Principles of Microeconomics Exam 1, Prof. Heidorn

Which is not one of the five fundamental questions that an economy must deal with?

1. What goods and services will be produced? 2. How will the goods and services be produced? 3. Who will get the goods and services? 4. How does the system accommodate change? 5. How does the system promote progress?

The socially optimal amount of pollution abatement occurs where society's:

Benefit of abatement equals its marginal cost of abatement.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:

Bicycles are normal goods.

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:

A consumer surplus of $9 and Nathan experiences a producer surplus of $3.

Which of the following would be the best example of the special-interest effect?

A small number of people receive a large gain at the expense of a large number of people who experience a small cost

The study of economics is primarily concerned with:

Choices which have to be made concerning the use of scarce resources.

Public-choice theorists point out that the political process:

Differs from the marketplace in that voters and congressional representatives often face limited and bundled choices.

Using this definition of entrepreneurship-human actions which modify the present intended to achieve objectives in the future-who uses entrepreneurship?

Everyone is an entrepreneur.

The idea of government failure includes all of the following except:

Extensive positive externalities from public and quasi-public goods.

Which of the following answers best describes entrepreneurial ability?

Know what entrepreneurs do. They... Employ the other factors of production. Take initiative—act out Find inefficiencies Speculate Innovate Take risks The answer will be the one which has the most broad definition of all these.

The economizing problem is essentially one of deciding how to make the best use of:

Limited resources to satisfy unlimited economic wants.

If an economy produces society's most wanted goods but uses outdated production methods, it is:

Not achieving productive efficiency.

Rivalry and excludability are the main characteristics of:

Private goods

In a market economy, the government's power to coerce can:

Reduce private-sector risk and increase economic efficiency.

The simple circular flow model shows that:

Resources flow from households to firms and products flow from firms to households.

Graph from #7, Chapter 1-2 Review Questions

Same slope, shift left: Decrease in money income. Same slope, shift right: Increase in money income.

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:

The division of output is decided by central planning rather than by individuals operating freely through markets.

Which of the following would most likely increase the demand for gasoline?

The expectation by consumers that gasoline prices will be higher in the future.

When an economist says that there is "too much of a good thing," the economist is suggesting that:

The marginal benefit of the thing is less than the marginal cost

Answer list

The other-things-equal assumption, The economic perspective, The invisible hand, laissez-faire

Which is an example of a negative externality?

There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers.

Graph #18, Chapter 1-2 Review Questions

Wage, rent, interest, income (flow 1); Land, labor, capital, entrepreneurial ability (flow 2); Goods and services (flow 3); Consumer expenditures (flow 4)

From an economist's perspective, when is government too big?

When the marginal costs from additional government spending exceed marginal benefits.

The law of demand states that, other things equal:

an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price.

There are 4 factors of production. Which of the following best describes _____________?

land, labor, capital, entrepreneurial ability

The "invisible hand" and "spontaneous order" can be described as:

opposites (?) wrong b/c order comes from God (?)