Economic theory CH1

Good luck!

Economics is defined as

the study of business.
the study of how society manages its scarce resources.
the study of central planning.
the study of government regulation.

Daniel decides to spend an hour playing basketball rather than working at $6 per hour. His tradeoff is

nothing, because he enjoys playing basketball more than working.
the increase in skill he obtains from playing basketball for that hour.
the $6 he could have earned.
nothing, because he spent $6 for admission into the sports complex to play basketball.

Efficiency means that

society’s goods and services are distributed fairly among society’s members.
society is getting the most it can from its scarce resources.
society is conserving resources in order to save them for the future.
all members of society have the same income.

When the government redistributes income from the rich to the poor,

efficiency is improved.
both rich people and poor people benefit directly.
people work less and produce fewer goods and services.
rich people consume fewer goods and poor people consume more goods, resulting in no real change.

The term which means whatever must be given up to obtain an item is

efficiency.
externality.
market failure.
opportunity cost.

Which of the following is the best example of a marginal change?

Mark graduates from college and takes a job. His income increases from $10,000 per year to $50,000 per year.
The price of housing rises in Seattle by 25% in one year.
Kim works at the college bookstore. She gets a raise from $5.15 per hour to $5.20 per hour.
A drought hits the upper Midwest and the price of wheat increases from $4.00 per bushel to $8.00 per bushel.

Trade can benefit a family

by allowing the family to buy a greater variety of goods and services at a lower cost.
by allowing each person to specialize in the activities he or she does best.
a and b
only if the family is not in economic competition with other families.

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.
No matter how much people earn, they tend to spend more than they earn.
People buy more when prices are low than when prices are high.
There is no such thing as a free lunch.

An example of an externality is

the impact of bad weather on the income of farmers.
the impact of the personal income tax on a person’s ability to purchase goods and services.
the impact of pollution from a factory on the health of people in the vicinity of the factory.
the impact of increases in health care costs on the health of individuals in society.

Market power refers to

the relative importance of a market to the overall economy.
the ability of a person or group of people to successfully market new products.
the power of the government to regulate a market.
the power of a single person (or small group of people) to unduly influence market prices.

An example of a monopoly would be

a gasoline service station in Los Angeles.
a sole provider of electrical power in a city.
a grocery store in Chicago.
a hospital in Missouri.

Which is the most correct statement about the invisible hand?

The invisible hand always ensures both equity and efficiency.
The invisible hand never ensures either equity or efficiency.
The invisible hand is more effective at ensuring efficiency than it is at ensuring equity.
The invisible hand is more effective at ensuring equity than it is at ensuring efficiency.

Upon what does a country’s standard of living depend?

its ability to produce goods and services
the amount of gold and silver the country has
the average amount of money individuals in the country have
its ability to protect its workers from foreign competition

The income of a typical worker in a country is most closely linked to which of the following?

population
labor units
productivity
government policies

Inflation is defined as

a period of rising productivity in the economy.
an increase in the overall level of output in the economy.
a period of rising income in the economy.
an increase in the overall level of prices in the economy.

Large or persistent inflation is almost always caused by

inefficiency.
low productivity.
foreign competition.
growth in the quantity of money.

In the early 1980s, U.S. economic policy was directed toward reducing inflation. What would you assume about inflation an unemployment during this period?

Inflation fell and unemployment increased.
Inflation and unemployment were both unaffected.
Inflation fell and unemployment fell.
Inflation fell and unemployment was unchanged.

The United States can benefit from trade

with any nation.
only with nations which can produce goods the U.S. cannot produce.
with any nation not in economic competition with the U.S.
only with less-developed nations.

In a market economy, economic activity is guided by

the government.
prices
central planners.
corporations.

A rational decisionmaker takes an action only if

the marginal benefit is greater than the marginal cost.
the marginal benefit is less than the marginal cost.
the average benefit is greater than the average cost.
the marginal benefit is greater than both the average cost and the marginal cost.

A good definition of equity would be

everyone receiving the same income.
fairness.
efficiency.
eliminating extreme affluence.

Economics is the study of how fairly goods and services are distributed within society.

True
False

With careful planning, we can usually get something that we like without having to give up something else that we like.

True
False

Individuals face tradeoffs, but societies do not.

True
False

In economic policymaking, there is often a conflict between the goal of efficiency and the goal of equity.

True
False

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

True
False

Productivity is defined as the quantity of goods and services produced from each hour of a worker’s time.

True
False

Protecting domestic jobs from foreign competition is the best way to raise labor productivity.

True
False