Microeconomics Chapters 1 and 2

T/F: A market economy can produce a socially desirable outcome because individuals are motivated by their own selfish interests.

False

T/F: Economics is the study of how efficient resources are utilized within society.

False

T/F: Equality means everyone in the economy should receive an equal share of the goods and services produced.

False

T/F: Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.

True

T/F: Economists try to address their subject with a scientist's objectivity.

True

T/F: Market failure refers to a situation in which the market does not allocate resources efficiently.

True

T/F: The government can potentially improve market outcomes if market inequalities or market failure exists. a. True

True

T/F: To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

True

T/F: Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

True

T/F: Trade with any nation can be mutually beneficial.

True

Refer to Figure 2-7. Efficient production is represented by which point(s)? a. L, M b. L, M, N, P, Q c. N,O,P d. Q

a. L, M

Refer to Table 2-3. What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600? a. 400 socks b. 300 socks c. 200 socks d. 100 socks

b. 300 socks

Which of the following is not an example of a positive, as opposed to normative, statement? a. Higher gasoline prices will reduce gasoline consumption. b. Equality is more important than efficiency. c. Trade restrictions lower our standard of living. d. If a nation wants to avoid inflation, it will restrict the growth rate of the quantity of money.

b. Equality is more important than efficiency.

One way to characterize the difference between positive statements and normative statements is as follows: a. Positive statements tend to reflect optimism about the economy and its future, whereas normative statements tend to reflect pessimism about the economy and its future. b. Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be. c. Positive statements involve advice on policy matters, whereas normative statements are supported by scientific theory and observation. d. Economists outside of government tend to make normative statements, whereas government-employed economists tend to make positive statements.

b. Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.

Which of the following statements is an example of a positive, as opposed to normative, statement? a. Americans deserve a cleaner environment. b. Reducing emissions reduces days missed from school due to asthma. c. All Americans are entitled to quality health care. d. Economic policies should focus on improving equality.

b. Reducing emissions reduces days missed from school due to asthma.

When the government redistributes income from the wealthy to the poor, a. efficiency is improved, but equality is not. b. equality is improved, but efficiency is not. c. both efficiency and equality are improved. d. neither efficiency nor equality are improved.

b. equality is improved, but efficiency is not.

Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade? a. Only Country A can benefit. b. Only Country B can benefit. c. Both Country A and Country B can benefit. d. Neither Country A nor Country B can benefit.

c. Both Country A and Country B can benefit.

Refer to Figure 2-7. This economy has the ability to produce at which point(s)? a. N,O,P b. L, M c. L,M,N,O,P d. L, M, Q

c. L,M,N,O,P

Refer to Figure 2-7. Inefficient production is represented by which point(s)? a. L, M b. N, O, P, Q c. N,O,P d. Q

c. N,O,P

Making rational decisions "at the margin" means that people a. make those decisions that do not impose a marginal cost. b. evaluate how easily a decision can be reversed if problems arise. c. compare the marginal costs and marginal benefits of each decision. d. always calculate the dollar costs for each decision.

c. compare the marginal costs and marginal benefits of each decision.

High-school athletes who skip college to become professional athletes a. obviously do not understand the value of a college education. b. usually do so because they cannot get into college. c. understand that the opportunity cost of attending college is very high. d. are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.

c. understand that the opportunity cost of attending college is very high.

Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit the rich at the expense of the poor. a. Both senators' arguments are primarily about equality. b. Both senators' arguments are primarily about efficiency. c. Senator Jackson's argument is primarily about equality, while Senator Feldman's argument is primarily about efficiency. d. Senator Jackson's argument is primarily about efficiency, while Senator Feldman's argument is primarily about equality.

d. Senator Jackson's argument is primarily about efficiency, while Senator Feldman's argument is primarily about equality.

Which of the following is an example of a normative, as opposed to positive, statement? a. Following the most recent recession, the economy is recovering at a slower than usual pace. b. To stimulate the economy during the most recent recession, the federal government increased spending. c. In response to the most recent recession, the federal government extended the duration of unemployment benefits. d. The federal government's responses to the most recent recession were insufficient.

d. The federal government's responses to the most recent recession were insufficient.

Refer to Table 2-3. Which of the following statements is correct? a. The opportunity cost of an additional 200 shoes is constant at 200 socks. b. The opportunity cost of an additional 200 shoes is constant at 300 socks. c. Footville's production possibilities frontier is a straight, downward-sloping line. d. The opportunity cost of an additional 200 shoes increases as more socks are produced.

d. The opportunity cost of an additional 200 shoes increases as more socks are produced.

Under what conditions might government intervention in a market economy improve the economy's performance?

market failures