Exam 1

A public good is a good that:

when consumed by one individual, can still be consumed by others

Laissez-faire is:

an economic precept

Laura's production possibility curve for math and economics problems in one night is shown in the graph. Her opportunity cost of finishing 6 math problems instead of 4 math problems is:

1 economics problem.

The principle of increasing marginal opportunity cost does not hold in which of the following cases?

All inputs are equally adaptable to the production of all goods

Which of the following statements is correct?

Both stocks and bonds are financial assets.

Two nations with differing comparative advantages will be able to consume more if each produces the good for which the opportunity cost is highest and trades for the good for which opportunity cost is lowest.

False

Opportunity cost is the same as marginal cost.

False

The opportunity cost of undertaking an activity includes any sunk cost.

False

Which of the following is not an example of government's role as a referee?

Laws that require states and the federal government to balance their budgets.

The principle of increasing marginal opportunity cost holds in which of the following cases?

Some inputs are better off producing particular goods.

Which of the following factors will help the United States regain comparative advantages in industries where it has lost comparative advantages?

The value of the U.S. dollar falls

Only marginal costs, not sunk costs, should affect economic decisions if individuals are rational.

True

The production possibilities model can be used to demonstrate the concept of opportunity cost.

True

Which of the following cannot be determined using a production possibility table?

What combination of outputs is best.

Economic reasoning would argue that there is an opportunity cost to:

all choices.

Economic forces:

are a reaction to scarcity.

International market failures:

are more likely to be solved in the presence of a world government.

Market failures:

are sometimes made worse by government failures.

In the goods market:

business produces goods and services and sells them to households and government.

The term efficiency involves achieving a goal as:

cheaply as possible

Government is on the:

demand side of both factor markets and goods markets.

A business is most likely to be characterized as a corporation if:

each owner is liable only to the extent of his or her own investment.

A market economy:

expects people to be self-interested.

In a socialist economic system:

government planning boards decide what to produce and then give individuals directives how to achieve those goals.

In socialism:

government planning, rather than the market, is relied upon to coordinate economic activity.

Socialism in theory is an economic system in which:

government sees to it that people work for the common good until they could be relied upon to do that on their own.

One advantage of a corporation over a sole proprietorship is:

greater ability to obtain funds

One advantage of a partnership over a corporation is:

greater accountability.

Adam Smith argued that greater specialization and division of labor are likely to:

improve standards of living

If you move from a point inside the production possibility curve to a point on the production possibility curve, it follows that efficiency is:

increased because the economy is now on the production possibility curve.

Opportunity cost:

is the net benefit foregone by not undertaking the next best alternative.

A business is likely a sole proprietorship if:

it has only one owner who has unlimited liability

The principle of increasing marginal opportunity costs states that the initial opportunity costs are:

low but they increase the more you concentrate on the activity.

"Welfare capitalism" is an economic system in which:

markets operate, but government regulates markets significantly

A basic difference between microeconomics and macroeconomics is:

microeconomics examines the choices made by individual participants in an economy, while macroeconomics considers the economy's overall performance.

A defining difference in what makes a firm a sole proprietorship, partnerships, or a corporation is the:

nature of ownership and accountability for each type of business.

"Price controls in competitive markets cause shortages" is an example of:

positive economics.

Laissez-faire is an economic:

precept because it is based on a model and normative judgments about the relevance of the model to the real world.

For a market to exist:

private property rights must be allocated and defended by government.

As you move from point A to point B:

production efficiency is decreased because we are no longer on the production possibility curve.

According to Adam Smith, trade based on comparative advantage is the result of:

self-interest.

One advantage of a partnership over a sole proprietorship is:

the ability to share the work and risks of business.

The art of economics is:

the application of the knowledge gained by positive economics to the goals set in normative economics.

Countries gain from trade by producing:

the goods they can produce at the lowest opportunity cost.

Markets coordinate economic activity through:

the price mechanism.

An inverse relationship occurs between two variables when as one goes:

up the other goes down.

Economic reasoning would never help you decide:

what is morally right and what is wrong.