ECO2000 Exam 1, 2, & 3
Which of the following saying best illustrates why there are so many government transfer programs?
"A government that robs Peter to pay Paul can generally count on the support of Paul."
Which of the following quotation best describes the operation of a market economy?
"Markets reward people who supply things others value highly relative to cost."
An online business produces an app for smart phones. Its costs in labor, technology, materials, and promotion are $80,000. If the business sells 10,000 apps at $10, it will make a profit of
$20,000
Which of the following are scarce?
- pleasant working conditions - low-cost housing - free time for recreation
While waiting in line to buy a cheeseburger and a soft drink for $3, Stephanie notices that the a value meal containing a cheeseburger, soft drink, and french fries can be purchased for $3.25. For Stephanie, the marginal cost of purchasing the french fries would be
25 cents
Which of the following would lead to an increase in the demand for rental apartments in your area?
A sharp increase in the number of out-of-town students attending the local college
A marginal change usually is a
small, incremental adjustment
When a firm or an enterprise obtains more funds from government and less from consumers, the enterprise will
spend more time trying to influence politicians and less time trying to meet the preferences of consumers
When enterprises get more funds from government subsidies and less from consumers, they will have incentive to
spend more time trying to influence politicians and less time trying to reduce costs and please customers
Adam Smith's invisible hand principle stresses the tendency of
the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society
The amount of resources directed toward lobbying, favor seeking from the government, and spending on political campaigns will be directly related to
the ease at which the political process can be used to gain at the expense of others
Henry Hazlitt believed that when analyzing an economic proposal, the most common source of economic error was
the failure to consider long-run results and secondary consequences
The popularity of trade restrictions, tariffs, and quotas often reflects that
the immediate benefits are highly visible, while the secondary effects of lost jobs in other industries are less visible
Because it is unlikely that the choice of an individual voter will decide the outcome of an election,
the incentive of a voter to acquire information about candidates (and issues) and to cast a well-informed vote is weak
When there is excess supply of a product in a market,
the market price will tend to fall
Doomsday forecasts projecting that a consumable resource will soon be depleted, fail to account for
the role of prices in conservation; as the supply of the resource decreases, the price increases and people will turn to alternative resources
People who spend more time and effort investigating the advantages and disadvantages of different automobile models when they go to purchase one than they do investigating the strengths and weaknesses of presidential candidates are saying, in effect, that
they expect to use the information on the merits of alternative cars to greater personal advantage than they could information on the merits of alternative presidential candidates
Most automobile drivers reach their destinations safely because
they have a self-interest in avoiding collisions
As a general rule, if pollution costs are external, firms will produce
too much of the good generating the pollution
Markets coordinate output decisions by pushing price
upward when there is a shortage
A movement along a demand curve for a good
will occur when there is a shift in the supply of the good
When rent controls push the price of rental housing below the market equilibrium level, landlords cease to be responsive to tenants' concerns about the quality of the housing because
with shortages and waiting lists, they have little or no incentive to maintain and improve their property
Which of the following economic environments is most consistent with economic growth and prosperity?
Open markets and a legal system that enforces contracts in an even-handed manner
What is the cause of inflation?
Rapid increases in the money supply
How does the invisible hand principle explain why self-interested individuals will generally pursue activities that benefit others?
The pursuit of profit and income gives individuals a strong incentive to provide goods and service that are highly valued by others
Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?
They benefit as long as the additional revenue derived from the standby passenger exceeds the marginal cost
Starting a new business takes much longer in some countries than in others. Which of the following statements is correct?
This is due to regulations, which require people to get permission from several different regulatory authorities before starting a business
Which of the following is true?
Voters are likely to support candidates who will provide them with the most personal benefits
Which of the following is the most likely result of a quota that limits the importation of steel into the United States
a reduction in output and employment in domestic industries that utilize steel as a resource
According to economic theory, which of the following would be most likely to cause a reduction in the demand for hamburgers?
a reduction in the price of chicken, a good substitute for hamburger
Middlemen increased efficiency and therefore increase economic wealth
by decreasing search costs and other transaction costs
Private ownership allows owners to
decide how the property will be used as long as they do not invade or physically damage the property of others
The dramatic changes in per capita income and life expectancy over the last 200 years are due to
economic growth, caused by increases in productivity
Entrepreneurs will increase their efforts to develop economical alternative energy sources
if current energy supply decreases and prices rise
When people change their employment status or alter purchasing decisions because of high marginal tax rates
inefficiencies result because people take jobs and purchases goods they would not have chosen if taxes had not distorted the benefits and costs accompanying their choices
In general, people trade with each other because
it allows them to give up something they value less, in exchange for something they value more
Government is most likely to align the self-interests of voters, politicians, and bureaucrats with economic progress, when
it is limited in scope and remains neutral among the various subgroups of citizens
Volatility in the inflation rate will undermine prosperity because
it will generate uncertainty and therefore individuals will spend less time producing and more time attempting to protect their wealth against inflation and the fluctuations in the value of the currency
The distinctive feature of the American political progress and the key to economic progress is
limited and decentralized government, protection of people and their property from aggressors, and provision of a limited set of public goods
As government becomes more involved in providing favors to some businesses and sectors of the economy at the expense of others
lobbying and other rent-seeking activities will increase
Which of the following is most important if monetary policy is going to create an environment for growth and prosperity?
price stability
Which of the following is the best way to assure that property is well kept and managed wisely?
private ownership, because the failure to maintain property will directly result in a decline in the property's value
The Fifth Amendment of the Bill of Rights of the U.S. Constitution states that
private property shall not be taken except for public use and with compensation
The reason monopoly is considered a market failure is because monopolists
produce less, and charge a higher price than what would be most efficient
When policy makers are constantly shifting back and forth between expansionary and restrictive monetary policy, this is most likely to
promote instability because the time lags of monetary policy are long and unpredictable
A price floor set above an equilibrium price tends to cause persistent imbalances in the market because
quantity supplied exceeds quantity demanded but prices cannot fall to remove the surplus
To say that Canada has a comparative advantage in the production of wheat is similar to saying that
Canada produces wheat at a lower opportunity cost than other countries
According to the law of supply, as the price of a good falls,
sellers will produce less of the good
The expression "There's no such thing as a free lunch" means
the use of resources to produce a good has an opportunity cost because of scarcity
Which of the following will substantially increase the likelihood a person will experience periods of poverty?
Dropping out of high school and having a child as an unmarried teenager
The federal debt per taxpayer is now over $150,000. Yet in a democracy the government continues to spend more than it collects in taxes. Why is this?
Elected officials have a strong incentive to favor spending programs that provide highly visible current benefits at the expense of less-visible future costs
Which of the following can be learned from the investment rates of Eastern Europe and the former Soviet Union during 1950-1999?
High rates of investment do not automatically guarantee economic progress
In a free market, if the price of a good is above equilibrium, then I. the market price will fall II. the quantity supplied will be greater than quantity demanded III. there will be a shortage of the good
I & II: the market price will fall and the quantity supplied will be greater than quantity demanded
Scarcity would not exist if I. resources were unlimited II. wants were unlimited III. conservation of resources replaced consumption of resources
I. resources were unlimited
Countries are able to consume more goods than they produce if they I. trade on the basis of comparative advantage II. exploit poorer nations III. are self-sufficient in producing all goods and services
I. trade on the basis of comparative advantage
Tom's older sister Jen gave him her old car when she bought a new one. In exchange, Tom promised to wash both cars for a year. We can conclude from this exchange that
Both Tom and Jen are better off, because they agreed to the exchange
When an American buys a good from someone in China rather than buying the good from an American, which of the following is true?
Both trading partners benefit from voluntary exchange, regardless of their nationality
Which of the following best explains why Americans produce and earn approximately thirty times more per person today than in 1750?
Capital formation, improvements in technology, and gains from trade have made higher incomes possible
Why do supermarkets stock thousands of items people enjoy?
Competition, self-interest, and market prices influence the supermarkets' decisions on which items to stock
Clear Waters Snorkeling Equipment Company has had major losses for the last few years. U.S. Representative Snow has introduced a bill in Congress to provide government subsidies to the company for two years so it can get back on its flippers. Use the economic way of thinking to evaluate this situation. I. the subsidy program should be an effective method to rescue the company II. The major losses indicate that the company is making a product that consumers value less than the value of the resources required to produce it III. If Clear Waters Snorkeling Equipment goes out of business, the future total output of the economy will fall below its potential
II: The major losses indicate that the company is making a product that consumers value less than the value of the resources required to produce it
Why is the market process more likely to approve productive, and reject unproductive, projects than the political process?
In the market, projects will continue to be undertaken only if they generate revenues that are sufficient to cover their costs
Which of the following provides an accurate explanation of why the "free rider" problem associated with the allocation of public goods results in market failures?
Market allocation of public goods for a profit is difficult, because people can consume the good without paying for it
Celina worked her way through law school as a typist. She now makes $200 per hour as a lawyer. As the result of a heavy workload, she hires a typist at $25 per hour, but Celina discovers she can type twice as fast as her new employee. Should Celina do her own typing?
No, even though Celina types faster than her new employee, her opportunity cost of doing any given amount of typing will exceed that of her new employee
If states imposed trade barriers that reduced the volume of trade among people in the 50 states, would this increase output and income levels
No, the trade restrictions would reduce the gains from specialization and trade, and therefore output and income levels would decline
Young people who want to earn moderate-to-high incomes should
acquire skills and invest in education that will increase their ability to provide valuable goods and services to others
a decrease in marginal tax rates will
allow taxpayers to keep more of what they earn
When the actions of a person or group of persons spill over to harm or benefit another group without their consent, this is known as
an externality
Regulations that require people to get permission from many regulatory agencies before starting a business
are costly to society, because they prevent some businesses from being created, and therefore reduce competition.
The main postulate of economics is based on the premise that
changes in personal benefits or costs of an action influence behavior in predictable ways
Which of the following is the best example of citizens voting with their feet?
citizens choose where to live based on the services offered and the level of taxation
The economic way of thinking requires that opportunity cost be
considered as part of making a decision
If a country with a centrally planned economy (such as Cuba or North Korea) were to convert to a market-based economy, the country would have to
develop a system of clearly defined property rights
In a market economy, individuals have a strong incentive to develop skills and improve their productivity because
greater productivity enhances their ability to earn income
The Economic Freedom of the World index indicates that countries with more economic freedom
grow more rapidly than those that are less free
Investments in both physical and human capital tends to increase income per person because it generally
makes it possible for individuals to produce more goods and services
Despite being a college graduate, Jack Adams cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Jack is
making a rational personal choice because knowing these things gives him little personal benefit
The invisible hand principle suggests that
market forces tend to channel the actions of self-interested individuals into activities that promote the general betterment of society
Which of the following would be most likely to increase the long-term rate of economic growth
more freedom to enter and compete in markets
On what basis do people make most of their decisions?
on the basis of comparing additional costs to additional benefits
When price is the rationing criterion, individuals have a strong incentive to
provide services to others in exchange for income
an increase in marginal tax rates will
reduce the share of additional earnings that individuals are permitted to keep.
Regulations that make it costly to dismiss workers
reduce total employment because they also make it more costly to hire workers
Individuals are most likely to prosper in an economy that
rewards employment that expands production of goods and services that others value highly relative to cost
