Chapter 1 Principles of Economics Flashcards

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

a. There is a shortage or insufficient supply of the good at the existing price.

b. It is impossible to expand the availability of the good beyond the current amount.

c. People will want to buy more of the good regardless of the price of the good.

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

d

2. Economic choice and competitive behavior are the result of:

a. basic human greed.

b. poverty.

c. private ownership of resources.

d. scarcity.

d

3. Economic analysis assumes that:

a. individuals act only out of selfish motives.

b. although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted.

c. people are basically humanitarian, and their actions are, therefore, impossible to predict.

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

d

4. Jacob and Mason go to a diner that sells burritos for $5 and tacos for $3. They agree to split the lunch bill evenly. Mason chooses a taco. The marginal cost to Jacob of ordering a burrito instead of a taco is:

a. $1.

b. $2.

c. $2.50.

d. $3.

a

5. The expression, "There's no such thing as a free lunch," implies that

a. everyone has to pay for his own lunch.

b. the person consuming a good must always pay for it.

c. opportunity costs are incurred when resources are used to produce goods and services.

d. no one has time for a good lunch anymore.

c

5. Which one of the following states a central element of the economic way of thinking?

a. Scarce goods are priceless.

b. Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.

c. The realism of the assumptions is the best test of an economic theory.

d. When deciding how to allocate time, the concept of opportunity cost is meaningless.

b

7. Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.

a. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat.

b. People will buy more milk at a price of $2 per gallon than at $1 per gallon.

c. People will buy less gas if the price of gas increases by $.20 per gallon.

d. People will consume more beef if the price increases from $1 to $2 per pound.

c

8. While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Emma notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Emma, the marginal cost of purchasing the third taco would be

a. zero.

b. 20 cents.

c. 75 cents.

d. 80 cents.

b

9. Which one of the following is a positive economic statement?

a. An increase in the minimum wage will reduce employment.

b. The minimum wage should be increased.

c. Social justice will be served by increasing the minimum wage.

d. Thoughtful people oppose an increase in the minimum wage

a

10. The basic difference between macroeconomics and microeconomics is that

a. macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).

b. macroeconomics is concerned with policy decisions, while microeconomics applies only to theory.

c. microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents).

d. opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.

a

11. Which of the following statements best describes the study of economics? Economics studies how:

a. to organize production so that scarcity does not occur.

b. firms make profits.

c. we make choices in the face of scarcity.

d. to create incentives so that scarcity does not exist.

c