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106 Cards in this Set

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What do economists mean when they state that a good is scarce?
d.The amount of the good that people would like exceeds the supply freely available from nature.
Which one of the following states a central element of the economic way of thinking?
b.Incentives matter—human choice is influenced in predictable ways by changes in personal costs and benefits.
Which of the following are scarce?
a. diamonds
b. paper clips
c. bubble gum
d. all of the above
d.all of the above
Which of the following is part of the economic way of thinking?
a. Opportunity costs will always be incurred when scarce resources are used to produce a good.
b. When the cost of an option increases, individuals will be less likely to choose it.
c. In addition to their immediate direct effects, economic actions often generate secondary effects that are observable only after the passage of time.
d. All of the above are part of the economic way of thinking.
d.All of the above are part of the economic way of thinking.
Which of the following statements is correct?
a. If the buyer of a good gains, the seller must lose an equal amount.
b. The value of goods is objective; it is equal to the cost of supplying the good.
c. Opportunity costs will always be incurred when scarce resources are used to produce a good.
d. Changes in incentives generally have no effect on human behavior.
c.Opportunity costs will always be incurred when scarce resources are used to produce a good.
The opportunity cost of an action is
a. the monetary payment the action required.
b. the total time spent by all parties in carrying out the action.
c. the value of the best opportunity that must be sacrificed in order to take the action.
d. the cost of all alternative actions that could have been taken, added together.
c.the value of the best opportunity that must be sacrificed in order to take the action.
In West Abalone, a mythical Central American nation, the government provides free schooling for all students. An economist would say that in West Abalone, education is
a. a free good, having no cost.
b. scarce even though its cost is paid by taxpayers rather than by students.
c. an example of a good that is no longer scarce.
d. all of the above.
b.scarce even though its cost is paid by taxpayers rather than by students.
Which of the following is often referred to as the basic postulate of economics?
a. Individuals act only out of selfish motives.
b. Incentives matter—individuals respond in predictable ways to changes in personal costs and benefits.
c. The accuracy of the assumptions is the best test of an economic theory.
d. The value of a good is objective; it is equal to the cost of producing the good.
b.Incentives matter—individuals respond in predictable ways to changes in personal costs and benefits.
Which of the following is most clearly consistent with the basic postulate of economics?
a. People buy more beef in response to a rise in the price of beef.
b. A politician votes in favor of a bill because most of her constituents are strongly in favor of it.
c. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat.
d. People drive more because of higher gas prices.
b.A politician votes in favor of a bill because most of her constituents are strongly in favor of it.
In economics, the term marginal refers to
a. the change or difference between two alternatives.
b. man-made resources as opposed to natural resources.
c. the satisfaction a consumer receives from a good.
d. holding everything else constant in the analysis.
a. the change or difference between two alternatives.
The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as
a. opportunity costs.
b. marginal effects.
c. secondary effects.
d. scarcity constraints
c. secondary effects.
Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry. Which of the following could be considered a secondary effect of these trade restrictions?
a. The price to consumers of the good in question will be higher as a result of the restriction, meaning consumers will be worse off.
b. As consumers must spend more money to purchase the good, there will be employment losses in other domestic industries as consumers cut back on their spending on other things.
c. Because there is a link between a country's imports and its exports, less imports from other countries will result in lower domestic employment in export industries.
d. All of the above.
d. All of the above.
Which of the following is true?
a. Positive economics deals with how people react to changes in benefits, and normative economics deals with how people react to changes in costs.
b. Positive economic statements are testable, but normative statements are not.
c. Positive economic statements involve value judgments while normative economics focuses on whether a policy will achieve its intended objectives.
d. Positive economic statements focus on policy issues while normative economics focuses on economic theory.
b. Positive economic statements are testable, but normative statements are not.
The term ceteris paribus means that
a. everything is changing.
b. all variables except those specified are constant.
c. no one knows which variables will change and which will remain constant.
d. the basic postulate of economics does not apply for the case being considered.
b. all variables except those specified are constant.
“As soon as I announced my ‘get tough on crime’ policy, criminals got scared and the crime rate went down.” Suppose that the lower crime rate was actually caused by freezing cold temperatures in January—it was just too cold for anybody to be out robbing other people. Which fundamental economic mistake did the politician make?
a. believing that what’s good for one person is good for the whole group (the fallacy of composition)
b. failing to take into account the benefits of crime (the payoff fallacy)
c. believing that association is the same as causation
d. failing to understand the theory of comparative advantage
c. believing that association is the same as causation
The fallacy of composition is the incorrect view that
a. everything else is always held constant when a change occurs.
b. a small change in an economic variable will have unrecognizable but significant consequences on the economy.
c. when two events are associated, the one observed first must have caused the second.
d. if something is true for an individual, then it must also be true for the group.
d. if something is true for an individual, then it must also be true for the group.
The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is
a. an expansion in investment resulting from a reallocation of resources away from consumption.
b. a larger output resulting from a more efficient use of resources.
c. greater equality of income resulting from an increase in the number of workers.
d. an increase in the profitability of business enterprises resulting from an increase in investment.
b. a larger output resulting from a more efficient use of resources.
The price of an airline ticket from Denver to Washington, D.C. costs $600. A bus ticket costs $150. Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than
a. $6 per hour.
b. $8 per hour.
c. $10 per hour. (600-150)=$450 (51-6)=45 hours $450/45 = $10 hour
d. $15 per hour.
c. $10 per hour. (600-150)=$450 (51-6)=45 hours $450/45 = $10 hour
Does voluntary exchange create wealth (value)?
a. No, exchange does not expand output.
b. No, if one person gains, the other party must lose an equal amount.
c. Uncertain: It does when it results in the creation of additional goods and services; otherwise, it does not.
d. Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange.
d. Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange.
“Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both.” This statement most clearly reflects
a. the importance of secondary effects.
b. the fallacy of composition.
c. the law of comparative advantage.
d. behavior inconsistent with economizing.
c. the law of comparative advantage.
Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
a. Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future.
b. Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned.
c. Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources.
d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who
a. have the highest opportunity cost.
b. have a comparative advantage in the productive activity.
c. can complete the productive activity most rapidly.
d. least enjoy performing the productive activity.
b. have a comparative advantage in the productive activity.
Which of the following activities describes the opportunity cost of attending an economics class?
a. the value of the time it takes to get to campus every day
b. the cost of the gasoline needed to drive a car to campus
c. the value of the highest valued alternative that must be forgone because of attending the class
d. transportation costs plus the cost of tuition and textbooks for the course
c. the value of the highest valued alternative that must be forgone because of attending the class
Air travel from New York to Miami costs $300 and takes 6 hours. A bus ticket between the cities costs $150 and takes 56 hours. Other things constant, the minimum value of one’s time that would induce a rational individual to fly rather than drive would be
a. $1 per hour.
b. $3 per hour.
c. $5 per hour.baacdbd
d. $50 per hour.
c. $5 per hou
In economics, the term that refers to the time, effort, and other resources needed to search out, negotiate, and consummate an exchange is
a. transaction costs.
b. specialization costs.
c. pecuniary costs.
d. comparative costs.
a. transaction costs.
Steve values his Honda Accord at $10,000, and Jennifer values it at $14,000. If Jennifer buys it from Steve for $11,000, which of the following is true?
a. Steve gains $1,000 of value, and Jennifer gains $3,000 of value.
b. Steve gains $11,000 of value, and Jennifer loses $11,000 of value.
c. Steve gains $10,000 of value, and Jennifer loses $14,000 of value.
d. Steve and Jennifer both gain $11,000 of value.
a. Steve gains $1,000 of value, and Jennifer gains $3,000 of value.
Middlemen are individuals who
a. add to the buyer’s expense without performing a useful function.
b. add to the seller’s cost without performing a useful function.
c. prggovide services that reduce the cost of transactions and help achieve additional gains from trade.
d. act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services.
c. prggovide services that reduce the cost of transactions and help achieve additional gains from trade.
28. Private property rights involve
a. the right to exclusive use of the property.
b. legal protection against those who would seek to use or abuse the property without the owner’s permission.
c. the right to transfer, sell, exchange, or mortgage the property.
d. all of tnnhe above.
d. all of tnnhe above.
29. Which of the following is a private owner prohibited from doing?
a. selling the property to another person
b. erecting a fence designed to keep others from using the property
c. painting the property a color that others do not like
d. usingnn the property in a manner that invades or infringes on the property of another
d. usingnn the property in a manner that invades or infringes on the property of another
When property rights are clearly defined and enforced, private owners will
a. use their property for selfish ends because they have little or no incentive to consider the desires of others.
b. debbvelop and direct their property toward uses that others value highly because the market will generally reward them for doing so.
c. have little or no incentive to take care of their property or conserve it for the future.
d. be unablnne to derive personal gain if they are sensitive to the desires of others when deciding how to use their property.
b. debbvelop and direct their property toward uses that others value highly because the market will generally reward them for doing so.
Given your knowledge of the incentives created by private ownership, which of the following would you expect to be false?
a. People will take better care of their own personal automobile than they will a rental car.
b. People will take better care of a home they own than they will of a home they rent.
c. Property owned privately will tend to be better conserved and kept than public property or property owned in common.
d. People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the sidennn of an interstate highway.
People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the sidennn of an interstate highway.
Which of the following most accurately indicates the implications of an economy’s production possibilities abbb constraint?
a. If all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
b. If all tnnnnhe resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods.
c. Over time, it is generally impossible for a country to expand its production of goods.
d. An economy will automatically move toward a point that lies outside of the production possibilities constraint unless proper government policy constrains production.
b. If all the resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods.
Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities constraint, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if
a. she also spends more time doing other things.
b. she spenbbbds less time doing other things.
c. Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour.
d. none of the above.
b. she spends less time doing other things.
The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called
a. the law of absolute advantage.
b. the bbblaw of comparative advantage.
c. the law of production possibilities.
d. the exchange maximum principle.
b. the bbblaw of comparative advantage.
“Total output will be maximized when agricultural products are produced in areas where fertile land is cheap bdbc and the climate is temperate and when manufactured goods are produced in areas where raw materials are readily accessible, energy sources are relatively cheap, and skilled labor is readily available.” This statement most clearly illustrates
a. the fallacy of composition.
b. the potennnntial gains resulting from specialization and the application of the law of comparative advantage.
c. the three major problems that confront both capitalist and centrally planned economies.
d. the error that stems from a failure to consider secondary effects.
x
Trade creates value by
a. moving goods from people who value the goods less to people who value the goods more.
b. pebbrmitting trading partners to expand output through specialization in areas where they each have a comparative advantage.
c. permitting trading partners to expand output through the adoption of mass production methods.
d. all of the above.
x
When an entrepreneur like Bill Gates makes $10 billion through creating and selling new products,
a. there will be exactly $10 billion less for other individuals in the economy.
b. the total sizbbbe of the economic pie has been increased.
c. there will be more than $10 billion in losses to other workers who lose their jobs.
d. it is likely that the new products are not as good as other products that are available in the market.
x
(I) Because economic goods are the result of human ingenuity and action, over time the size of the economic pie is variable not fixed.
(II) When an entrepreneur like Henry Ford becomes wealthy by creating and selling new products, such people increase the overall size of the economic pie.
a. I is true; II is false.
b. I is false; II is true.c
c. Both I and II are true.
d. Both I and II are false.
x
Suppose Amy is a doctor who has records that need to be entered. Doing this work herself would take 10 hours per week. She is thinking about hiring an assistant who could do the same work in 40 hours. If Amy can make $80 per hour seeing patients, should she hire the assistant at $10 an hour? (Show work)
x
(I) The market mechanism relies on unregulated prices and the decentralized decisions of individual property owners to resolve basic economic problems.
(II) The collective decision-making process relies on central planning, voting, and political bargaining to resolve basic economic problems.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
x
A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called
a. national socialism.
b. the welfare state.
c. a corporate economy.
d. capitalism.
x
A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called
a. socialism.
b. a market economy.
c. a corporate economy.
d. capitalism.
a. socialism
In Figure 1, which of the following is true?
a. Point A is inefficient.
b. Point B is efficient.
c. Point C is unattainable.
d. All of the above are true.
x
Which of the following will most likely shift the production possibilities curve for breadfruit and fish outward from AA to BB in Figure 2?
a. an improvement in the form of economic organization
b. lower investment and a reduction in the country’s capital stock
c. an increase in the price of breadfruit
d. a decrease in the average number of hours worked
x
The curve that shows the relationship between the price of a good and the quantity that consumers are willing to purchase at each price is the
a. supply curve.
b. demand curve.
c. production possibilities curve.
d. consumption curve.
x
How will consumers generally react to an increase in the price of butter?
a. They will purchase a larger quantity of butter.
b. They will substitute other goods like margarine for the more expensive butter.
c. They will reduce their purchases of substitute goods like margarine.
d. They will continue purchasing the same quantity of butter at the higher price.
x
The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called
a. price elasticity of demand.
b. consumer surplus.
c. the substitution effect.
d. income elasticity of demand.
x
If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively
a. inelastic.
b. elastic.
c. robust.
d. inverse.
x
If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be
a. horizontal.
b. relatively inelastic.
c. relatively elastic.
d. income proof.
x
Of the following goods, which is most likely to be quite inelastic?
a. gasoline
b. Chevrolet automobiles
c. fresh tomatoes
d. provolone cheese
x
When economists say the demand for a product has decreased, they mean
a. the debbbmand curve has shifted to the left.
b. the product price has increased, and as a consequence, consumers are buying less of the product.
c. consumers are now willing and able to buy more of this product at each possible price.
d. the demand curve has shifted to the right.
x
In which statement(s) is “demand” used correctly?
(I) “An increase in the price of hot dogs will reduce the demand for hot dogs.”
(II) “An increase in the price of hot dogs will reduce the demand for hot dog buns.”
a. in both statements I and II
b. in statement I only
c. in nnstatement II only
d. in neither statements I nor II
x
Which of the following would most likely cause the demand for inkjet printers to decrease?
a. a decrease in consumer income
b. an increase in the price of laser printers, a substitute for inkjet printers
c. a decrease in the price of printer paper used with inkjet printers
d. a decrease in the price of inkjet printer cartridges used in inkjet printers
x
A firm has the choice to use $10,000 worth of resources to produce one of two goods A or B. Suppose that the total value to consumers of the two goods (as is reflected in the revenue the firm could get for selling these goods) was $7,000 for good A and $15,000 for good B. Which of the following would be true?
a. The firm would make more profit if it chose to produce good B than good A.
b. The total value for consumers created by this firm would be higher if it produces good B than if it produces good A.
c. If the firm could find another good to produce with these resources that could sell for $20,000, it would create even more value for consumers (as well as more profit).
d. All of tmmmhe above are true.
x
When a firm is earning economic profit, this indicates the firm is
a. inbbbcreasing the value of the resources that it is using.
b. reducing the value of the resources that it is using.
c. supplying the market with a low quality product.
d. creating less value for consumers than another firm that is currently earning losses
x
(I) Profits direct producers toward activities that increase the value of resources.
(II) Losses impose a penalty on those who reduce the value of resources.
a. I is true; II is false.
b. I is false; II is true.
c. Bvvvoth I and II are true.
d. Both I and II are false.
x
In a supply and demand graph, the triangular area that represents the difference between the market price and the minimum price required to induce suppliers to produce a good is called
a. consumer surplus.
b. producer surplus.
c. marginal cost.
d. triangular arbitrage.
x
When economists say the supply of a product has increased, they mean the
a. supply curve has shifted to the right.
b. price of the product has risen, and consequently, suppliers are producing more of it.
c. supply curve has shifted to the left.
d. amount of the product that consumers are willing to purchase at various prices has increased.
x
When economists say the quantity supplied of a product has increased, they mean the
a. supply curve has shifted to the left.
b. supply curve has shifted to the right.
c. price of the product has risen, and consequently, suppliers are producing more of it.
d. price of the product has fallen, and consequently, suppliers are producing less of it.
x
A decrease in the price of leather used to make shoes would cause the
a. demand for shoes to decrease.
b. demand for shoes to increase.
c. supply of shoes to decrease.
d. supply of shoes to increase.
x
When the quantity demanded and quantity supplied in a market are equal, the market is said to be in
a. fixation.
b. excess supply.
c. equilibrium.
d. excess demand.
x
Use the table below to choose the correct answer. The table is a schedule of the supply and demand for coffee (both given in thousands of pounds per month).
Price per Pound Quantity Demanded Quantity Supplied
$6.00 25 9
$8.00 20 12
$10.00 15 15
$12.00 10 18
The equilibrium market price of coffee would be
a. $6 per pound.
b. $8 per pound.
c. $10 per pound.
d. $12 per pound.
x
If the demand for a good decreased, what would be the effect on the equilibrium price and quantity?
a. Price would increase, and quantity would decrease.
b. Price would decrease, and quantity would decrease.
c. Price would increase, and quantity would increase.
d. Price would decrease, and quantity would increase.
x
Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?
a. an increase in consumer income between 1994 and 2004
b. a reduction in the price of residential phone service, a substitute for cellular phone service
c. an increase in the wages of workers in the cellular phone industry
d. technological improvements that reduced the cost of supplying cellular phone service
x
If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?
a. Price would increase, and quantity would decrease.
b. Price would decrease, and quantity would decrease.
c. Price would increase, and quantity would increase.
d. Price would decrease, and quantity would increase.
x
A recent study suggested that moderate wine drinking may actually benefit one’s health. If this information leads to an increased demand for wine, we would expect
a. both the price and quantity of wine sold to increase.
b. both the price and quantity of wine sold to decrease.
c. the price to decrease and the quantity of wine sold to increase.
d. the price to increase and the quantity of wine sold to decrease.
xx
After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?
a. Price will increase, and quantity will decrease.
b. Price will decrease, and quantity will decrease.
c. Price will decrease, and quantity will increase.
d. Price will increase, and quantity will increase.
x
How will an increase in the price of coffee affect the market for cocoa, a substitute good?
a. The supply of cocoa will increase, leading to a reduction in the price of cocoa.
b. The supply of cocoa will decrease, leading to an increase in the price of cocoa.
c. The demand for cocoa will increase, leading to an increase in the price of cocoa.
d. The demand for cocoa will decrease, leading to a reduction in the price of cocoa.
x
Which of the following will most likely result from a destruction of half of the Florida orange crop due to a hard freeze?
a. a decrease in the demand for oranges
b. an increase in the supply of oranges
c. an increase in the quantity of oranges bought and sold
d. an increase in the price of oranges
x
During a major war between two oil producing nations, there would likely be
a. an increase in the price of oil because the supply of oil would decrease.
b. an increase in the price of oil because the supply of oil would increase.
c. a decrease in the price of oil because the supply of oil would decrease.
d. a decrease in the price of oil because the supply of oil would increase.
x
How would a decrease in the cost of production affect the market for new automobiles?
a. Supply would decrease, leading to an increase in price and a reduction in quantity sold.
b. Supply would decrease, leading to a reduction in price and a reduction in quantity sold.
c. Supply would increase, leading to an increase in price and an increase in quantity sold.
d. Supply would increase, leading to a reduction in price and an increase in quantity sold
x
In his book The Wealth of Nations, this famous economist argued that economic activity was directed by an “invisible hand.”
a. Alfred Marshall
b. Milton Friedman
c. Adam Smith
d. David Ricardo
x
“When directed by competitive market prices, self-interested individuals will tend to pursue activities that also promote the general welfare of society.” This statement most clearly reflects the
a. fallacy of composition.
b. law of comparative advantage.
c. invisible hand principle.
d. law of demand.
x
Market prices are
a. conveyors of information.
b. determined by the interactions of supply and demand in voluntary exchange.
c. indicators of the relative scarcity of resources and products.
d. all of the above.
x
Which of the following is a function performed by market prices?
a. Market prices communicate information to buyers and sellers.
b. Market prices coordinate the decisions of buyers and sellers.
c. Market prices motivate entrepreneurs to produce those products that are currently most desired relative to their costs of production.
d. All of the above are functions performed by market prices.
x
In Figure 3, suppose D1 and S1 indicate the initial conditions in the market for ice cream. Which of the following changes would tend to cause the shift from D1 to D2 in the market for ice cream?
a. a decrease in the price of sugar, an ingredient used to produce ice cream
b. an increase in the price of frozen yogurt, a substitute for ice cream
c. abnormally cold weather that decreased consumer desire for ice cream
d. an increase in the price of milk, an ingredient used to produce ice cream
x
A question on an economics exam asks, “What happens in the market for jelly when the price of peanut butter increases?” Allison, an excellent student, shows the demand for jelly increasing. Is she necessarily wrong? Why or why not?
If we consider Allison’s answer wrong, we are implicitly assuming that peanut butter and jelly are complements and that the demand for jelly should decrease. But suppose Allison eats peanut butter sandwiches, or she eats jelly sandwiches (tastes are subjective); in this case, she views the goods as substitutes, and her answer is correct. Good exam writers need to make explicit what they want students to assume.
An increase in the number of students graduating with a major in engineering would result in
a. a decrease in the supply of engineers that would increase the wage of engineers and decrease the number employed.
b. an increase in the supply of engineers that would decrease the wage of engineers and increase the number employed.
c. a decrease in the demand for engineers that would decrease the wage of engineers and decrease the number employed.
d. an increase in the demand for engineers that would increase the wage of engineers and increase the number employed.
x
Other things constant, an increase in the demand for automobiles will
a. decrease the price of automobiles.
b. decrease the quantity of automobiles bought and sold.
c. decrease the demand for automobile workers and lower their wages.
d. increase the demand for automobile workers and increase their wages
x
A law establishing a maximum legal price for a good or service (rent controls for example) is known as
a. an equilibrium price.
b. a price floor.
c. a price ceiling.
d. a price wall.
x
A price ceiling that sets the price of a good below market equilibrium will cause
a. an increase in quantity demanded of the good.
b. a decrease in quantity supplied of the good.
c. a shortage of the good.
d. all of the above.
x
If we observe long lines of people camping out to get tickets to a concert, this tells us
a. the ticket price is below the market equilibrium price.
b. the ticket price is above the market equilibrium price.
c. it is likely to be a good concert, but it doesn’t tell us anything about the ticket price.
d. the opportunity cost of time of the people in line is higher than the average for the general population.
x
Which of the following statements is true?
a. In both black markets and legal markets, supply and demand determine price.
b. The quality of products sold in black markets and legal markets are similar.
c. The price of products in black markets tends to be the same as those in legal markets for otherwise identical products.
d. The rate of violence is similar in black markets and legal markets.
x
Which of the following statements is true?
a. The quality of products sold in black markets tends to be less reliable than the quality of products in legal markets.
b. For otherwise identical products, the price of products in black markets tends to be higher than in legal markets.
c. The rate of violence is higher in black markets than in legal markets.
d. All of the above are true.
x
The actual burden of a tax is determined primarily by
a. the elasticities of demand and supply.
b. the legal (or statutory) assignment of the tax.
c. the number of exchanges that are eliminated from the market as a result of the tax.
d. none of the above.
x
If a $5,000 tax is placed legally (statutorily) on the sellers of new automobiles and as a result the price of automobiles to consumers rises by $4,000, then the actual burden of the tax
a. falls completely on automobile buyers.
b. falls completely on automobile sellers.
c. is $4,000 on automobile buyers and $1,000 on sellers.
d. is $1,000 on automobile buyers and $4,000 on sellers
x
The more inelastic the demand for a product, the more likely that the actual burden of a tax on the product will
a. fall on sellers.
b. fall on buyers.
c. fall equally on both buyers and sellers.
d. create a larger deadweight loss (or excess burden).
x
Which tax rate measures the percent of one’s income paid in taxes?
a. the marginal tax rate
b. the average tax rate
c. progressive tax coefficient
d. the excise tax rate
x
If a household has $40,000 in taxable income and its tax liability is $10,000, the household’s average tax rate is
a. 10 percent.
b. 25 percent.
c. 40 percent.
d. 50 percent.
x
The marginal tax rate is defined as
a. tax liability divided by taxable income.
b. tax liability multiplied by taxable income.
c. the change in tax liability divided by the change in taxable income.
d. the change in tax liability minus the change in taxable income.
x
If Heather’s tax liability increases from $10,000 to $14,000 when her income increases from $30,000 to $40,000, her marginal tax rate is
a. 33 percent.
b. 35 percent.
c. 40 percent.
d. 60 percent.
x
A tax for which the average tax rate decreases with income is defined as a
a. regressive tax.
b. proportional tax.
c. neutral tax.
d. progressive tax.
x
An income tax is progressive if the
a. tax rate decreases as income increases.
b. percentage of income paid in taxes increases as income increases.
c. percentage of income paid in taxes stays the same regardless of the size of income.
d. dollar amount paid in taxes increases with income.
x
The Laffer curve indicates that
a. when tax rates are low, a decrease in tax rates is likely to increase tax revenues.
b. when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues.
c. tax revenue will always increase when tax rates are increased.
d. tax revenue will always decrease when tax rates are lowered.
x
According to the Laffer curve,
a. an increase in tax rates will always cause tax revenues to increase.
b. when marginal tax rates are high, an increase in tax rates is likely to cause tax revenues to increase.
c. when marginal taxes are low, an increase in tax rates will probably cause tax revenues to decline.
d. when marginal tax rates are high, a reduction in tax rates may increase tax revenue.
x
The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of
a. economic efficiency.
b. public welfare maximization.
c. marginal comparative advantage.
d. monetary construction of values.
x
Relative to a competitive situation, if a market lacks competition, economic theory suggests that
a. output will be lower and price higher.
b. output will be higher and price lower.
c. both output and price will be higher.
d. both output and price will be lower.
x
Which of the following is the best example of an action that imposes an external cost?
a. wear and tear on one’s car as the result of speeding
b. an increase in one’s water bill as the result of watering the yard
c. deterioration in the quality of a campground as a result of garbage left behind by careless campers
d. a rose garden on your property that improves the view available to your neighbors
x
A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a
a. public good.
b. joint good.
c. excludable good.
d. national good.
x
Which of the following is the best example of a public good?
a. long distance telephone service
b. national defense
c. an amusement park
d. the electric service of a public utility
x
(I) An important difference between the public and private sectors is that only the government can force a person to pay for a good or service even if she does not want it.
(II) Government decision makers always pursue the public interest even when it conflicts with their private interests.
a. Both I and II are true.
b. I is true; II is false.
c. I is false; II is true.
d. Both I and II are false
x
Economists refer to the lack of incentive that voters have to search for and obtain information to help make better political choices as the
a. shortsightedness effect.
b. public-interest effect.
c. free rider problem.
d. rational-ignorance effect.
x
In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects?
a. The benefits are highly concentrated, and costs are widespread among voters.
b. The costs are highly concentrated, and the benefits are widespread among voters.
c. Both the benefits and costs are widespread among voters.
d. The benefits accrue primarily in the future, while the costs are more visible during the current period.
x
When politicians support policies that benefit small interest groups, such as farmers, at the expense of unorganized, widely dispersed groups, for example, taxpayers or consumers, this is a reflection of the
a. tragedy of interest.
b. special-interest effect.
c. unorganized interest effect.
d. shortsightedness effect.
x
In economics, actions by individuals and interest groups designed to influence public policy in a manner that will either directly or indirectly redistribute more income to themselves are known as
a. logrolling.
b. rent seeking.
c. influence peddling.
d. redistribution searching.
x
If a new government program began allowing consumers to purchase blue jeans at no cost to them, and the government covered the production cost of blue jean producers with tax revenue, we would expect (relative to the current situation where consumers must pay for their own blue jeans)
a. consumers to have a stronger incentive to economize on their purchases of blue jeans.
b. consumers to have a stronger incentive to shop around for the best deals on blue jeans.
c. producers of blue jeans to have a stronger incentive to control the cost of production.
d. none of the above.
x