Microeconomics CH 1

Which of the following statements is true about a market economy? A. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. B. Taxes help prices communicate costs and benefits to producers and consumers. C. With a large enough computer, central planners could guide production more efficiently than markets. D. The strength of a market system is that it tends to distribute resources evenly across consumers.

A. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being.

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.) A. Yes. B. No. C. There is not enough information to answer this question. ALSO, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than A. $100. B. $300. C. $500. D. $800. E. none of the above.

A. Yes. D. $800.

Which of the following activities is most likely to produce an externality? A. A student sits at home and watches television. B. A student has a party in her dorm room. C. A student reads a novel for pleasure. D. A student eats a hamburger in the student union.

B. A student has a party in her dorm room.

In the short run, A. an increase in inflation temporarily increases unemployment. B. a decrease in inflation temporarily increases unemployment. C. inflation and unemployment are unrelated. D. the business cycle has been eliminated. E. None of the above is true.

B. a decrease in inflation temporarily increases unemployment.

Economics is the study of how A. to fully satisfy our unlimited wants. B. society manages its scarce resources. C. to reduce our wants until we are satisfied. D. to avoid having to make trade-offs. E. society manages its unlimited resources.

B. society manages its scarce resources.

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is A. nothing, because you found the money. B. $20 (because you could have used the $20 to buy other things). C. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. D. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game plus the cost of the dinner you purchased at the game. E. none of the above.

C. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Which of the following situations describes the greatest market power? A. a farmer's impact on the price of corn B. Volvo's impact on the price of autos C. Microsoft's impact on the price of desktop operating systems D. a student's impact on college tuition

C. Microsoft's impact on the price of desktop operating systems

High and persistent inflation is caused by A. unions increasing wages too much. B. OPEC raising the price of oil too much. C. governments increasing the quantity of money too much. D. regulations raising the cost of production too much.

C. governments increasing the quantity of money too much.

An increase in the price of beef provides A. information that tells consumers to buy more beef. B. information that tells consumers to buy less pork. C. information that tells producers to produce more beef. D. no information because prices in a market system are managed by planning boards.

C. information that tells producers to produce more beef.

Trade-offs are required because wants are unlimited and resources are A. efficient. B. economical. C. scarce. D. unlimited. E. marginal.

C. scarce.

A rational person does not act unless A. the action makes money for the person. B. the action is ethical. C. the action produces marginal costs that exceed marginal benefits. D. the action produces marginal benefits that exceed marginal costs. E. None of the above is true.

D. the action produces marginal benefits that exceed marginal costs.

Workers in the United States enjoy a high standard of living because A. unions in the United States keep the wage high. B. we have protected our industry from foreign competition. C. the United States has a high minimum wage. D. workers in the United States are highly productive. E. None of the above is true.

D. workers in the United States are highly productive.

Which of the following involve a trade-off? A. buying a new car B. going to college C. watching a football game on Saturday afternoon D. taking a nap E. All of the above involve trade-offs.

E. All of the above involve trade-offs.

Which of the following products would be least capable of producing an externality? A. cigarettes B. stereo equipment C. inoculations against disease D. education E. food

E. food

In the short run, a reduction in inflation tends to cause a reduction in unemployment. T F

FALSE: a reduction in inflation tends to raise unemployment.

An individual farmer is likely to have market power in the market for wheat. Answer T F

FALSE: a single farmer is too small to influence the market.

The United States will benefit economically if we eliminate trade with Asian countries because we will be forced to produce more of our own cars and clothes. T F

FALSE: all countries gain from voluntary trade.

Adam Smith's "invisible hand" concept describes how corporate business reaches into the pockets of consumers like an "invisible hand." T F

FALSE: the "invisible hand" refers to how markets guide self-interested people to create desirable social outcomes.

When the government redistributes income with taxes and welfare, the economy becomes more efficient. T F

FALSE: the economy becomes less efficient because it decreases the incentive to work hard.

An unintended consequence of public support for higher education is that low tuition provides an incentive for many people to attend state universities even if they have no desire to learn anything. T F

TRUE

High and persistent inflation is caused by excessive growth in the quantity of money in the economy. Answer T F

TRUE

To a student, the opportunity cost of going to a basketball game would include the price of the ticket and the value of the time that could have been spent studying. T F

TRUE

When a jet flies overhead, the noise it generates is an externality. T F

TRUE

When economists say, "There ain't no such thing as a free lunch," they mean that all economic decisions involve trade-offs. T F

TRUE