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people. B. acknowledges the importance of considering all the alternatives. C. recognizes the fact that since the organization is a​ charity, there is an opportunity cost based on the square root of other​ peoples' needs. D. is the most logical because it is focussed on helping even one person.

A. ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.

Alex received a​ four-year scholarship to State U. that covered tuition and​ fees, room and​ board, and books and supplies. If Alex becomes a​ full-time student,​ then: A. the opportunity cost of attending State U. includes the money Alex could have earned working for four years. B. attending State U. for four years is costless for Alex. C. the opportunity cost of attending State U. includes the sum of the benefits Alex would have had from attending each of the other schools to which he was admitted. D. Alex has no incentive to study hard while at State U.

A. the opportunity cost of attending State U. includes the money Alex could have earned working for four years.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives, A. the policies are consistent with economic incentives. B. the policies are futile because where the environment is​ concerned, it has been repeatedly shown that firms do not respond to economic incentives. C. pollution is likely to increase. D. the policies are likely to be more successful than policies that cost firms​ more, but they do not recognize economic incentives.

A. the policies are consistent with economic incentives.

The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource​ limitations, the extent to which security is enhanced will most likely be determined by A. ​society's willingness to forego other goods and​ services, both public and private. B. funding availability. C. the willingness of those in power to restructure the current security​ apparatus, including the​ dismissal/reassignment of current security leadership. D. the availability and expertise of trained​ anti-terror personnel. E. the​ public's tolerance of a potentially more intrusive state.

A. ​society's willingness to forego other goods and​ services, both public and private.

If you want to pass the class, you need to...

Attend at least 80% of the lectures. Finish all the homework assignments with an average grade of no less than 70%. Do not have very low midterm grades. Do not violate the class policy.

If you want to be successful in this class what should you do?

Attend each class, being attentive, and make good notes Fully understand the class examples, homework assignments and stop by my office hours when you have questions.

What is the basis for​ trade? A. Absolute advantage. B. Comparative advantage. C. Economic growth. D. Efficiency. E. Available resources.

B. Comparative advantage.

Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of​ recessions? A. Microeconomics B. Macroeconomics C. Both microeconomics and macroeconomics give equal emphasis to these problems. D. This cannot be determined by the information given.

B. Macroeconomics

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational? A. ​Microsoft's choice cannot be​ rational: the price is clearly more than most people are willing and able to pay. B. When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality. C. We cannot assume that this pricing decision was rational because we do not have enough information to make an assumption. D. ​Microsoft's choice was​ rational: the price will maximize profit.

B. When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality.

Productive efficiency means that A. a good or service is produced as quickly as possible. B. a good or service is produced at the lowest possible cost. C. every good or service is distributed fairly. D. every good or service is produced up to the point where marginal benefit is equal to marginal cost. Part 2

B. a good or service is produced at the lowest possible cost.

Allocative efficiency means that A. every good or service is distributed fairly. B. every good or service is produced up to the point where marginal benefit is equal to marginal cost. C. a good or service is produced as quickly as possible. D. a good or service is produced at the lowest possible cost.

B. every good or service is produced up to the point where marginal benefit is equal to marginal cost.

The production possibilities frontier will shift outward A. if resources are not used to produce capital goods. B. if technological advances occur. C. if production occurs outside the production possibilities frontier. D. if resources are used to produce consumption goods. E. if resources are not used in production.

B. if technological advances occur.

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity. A. more proportional B. smaller C. greater D. more instant

B. smaller

Opportunity cost is A. when unlimited wants exceed the limited resources available to fulfill those wants. B. the highest valued alternative that must be given up to engage in an activity. C. when consumers and firms use all available information as they act to achieve their goals. D. the idea that because of​ scarcity, producing more of one good or service means producing less of another good or service.

B. the highest valued alternative that must be given up to engage in an activity.

We can show economic​ inefficiency: A. with points on the production possibilities frontier. B. with points inside the production possibilities frontier. C. with points on and outside the production possibilities frontier. D. with points outside the production possibilities frontier. E. with points inside and on the production possibilities frontier.

B. with points inside the production possibilities frontier.

Which of the following is a correct statement about a mixed​ economy? A. In a mixed​ economy, all economic decisions are made in markets. B. In a mixed​ economy, the government makes all economic decisions. C. In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources. D. In a mixed​ economy, most economic decisions are made by the government but markets plays a significant role in the allocation of resources.

C. In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

What does increasing marginal opportunity costs​ mean? Part 2 A. Increasing the production of a good requires decreases in the production of another good. B. Increasing the production of a good requires smaller and smaller decreases in the production of another good. C. Increasing the production of a good requires larger and larger decreases in the production of another good. D. The economy is unable to produce increasing quantities of goods and services. E. Production is not occurring on the production possibilities frontier.

C. Increasing the production of a good requires larger and larger decreases in the production of another good.

What is comparative​ advantage? Part 4 A. The ability to produce more of a good or service than competitors using the same amount of resources. B. The gain from selling a product for more than it costs to produce that product. C. The ability to produce a good or service at a lower opportunity cost than other producers. D. The gain from consuming a product whose benefit is greater than its cost. E. The ability to use all available resources to produce output.

C. The ability to produce a good or service at a lower opportunity cost than other producers.

What are the implications of this idea for the shape of the production possibilities​ frontier? Part 4 A. The production possibilities frontier will have a negative slope. B. The production possibilities frontier will be bowed inward. C. The production possibilities frontier will be bowed outward. D. The production possibilities frontier will have a positive slope. E. The production possibilities frontier will be a straight line.

C. The production possibilities frontier will be bowed outward.

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls A. the market. B. rationality. C. scarcity. D. economics.

C. scarcity.

Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. How should policymakers determine the amount of money that should be allocated for research curing heart​ disease? They should base their decision on A. the number of people who die from heart disease compared to the number of people who die from other diseases. B. the number of people who have heart disease compared to the number of people who have other diseases. C. whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases. D. the value of the total benefit of the research on heart disease. E. the value of the total benefit of research on curing other diseases.

C. whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.

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 Part 6 A. will not have a comparative advantage because it has fewer resources. B. will have a comparative advantage if it produces more efficiently. C. will have a comparative advantage if it has a lower opportunity cost of producing that good. D. will have a comparative advantage if it devotes more resources toward that​ good's production. E. will have a comparative advantage if it is able to produce that good at a low total cost.

C. will have a comparative advantage if it has a lower opportunity cost of producing that good.

Which of the following best describes​ scarcity? A. Markets cannot properly allocate resources. B. Wants cannot be fulfilled and thus all goods must be rationed. C. Unlimited wants exceed the limited resources available. D. Prices of goods are very high.

C. Unlimited wants exceed the limited resources available.

Scarcity is central to the study of economics because it implies that A. economic agents are rational. B. wants are unlimited. C. every choice involves an opportunity cost. D. society must make decisions at the margin.

C. every choice involves an opportunity cost.

Suppose the total benefit of watching 1 baseball game is​ 100, the total benefit of watching 2 games is​ 120, and the total benefit of watching 3 games is 125. In this​ case, the marginal benefit of watching the 3rd game​ is: A. 375 B. 41.67 C. 125 D. 5

D. 5

Which of the following statements is​ true? A. While resources are​ scarce, most people​ don't own resources and therefore do not face a scarcity of them. B. Most individuals face a scarcity of​ time, but few experience a scarcity of other resources. C. Some individuals experience scarcity because they have not learned to live within their means. D. All individuals face a scarcity of time and need to make choices how to allocate it.

D. All individuals face a scarcity of time and need to make choices how to allocate it.

Government policymakers use economic principles to make​ decisions, such as A. whether to raise taxes on cigarettes to discourage teenage smoking. B. whether to allocate additional funds to research on cancer or to research on heart disease. C. whether to raise interest rates to reduce the threat of inflation. D. All of the above.

D. All of the above.

A primary difference between macroeconomics and microeconomics is A. There are no true differences between microeconomics and macroeconomics. B. Microeconomics is concerned with market economies while macroeconomics is concerned with​ centrally-planned economies. C. Microeconomics is concerned with present decisions while macroeconomics is concerned with future decisions. D. Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

D. Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

What is absolute​ advantage? A. The ability to use all available resources to produce output. B. The gain from consuming a product whose benefit is greater than its cost. C. The gain from selling a product for more than it costs to produce that product. D. The ability to produce more of a good or service than competitors using the same amount of resources. E. The ability to produce a good or service at a lower opportunity cost than other producers.

D. The ability to produce more of a good or service than competitors using the same amount of resources.

Which of the following statements about the idea that people are rational is​ correct? A. The idea assumes that consumers and firms take into account the costs of their actions but ignore the benefits. B. The idea assumes that consumers and firms always make correct decisions. C. The idea assumes that consumers and firms take into account the benefits of their actions but ignore the costs. D. The idea assumes that consumers and firms use all available information as they act to achieve their goals.

D. The idea assumes that consumers and firms use all available information as they act to achieve their goals.

Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. Part 2 What is the opportunity cost of spending more money to find a cure for heart​ disease? Part 3 A. The monetary value of a human life. B. The cost of the​ Medicare/Medicaid program. C. The reduction in future​ health-related costs of heart disease. D. The reduction in funding for research to cure other diseases. E. The total explicit cost of the research to cure heart disease.

D. The reduction in funding for research to cure other diseases.

The three economic questions that every society must answer are A. What economic system will be​ used, how will it be​ implemented, and who will make market​ decisions? B. What are the prices of​ goods, how are they​ determined, and who will pay for​ them? C. What kind of government will the society​ have, how will it be​ run, and who will run​ it? D. What goods will be​ produced, how will they be​ produced, and who will receive the​ goods?

D. What goods will be​ produced, how will they be​ produced, and who will receive the​ goods?

In a market​ system, how does society decide who will receive the goods and services​ produced? A. The government determines the goods and services produced. B. Consumers determine who receives the goods and services produced. C. Firms determine who receives the goods and services produced. D. Who receives the goods and services produced depends largely on how income is distributed.

D. Who receives the goods and services produced depends largely on how income is distributed.

Economics is a social science because.... A. it applies the scientific method to the study of the interactions among individuals. B. it is based on studying the actions of individuals. C. it considers human behavior—particularly ​decision-making behavior. D. all of the above.

D. all of the above.

Microeconomics is the study of A. how individuals and firms act altruistically to better society. B. how individuals make good decisions for themselves but hurt society. C. the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth. D. how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

D. how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when A. marginal cost is zero. B. marginal benefit is maximized. C. marginal benefit is greater than marginal cost. D. marginal benefit equals marginal cost.

D. marginal benefit equals marginal cost.

A production possibilities​ frontier: A. shows how participants in the market are linked. B. shows the act of buying and selling. C. shows the market for a good or service. D. shows the maximum attainable combinations of two goods that may be produced with available resources. E. shows how unlimited wants exceed the limited resources available to fulfill those wants.

D. shows the maximum attainable combinations of two goods that may be produced with available resources.

Macroeconomics is the study of A. how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices. B. why the U.S. has spent so much money on wars and government surveillance of its own citizens. C. the economy on a​ state-by-state basis, covering areas affected by the Commerce Clause. D. the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

D. the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

Equity is Part 2 A. when poorer​ people's income is growing more rapidly than more wealthy​ people's income. B. always achieved by the market. C. an exactly equal distribution of income. D. the fair distribution of economic benefits.

D. the fair distribution of economic benefits.

Prepping for a​ next-day exam over the course of an evening​ (and possibly into the wee hours of test​ day) poses increasing costs since Part 2 A. studying productivity declines sharply as the effort extends through the evening. B. tutors charge higher rates after 7 p.m. C. evenings are a less productive time to study compared to daylight hours. D. the longer you choose to study will result in an increase in the number and value of foregone activities.

D. the longer you choose to study will result in an increase in the number and value of foregone activities.

Economists believe that an activity should be continued up to the point where A. the marginal benefit from the activity plus the marginal cost equals zero. B. the marginal benefit from the activity is greater than the marginal cost. C. the marginal benefit from the activity is less than the marginal cost. D. the marginal benefit from the activity is equal to the marginal cost.

D. the marginal benefit from the activity is equal to the marginal cost.

We can show economic​ efficiency: A. with points inside the production possibilities frontier. B. with points inside and on the production possibilities frontier. C. with points outside the production possibilities frontier. D. with points on the production possibilities frontier. E. with points on and outside the production possibilities frontier.

D. with points on the production possibilities frontier.

A firm pays Pam​ $40 per hour to assemble personal computers. Each​ day, Pam can assemble 4 computers if she works 1​ hour, 7 computers if she works 2​ hours, 9 computers if she works 3​ hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a​ motherboard, a hard​ drive, a​ case, a​ monitor, a​ keyboard, and a mouse. The total cost of these parts is​ $600 per computer. What is the marginal cost of producing the computers that Pam can assemble during her 3rd hour of​ work? A. ​1,200 B. ​5,400 C. ​5,520 D. ​1,240

D. ​1,240

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? No, because if a billionaire cannot get the goods and services they​ want, someone else can get it for them. B. ​No, because billionaires can have anything that money can buy. C. ​Yes, because there is a limit to the income even billionaires can earn. D. ​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.

D. ​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.

Economists assume that people are rational in the sense that A. they do not respond to economic incentives. B. they generally make the correct choices. C. they make decisions based on​ total, rather than​ marginal, variables. D. they use all available information as they take actions intended to achieve their goals.

D. they use all available information as they take actions intended to achieve their goals.

How can a country gain from specialization and​ trade? A. A country can specialize in producing that which is most scarce and then trade for other needed goods and services. B. A country can specialize by using all available resources to produce goods and services to avoid trading with other countries. C. A country can specialize in producing that for which it has an absolute advantage and then trade for other needed goods and services. D. A country can specialize by using all available resources to invest in capital goods to promote economic growth. E. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

E. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

In analyzing markets, we generally assume:

People are rational, People respond to economic incentives, and optimal decisions are made at the margin

What is the class policy?

You may not ask others to sign the attendance sheet for you or sign the attendance sheet for others. You may not leave the classroom before we finish the lecture without any reason.

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. This is defined as

absolute advantage

"total benefit divided by the number of units" is the

average benefit

"total cost divided by the number of units" is the

average cost

An economist remarks that​ "the cost of consuming a book is the combination of the retail price and the opportunity cost of the time spent​ reading." Source​: Craig L.​ Garthwaite, "Demand​ Spillovers, Combative​ Advertising, and Celebrity​ Endorsements," American Economic​ Journal: Applied Economics​, Vol.​ 6, No.​ 2, April​ 2014, p. 78. Part 2 The cost of ______ a book is the price you pay to buy the​ book, but the cost of ______ a book would include the time spent reading the book.

buying ; consuming

physical capital, such as computers, office buildings, and machine tools, used to produce other goods. This is defined as

capital

An economy in which the government decides how economic resources will be allocated. This is the definition of a

central planning economy

Difference between central planning economy vs market economy

central planning economy: decisions by individuals or small groups market economy: buyers and sellers signal wants and costs

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. This is defined as

comparative advantage

the study of the choices people make to attain their goals, given their scarce resources. This is defined as

economics

the ability to bring together the other factors of production to successfully produce and sell goods and services. This is defined as

entrepreneurial ability

The fair distribution of economic benefits. Fairness doesn't mean absolute equality. This is the definition of

equity

Centrally planned economies allocate resources based on decisions by _________ while market economies answer these questions through decisions made by ___________.

government ; households and firms

The 3 basic economic agents are

households(consumers), firms(producers), and governments.

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?

incorrect

all types of work, from the part-time labor of teenagers working at McDonald's to the work of senior managers in large corporations. This is defined as

labor

The 4 factors of production

labor, capital, natural resources, entrepreneur

inadequate basis on which to make decisions. This is the definition of

lack of information

"analysis that involves comparing marginal benefits and marginal costs" is the

marginal analysis

"the increase in total benefit from one additional (extra) unit of an activity" is the

marginal benefit

"the increase in total cost from one additional (extra) unit of an activity" is the

marginal cost

"A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade". This is the definition of

market

An economy in which the decisions of households and firms interacting in markets allocate economic resources. This is the definition of a

market economy

The market fails to allocate resources efficiently when price does not reflect value of resources. This is the definition of

market failure

Efficiency means that goods are distributed in a way that _________ while equity means that goods are distributed in a way that _______.

maximizes benefits to society ; is fair

An economy in which most decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in allocation of resources. That is the mix of the central planning economy and the market economy. This is the definition of a

mixed economy

land, water, oil, iron ore, and other raw materials (or "gifts of nature") that are used in producing goods. This is defined as

natural resources

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

analysis concerned with what ought to be. it says how people should behave.(subjective). This is the definition of

normative analysis

"to continue any activity up to the point where the marginal benefit (MB) is equal to the marginal cost" is the

optimal principle

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

analysis concerned with what is. It says how people will behave.(objective). This is the definition of

positive analysis

product market vs factor market

product market: house holds are buyers & firms are sellers factor market: house holds are sellers & firms are buyers

The _____ is a curve showing the maximum attainable (feasible) combinations of two goods that can be produced with available resources and current technology.

production possibilities frontier

A situation in which unlimited wants exceed the limited resources available to fulfill those wants. Having more of one good means having less of another. This is defined as

scarcity

The idea that, because of scarcity, having more of one good or service means having less of another good or service. Scarcity requires trade-offs. This is defined as

trade off

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction. This is the definition of

voluntary exchange