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The cost benefit principle states that a decision should be pursued only if the
benefits are greater than the costs.
Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?
The opportunity cost principle.
Sunk costs are costs that
are incurred in the past and cannot be reversed.
The __________ suggests, decisions about quantities are best made incrementally.
marginal principle
When faced with a quantity decision, the economic surplus is always maximized by following the
Rational Rule
The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.
interdependence
(Figure: Mia's Demand Curve for Ice Cream) The accompanying graph shows Mia's demand curve for ice cream, how many cones would Mia be willing to buy at $5 per cone?
3 cones
The law of demand refers to
the inverse relationship between price and quantity demanded.
Diminishing marginal benefit:
is when buying an additional item yields a smaller marginal benefit than the previous item.
(Figure: Graph) Refer to the graph to answer the question.
The movement from point M to point N represents:
an increase in quantity demanded
(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point M to point Q represents
an increase in demand.
Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are
normal goods
What is quantity supplied?
It is the amount of an item that a seller is willing to sell at a particular price.
The law of supply refers to
the positive relationship between price and quantity supplied.
Due to a decline in demand and popularity, Ford Motor Company is planning to phase out traditional sedans such as 'Fusion' and 'Taurus' to focus on SUVs and trucks. Ford's sedans and trucks/SUVs are
substitutes-in-production
A market is a
setting that brings together potential buyers and sellers.
An equilibrium price is a price where the
quantity supplied equals the quantity demanded.
When quantity demanded exceeds quantity supplied, _____ exists.
a shortage.
(Figure: Market for Train Rides) Use the figure below to answer the question.
A major technological advancement occurs in transportation technology, which leads to faster and more efficient train systems. Which graph depicts the effect on the supply of train rides?
Graph D
(Figure: Market for Cars) Use the figure to answer the question.
In 2011, Japan suffered a major earthquake and tsunami. Honda parts that were sourced from Japan could no longer be produced, which caused Honda to cut its production of cars. Which graph shows the effect of this shortfall?
Graph C
Shifts in demand
lead to price and quantity to move in the same direction.
What happens to the equilibrium price and quantity when demand increases and simultaneously supply decreases, and the relative size of the shifts is not known?
The equilibrium price rises, and the change in the equilibrium quantity is ambiguous.
Positive analysis is based on identifying _____ and _____.
facts; relationships
The concept of equity focuses on:
fairness
In a market graph, consumer surplus is the area:
above the price and below the demand curve
A market’s deadweight loss is calculated as
the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.
On a market graph, producer surplus is the area that is:
above the supply curve and below the price.
To maximize production, people should:
focus on the task in which they have a comparative advantage.
When a manager uses comparative advantage to assign tasks in a workplace, then each
task is assigned to the worker with the lowest opportunity cost for performing the task.
A trade cost is:
an extra cost incurred as a result of buying or selling a good abroad rather than domestically.
Specialization will increase output when it is based on:
comparative advantage.
An import is a good or service:
purchased from a foreign seller.
An export is a good or service:
sold to a foreign buyer.
Which of the following is a source of comparative advantage?
specialized skills.
Which of the following is an argument for limiting international trade? An increase in international trade may:
lead to anticompetitive practices, such as dumping.
A tariff is a:
tax on imported goods.
What is social insurance?
It is government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving their savings.
Intergenerational mobility is the extent to which:
the economic status of children is independent of the economic status of their parents.
Which of the following is a social insurance program in the United States?
Social Security.
What is the difference between microeconomics and macroeconomics?
Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.
GDP is defined as the:
market value of all final goods and services produced within a country in a given year.
You just bought two used textbooks for $25 each. How much does GDP change because of your purchase?
GDP does not change.
The "market value" of a good or service refers to the:
current dollar value of that good or service.
A "final" good or service is one that is:
finished and ready for the final user.
When a U.S. consumer buys Canadian maple syrup at the grocery store, this purchase is:
in import.
A production function is:
a method through which inputs can be turned into outputs, given the available resources.
Human capital refers to:
worker skills and knowledge.
A government can promote the development of human capital by:
subsidizing secondary school education.
The law of diminishing returns states that:
when one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts.
Technological advancement can be shown by which of these production functions?
point moving up from blue line to purple line.
The U.S. Department of Education sponsors the i3 program (Investing in Innovation), which provides grants to educational institutions and schools that have a proven track record of high student achievement. This is an example of a government program designed to build:
human capital.
Enforceable property rights encourage economic growth by encouraging:
investment.
The working age population includes people who are:
age 16 or older who are not in the military or institutionalized.
The labor force participation rate is the:
percentage of the working age population that is either employed or unemployed.
An underemployed person is one who is:
working but whose skills are not fully utilized.
Frictional unemployment is unemployment:
due to the time it takes for employers to search for workers and for workers to search for jobs.
The consumer price index is an index that tracks the:
average price that consumers pay over time for a representative basket of goods and services.
The Producer Price Index is an index that tracks the:
price that businesses pay over time for the inputs used in the production process.
Menu costs are the:
marginal costs of adjusting prices
How is monetary policy different from fiscal policy?
Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.
What is the Federal Reserve's mandate?
to ensure maximum employment while maintaining stable prices
The Federal Open Market Committee (FOMC) is made up of:
the Fed governors and the Fed district bank presidents.
The federal funds rate is the:
nominal interest rate that banks pay on overnight interbank loans.
What is a reserve requirement?
the minimum amount of reserves that each bank must hold
Forward guidance occurs when the Federal Reserve:
provides information about the future course of monetary policy in order to influence expectations about future interest rates.
Mandatory spending is spending that:
supports programs that do not get determined annually but instead are set in law.
Discretionary spending is spending that:
is appropriated by Congress annually.
An excise tax is a tax on:
a specific product.
Tax expenditures are:
special deductions, credits, or exemptions that lower your tax obligations.
What is a regressive tax?
Those with less income tend to pay a higher share of their income in taxes.
Fiscal policy works best when it is:
timely, targeted, and temporary.
A bank run occurs when:
many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.
Taxable income is the:
amount of your income that you pay taxes on.
Deposit insurance is:
a guarantee that you will get your money back, even if the bank collapses.
Dissaving is:
excess consumption over and above income.
The marginal propensity to consume is:
the change in consumption divided by the change in income.
The three major pillars of the financial sector are the:
stock market, the bond market, and the banks.
A stock's price to earnings ratio is calculated as:
price per share divided by earnings per share.
Investment refers to:
spending on physical capital.
