Microeconomics Midterm

A marginal change is a a. change that involves little, if anything, that is important. b. large, significant adjustment. c. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment.

D

A society allocates its scarce resources to various uses. These scarce resources include a. land. b. people. c. machines. d. All of the above are correct.

D

Economics is the study of how society manages its a. limited wants and unlimited resources. b. limited wants and limited resources. c. unlimited wants and unlimited resources. d. unlimited wants and limited resources.

D

A rational decisionmaker a. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. b. ignores the likely effects of government policies when he or she makes choices. c. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions. d. ignores marginal changes and focuses instead on "the big picture."

A

The term "market failure" a. refers to the failure of a market to produce an efficient allocation of resources. b. means the same thing as "market power." c. refers to government's failure to enforce the property rights of households or firms that participate in a certain market. d. refers to the dissolution of a market when firms decide to quit producing a certain product.

A

For a college student who wishes to calculate the true costs of going to college, the costs of room and board a. should be counted in full, regardless of the costs of eating and sleeping elsewhere. b. should be counted only to the extent that they are more expensive at college than elsewhere. c. plus the cost of tuition, equals the opportunity cost of going to college. d. usually exceed the opportunity cost of going to college.

B

In most societies, resources are allocated by a. a small number of central planners. b. the combined actions of millions of households and firms. c. those firms that use resources to provide goods and services. d. a single central planner.

B

Something that induces a person to act is called a. a policy. b. an incentive. c. an opportunity cost. d. a trade-off.

B

The opportunity cost of an item is a. usually less than the dollar value of the item. b. what you give up to get that item. c. the dollar value of the item. d. the number of hours needed to earn money to buy the item.

B

Trade a. allows specialization, which increases costs. b. allows specialization, which reduces costs. c. reduces specialization, which reduces costs. d. reduces specialization, which increases costs.

B

Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do? a. He should keep the car since it wouldn't be rational to spend $6400 restoring a car and then sell it for only $6200. b. He should complete the additional work and sell the car for $6200. c. It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way. d. He should sell the car now for $3800.

C

Communist countries worked under the premise that a. households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources. b. allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources. c. central planners were in the best position to determine the allocation of scarce resources in the economy. d. people, when left on their own without government intervention, will find the best use of available resources

C

Prices usually reflect a. neither the value of a good to society nor the cost to society of making the good. b. only the value of a good to society. c. both the value of a good to society and the cost to society of making the good. d. only the cost to society of making a good.

C

The "invisible hand" refers to a. the government. b. central planners. c. the free market. d. large businesses.

C

The term "productivity" a. refers to the variety of goods and services from which households can choose when they shop. b. means the same thing as "efficiency." c. refers to the quantity of goods and services produced from each unit of labor input. d. is seldom used by economists, as its meaning is not precise.

C

Which of the following is the primary cause of inflation? a. an increase in productivity b. an increase in government spending c. an increase in the quantity of money d. an increase in unemployment

C

​Which of the following industries has a marginal cost that is close to zero? a. ​aircraft b. ​furniture c. ​software d. ​automobile

C

In a market economy, a. households decide which firms to work for and what to buy with their incomes. b. firms decide whom to hire and what to make. c. a central planner makes decisions about production and consumption. d. Both a and b are correct.

D

The phrase "no such thing as a free lunch" means a. rational people think at the margin. b. people respond to incentives. c. trade can make everyone better off. d. people must face tradeoffs.

D

To raise productivity, policymakers could a. increase spending on education. b. provide tax credits to firms for capital improvements. c. fund research and development. d. All of the above are correct.

D

Which of the following is a decision that economists study? a. how much people work b. what people buy c. how much money people save d. All of the above are correct.

D

Which of the following steps does an economist take when studying the economy? a. devise theories b. collect data c. analyze data d. All of the above are correct.

D