ECON 201
Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because
the Federal Reserve is worried about unemployment
Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by
the actions of government central planners
When society requires that firms reduce pollution, there is
a tradeoff because of reduced incomes to the firms' owners and workers.
Both the production of goods and services and the unemployment rate are used to measure
the business cycle.
In most societies, resources are allocated by
the combined actions of millions of households and firms.
You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include
the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.
Unemployment could cause this economy to produce at point B (fig 2-10)
TURE
Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5% interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is...
$315
Consider Luis's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Luis's cost of going to college is
$42,000
Which of the following combinations of corn and wheat is NOT currently attainable but would be attainable if there was an improvement in overall production technology? (fig 2-3)
1,000 bushels of corn and 2,200 bushels of wheat
If the PPF is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced? (fig 2-1)
4,500
In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?
9%
Which of the following is an example of a capital input?
A computer
Which of the following firms is likely to have the greatest market power?
A utility company
The famous observation that households and firms interacting in markets act as if they are guides by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book>
Adam Smith
Trade
Allows specialization, which reduce costs
Which of the following is an example of an externality?
Antonio's dog barks loudly during the night, waking his neighbors.
Equality means distributing society's resources in the most efficient manner. a. TRUE b. FALSE
B- FALSE
Based on the values in the table, the production possibilities frontier is
Bowed outward indications increasing opportunity cost
Which of the following statement best represents the principle represented by the adge, "there ain't no such thing as a free lunch"?
Dani must decide between going to Florida or Brazil for spring break
For a number of years country A had inflation of 3% but for the last five years has had inflation of 6%. Country B had inflation of 4% for many years, but very recently inflation unexpectedly rose to 9%. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment?
Country B but not Country A
When the government implements programs such as progressive income tax rates, which of the following is likely to occur?
Equality is increased and efficiency is decreased
A rational decision-maker takes an action if and only if the marginal cost exceeds the marginal benefit
FALSE
An increase in the marginal cost activity necessarily means that people will no longer engage in any of that activity
FALSE
Economics is the study of how evenly goods and services are distributed within society
FALSE
Economics is the study of how society allocates its unlimited resources
FALSE
If wages for economists rose, then economists' leisure time would have a lower opportunity cost
FALSE
In the circular0flow diagram, firms consume all the goods and services that they produce
FALSE
Inflation increases the value of money
FALSE
Inflation is the primary determinant of a country's living standard
FALSE
Market failure occurs when no individual has the ability to substantially influence market prices
FALSE
Points B and C represent infeasible outcomes for this economy (fig 2-10)
FALSE
Since economists cannot use natural experiments offered by history, they must use carefully constructed laboratory experiments instead.
FALSE
The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
FALSE
The invisible hand ensures that economic prosperity is distributed equally
FALSE
The invisible hand ensures that economic prosperity is distributed equally.
FALSE
The opportunity cost of moving from point B to point D is 15 doghouse (fig 2-10)
FALSE
Tuition is the single-largest cost of attending college for most students.
FALSE
When a PPF is bowed outward, the opportunity cost of one good in terms of the other is constant
FALSE
With careful planning, we can usually get something that we like without having to give up something else that we like
FALSE
With careful planning, we can usually get something that we like without having to give up something else that we like.
FALSE
In a market economy, who makes the decisions that guide most economic activity?
Firms and households
Which of the following statements does NOT apply to a market economy?
Government policies are the primary forces that guide the decisions of firms and households
Which of the following is an important cause of inflation in an economy?
Growth in the quantity of money in the economy
Which of the following observations was made famous by Adam Smith in his book "The Wealth of Nations"
Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes
Which of the following claims is consistent with the views of mainstream economists?
If we increase the rate of inflation from 3% to 6%, then the rate of unemployment will temporarily fall
Which if the following is the most correct statement about the relationship between inflation and unemployment?
In the short run, falling inflation is associated with rising unemployment
A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?
It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay
More then $40; because the marginal benefit will exceed the marginal cost
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
People face tradeoff
In the short-run, which of the following is NOT correct?
Policies that encourage higher employment will also induce a lower rate of inflation
Which of the following is NOT a result of the shift of the economy's PPF from Graph (a) to Graph (b)? (fig 2-4)
Production of one donut and four cups of coffee becomes efficient
Which of the following industries has a marginal cost that is close to zero?
Software
A technological advance in the production of the first good increases the opportunity cost of the first good in terms of the second good
TRUE
Economists acting as scientists make positive statements, while economists acting as policy advisers make normative statements
TRUE
In the short-run, society faces a tradeoff between inflation and unemployment
TRUE
Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates principle that people respond to incentives.
TRUE
The classic tradeoff between "guns and butter" states that when a society spends more on nation defense, it has less to spend on consumer goods to raise the standard of living.
TRUE
To say people respond to incentives means that people may alter their decision when the cost and benefits of an action change
TRUE
When a PPF is bowed outward, the opportunity cost of one good in terms of the other depends on how much of each good is being produced
TRUE
It is possible for this economy to produce 75 doghouses
TURE
The opportunity cost of moving from point B to point A is zero
TURE
The production possibilities frontier shows the opportunity cost of one good as measured in terms of the other good
TURE
Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.
The cost of the parking is part of opportunity cost of attending college if you would not have to pay fro parking otherwise
Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?
The marginal cost of the house, if it is built, sill equal $250,00
The marginal benefits Sabrina gets from purchasing a third pair of gloves is
The total benefits she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves
Timothy decides to spend four hours playing video games rather than attending his classes. His opportunity cost of playing games is...
The value of knowledge he would have received had he attended his classes.
Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that
They would do better charging $15 than $10
Which of the following statements about trade is false?
With trade, on country must win and one must lose
If the US decides to trade with Yemen, we know that
Yemen and the US can both benefit
If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,
a decrease in the number of unskilled jobs available.
Productivity is defined as the
amount of goods and services produced from each unit of labor input
Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal
benefit of leaving was greater than the marginal cost.
Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange for Terrence tiling Dale's kitchen floor,
both Dale and Terrence are made better off by trade
You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should
compare the cost of staying one more semester to the benefits of staying one more semester
Making rational decisions at the margin means that people
compare the marginal cost and marginal benefits of each decision
Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal
cost of teaching increased.
The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is know as
externality
The terms equality and efficiency are similar in that they both benefits society. However, they are different in that
equality refers to uniform distribution of those benefits and efficiency refer to maximizing benefits from scarce resources
The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that...
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources
Large and persistent inflations are almost always caused by
excessive growth in the quantity of money
To improve living standards, policymakers should
formulate policies designed to increase productivity
The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by
government actions that distort prices
The basic principles of economics suggest that
government should become involved in markets when those markets fail to produce efficient or fair outcomes
The "invisible hand" refers to
how the decisions of households and firms lead to desirable market outcomes
an increase in the overall level of prices in the economy is referred to as
inflation
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers
Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tex revenue from the wealthy to the poor. This redistribution of wealth...
is more equal but less efficient for society
This economy cannot currently produce 70 washers and 70 dryers because
it does not have the resources and technology to produce that level of output
The term used to describe a situation in which markets do not allocate resources efficiently is
market failure
When recommending specific policies to undertake, economists make
normative statements
The adage, "There ain't no such thing as a free lunch," means
people face tradeoffs
The overriding reason why households and societies face many decisions is that
resources are scarce
Which of the following statements exemplifies a principle of individual decision making?
the cost of something is what you give up to get it
Mina decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is
the enjoyment she would have received had she gone to the park.
People are willing to pay more for a diamond than for a bottle of water because
the marginal benefit of an extra diamond far exceeds to marginal benefit of an extra bottle of water
During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. A likely explanation of these facts is that
the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.
Consider a production possibility frontier for an economy that produces only sofas and cars. The opportunity cost each car is
the slope of the PPF, or 3/2 sofas
Which of the following do economists NOT generally regard as a legitimate reason for the government to intervene in a market
to protect an industry from foreign competition
