economics

Changes in personal costs and benefits

will exert a predictable influence on the choices of people.

Incentives matter

to all human beings regardless of environment.

The human desire for goods and services

is virtually unlimited while the resources required for their production are limited.

Which of the following are scarce?

time for recreation, clean air, information

Which of the following actions has an opportunity cost?

Taking a morning run, Buying a smartphone, Enjoying a beautiful rainbow

The expression "There's no such thing as a free lunch" means

when scarce resources are used to produce one good they are unavailable to produce others.

A highly charitable person, such as Mother Theresa, will be influenced by

both changes in benefits and costs.

Which of the following marketing pieces takes the concept of marginalism into account?

Contribute $50 annually to the Heifer Foundation and give a chicken to a family living in poverty. This gift will help generate an additional $100 in household income through the sale of the eggs produced.

According to economic reasoning, you should offer one hour of volunteer service per week when

the additional benefits of doing so are greater than the additional costs.

Economic analysis assumes that

changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

Which of the following statements about incentives is true?

​Changing one incentive can result in several unseen effects.

What do economists mean when they state that a good is scarce?

The amount of the good that people would like exceeds the supply freely available from nature.

​To be considered scarce, an economic resource must be

limited and desirable

It's a Sunday, and Mason is ranking his choice of activities in the following order: study for an economics exam on Monday, play video games, swim at the pool with friends, or listen to music. If Mason chooses to study for his economics exam, what is the opportunity cost of this choice?

play video games

The price of an airline ticket from Denver to Chicago costs $450. A bus ticket costs $150. Traveling by plane takes 2 hours compared with 32 hours by bus. Other things constant, Erica would gain by choosing air travel if, and only if, she values her time at more than

$10 per hour.

The owners of the Cheesy Burger Restaurant must decide how many new employees to add to their existing number of workers.Based on the information below, how many workers should the owners add if a worker earns $9 per hour?

​

Number of Workers Total Revenues per Hour

1 $30

2 $48

3 $62

4 $72

5 $80

6 $84

four workers because the fifth costs more than that worker increases total revenue

A local restaurant offers an "all you can eat" Sunday brunch for $12. Jenica eats two servings but leaves half of a third helping uneaten. Why?

Her marginal value of an additional bite of food has fallen to zero.

Maria wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $2.50 per gallon, the car wash costs $2, but if she buys 10 gallons of gasoline, the car wash is free. For Maria, the marginal cost of the tenth gallon of gasoline is

50 cents.

The economic way of thinking indicates that individuals

seek the lowest cost method of achieving their objectives.

The basic task of economics is to

explain the forces that underlie human decision making.

In the last 250 years the U.S. economy has succeeded in

relaxing the grip of scarcity and improving the quality of life.

Which of the following popular expressions best reflects the idea of marginalism?

"What are you going to do for me next?"

​An airline ticket from Baltimore to Miami costs $425. A bus ticket is $125. Traveling by plane will take 5 hours, compared with 35 hours by bus. Thus, the plane costs $300 more but saves 30 hours of time. Rosemarie will gain by choosing air travel if, and only if, each hour of her time is valued at more than

​$10 per hour.

If the cost of producing butter increases, what will happen to the equilibrium price and quantity of butter exchanged?

​

Price Quantity

Increase Decrease

Joe trades an apple to Winston for two oranges. Because the exchange is voluntary, we can conclude that

​both Joe and Winston are better off.

​The law of comparative advantage indicates that if a group of individuals wants to maximize their joint output, then each good should be supplied by

​the low opportunity cost producer.

Which of the following would be most likely to increase transaction costs?

A city ordinance bans large superstores in order to protect small, local businesses.

If the Internet helps buyers learn about the availability of products and find potential sellers more quickly,

the gains from trade will increase.

When economic losses are present in a market, firms will tend to

exit from the market.

When economic profits are present in a market,

new firms will enter the industry and the existing firms will expand the scale of their operation.

ASenator stated, "The main goal of government policy is to create jobs.Economic progress depends on more jobs—period."This statement is

True. Jobs create income and income improves our standard of living.

True. In most recessions, governments must create jobs to increase consumer income.

False. Production of goods and services people value, not just jobs, is the key to improving living standards.

III only

Suppose the government spends $10 billion subsidizing firms producing electricity with wind turbines because these firms are high cost producers. Will the subsidies lead to economic growth and higher income levels?

No, the turbines are an inefficient form of producing electricity and therefore the subsidies will increase the opportunity cost of supplying it.

Which of the following provides the clearest evidence that a business firm is using resources productively?

economic profit

​Which of the following would most likely shift the supply curve to the left for laptop computers?

​an increase in the price of electronic components used to produce laptop computers.

Specialization in goods and services one can produce at a low cost makes it possible for trading partners to produce a larger joint output. This is called

the law of comparative advantage.

The demand curve for a good

indicates the quantities of the good that people are willing to purchase at various prices.

When two individuals agree to a voluntary exchange,

both value what they receive more than what they give up.

The time and resources needed to search out, negotiate, and consummate trades are referred to as

transaction costs.

What is the most appropriate test to evaluate whether a government-spending program will improve living standards and lead to higher income levels?

The taxes necessary to finance the program compared to the revenues generated by the additional employment created by the program

If a business is earning an economic profit in a competitive market, it is

producing goods and services that are valued more highly than the resources required to produce them.

In order to be successful in a market economy, entrepreneurs must

combine resources in a manner that increases their value.

Which of the following is true of exchange?

Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage.

​Consider the demand curve for socks. Which of the following would cause a change in the quantity demanded of socks, but not a shift in the demand curve for socks?

​The price of socks falls.

​When two countries produce those goods for which each has the lowest opportunity cost, and then trade for those each could produce only at a high cost, they are trading according to their

​comparative advantage.

When the price of a good increases,

the quantity demanded will decrease.

When the government funds a project that will create jobs, the funds for the project

will have to be either taxed or borrowed from the private sector.

When the government finances a shovel-ready project through taxes or borrowing, this will result in

higher taxes or interest rates, which will reduce private sector employment.

Government spending programs that create jobs are often popular because

the created jobs are highly visible, while the secondary effects of lost jobs in other areas, higher interest rates, and higher future taxes are less visible.

When resources are allocated by markets, profits and losses provide information about

which resources are being used productively and which resources should be allocated to other uses.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

​even when each market participant cares only about their own self-interest rather than about the overall efficiency of resource use.

Economic progress

reflects that people are achieving higher income levels and living standards.

Higher standards of living are the result of

an increase in the availability of goods and services that people value.

In economics, secondary effects refer to the

indirect effects that often result from an action or policy change.

Which of the following was an unintended consequence of the subsidies and mandated expansion in output of gasoline produced from corn-based ethanol?

higher food and grain prices.

Economic progress comes primarily through

entrepreneurial action directed by competitive markets.

Which of the following statements reflect sound economic reasoning?

If it is more economical to acquire a good through trade than by self-production, it makes sense to trade for it.

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?

a higher rate of investment

During 2007-2008, the price of gasoline increased from approximately $1.50 to $4.00 per gallon. As a result, the

demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline.

When individuals increase their personal wealth through production and exchange, they

increase the wealth of others.

Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans. This argument is

incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities.

Which of the following best describes the system of social coordination called "the invisible hand," which was first described by Adam Smith?

​Prices direct suppliers toward production of goods that generate profits, and consumers to purchase goods that improve their well-being.

Which of the following is most important for the achievement of higher income levels and living standards?

production of additional goods and services that people value highly relative to the cost of their production

The U.S. government subsidizes the production of ethanol from corn and requires gasoline to contain a specific percentage of ethanol.What are the unintended consequences of this program?

higher corn prices

higher prices for cornbread and tortillas, products made from corn

lower prices for gasoline because corn is a renewable resource

I and II

Why do supermarkets stock thousands of items that people enjoy?

​Competition, self-interest, and market prices influence the supermarkets' decisions on which items to stock.

The income and living standard of a country will generally improve when

property rights are protected.

jobs are protected.

banks are protected.

I only

Which of the following is/are a source of economic progress?

I. Improvements in technology

II. A legal system that protects individuals and markets

III. Improvements in human capital

I, II, and III

What has happened to the world's economy over the past 200 years? ​

​even when each market participant cares only about their own self-interest rather than about the overall efficiency of resource use.

In the Western states, local, state, and federal governments have created publicly owned parks, forests, and monuments. This vast land area can no longer be privately developed. What will be the effect of this policy?

The land will be used less productively than under private ownership.

Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

Because private owners are held responsible for damages their property causes to the property of others, private owners have

a strong incentive to take steps to reduce the chance that they will harm the property of others.

Which of the following is most important if a country is going to achieve and sustain rapid economic growth?​

​institutions and policies that are supportive of private property rights, competition, and freedom of exchange

​When a regulation prevents two people from trading with each other,

​both parties are made worse off because of the elimination of the potential trades.

When a business or occupation is licensed,

the licensing will often be used to limit entry and the competitiveness of the market.

If money was not used as a medium of exchange,

the gains from trade would be severely limited.

Wal-Mart is a low-wage firm and this indicates that it exploits its workers. Which of the following should cause one to question the validity of this statement?

No one is required to work for Wal-Mart and, therefore, it must attract workers by paying them more attractive wages than they could earn elsewhere.

A competitive capital market is important to society because it directs resources toward projects that

are valued more highly than their cost.

If the ownership of a resource is secure

the value of the resource will be high and the resource will be used efficiently.