Deck 1: Ten Principles of Economics

Question 1

The classic tradeoff between "guns and butter" states that when a society spends more on national defense, it has less to spend on consumer goods to raise the standard of living.

Answer 1

True

Question 2

An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs.

Answer 2

True

Question 3

Efficiency means everyone in the economy should receive an equal share of the goods and services produced.

Answer 3

False

Question 4

Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.

Question 5

A marginal change is a small incremental adjustment to an existing plan of action.

Question 6

Scarcity means that there is less of a good or resource available than people wish to have.

Question 7

Tuition is the single-largest cost of attending college for most students.

Question 8

Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires.

Question 9

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

Question 10

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Question 11

The cost of an action is measured in terms of foregone opportunities.

Question 12

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

Question 13

Economics is the study of how society allocates its unlimited resources.

Question 14

If wages for accountants rose, then accountants' leisure time would have a lower opportunity cost.

Question 15

Economists study how people make decisions.

Question 16

Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.

Question 17

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

Question 18

Government policies that improve equality usually increase efficiency at the same time.

Question 19

Equality means distributing society's resources in the most efficient manner.

Question 20

Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.

Question 21

Trade with any nation can be mutually beneficial.

Question 22

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

Question 23

The government can potentially improve market outcomes if market inequalities or market failure exists.

Question 24

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

Question 25

The invisible hand ensures that economic prosperity is distributed equally.

Question 26

A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.

Question 27

A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

Question 28

Productivity is defined as the quantity of goods and services produced from each unit of labor input.

Question 29

One of the effects of gas prices rising from about $2 to about $4 per gallon was airlines ordering new, fuel-efficient aircraft.

Question 30

Trade can make everyone better off except in the case where one person is better at doing everything.

Question 31

Inflation is the primary determinant of a country's living standards.

Question 32

Market failure occurs when no individual has the ability to substantially influence market prices.

Question 33

Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives.

Question 34

Communist countries worked on the premise that government officials were in the best position to allocate the economy's scarce resources.

Question 35

The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

Question 36

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.

Question 37

Inflation increases the value of money.

Question 38

Market power and externalities are two possible causes of market failure.

Question 39

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

Question 40

One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.

Question 41

Inflation and unemployment both increase as the money supply increases.

Question 42

In the long run the primary effect of increasing the quantity of money is higher prices.

Question 43

Zack quits his job at a consulting firm, which pays $40,000 a year, to enroll in a two-year graduate program. His annual school expenses are $30,000 for tuition, $2,000 for books, and $600 for food. What is his opportunity cost of attending the two-year graduate program?

Question 44

Scenario 1-2
Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour.
Refer to Scenario 1-2. What is your opportunity cost of working?

Question 45

Scenario 1-1
You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $8.00 on a ticket and $4.50 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 10 points.
Refer to Scenario 1-1. What is your opportunity cost of going to the movies?

Question 46

The business cycle refers to fluctuations in economic activity such as employment and production.

Question 47

Inflation measures the increase in the quantity of goods and services produced from each hour of a worker's time.

Question 48

The goal of President Obama's stimulus package and increased government spending following the deep economic downturn in 2008 and 2009 was to reduce inflation.

Question 49

Scenario 1-2
Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour.
Refer to Scenario 1-2. What is your opportunity cost of going to the movies?

Question 50

The "invisible hand" influences market behavior through trade.​

Question 51

Economics is the study of ______ .

Question 52

In the short-run, society faces a tradeoff between inflation and unemployment.

Question 53

The opportunity cost of working one hour is the sum of the values you would have received from all other activities you could have done in that hour.​

Question 54

Explain how government policies that redistribute income from the rich to the poor might reduce efficiency.

Question 55

The term ______ refers to the size of the economic pie, and the term ______ refers to how the pie is divided.

Question 56

Scenario 1-1
You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $8.00 on a ticket and $4.50 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 10 points.
Refer to Scenario 1-1. What is your opportunity cost of studying economics?

Question 57

Variations in the standard of living across countries is due almost entirely to differences in each nation's total output of goods and services.

Question 58

A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost.

Question 59

Debbie quits her job, which pays $30,000 a year, to finish her college degree. Her annual college expenses are $10,000 for tuition, $2,000 for books, and $700 for food. What is her opportunity cost of attending college for the year?

Question 60

The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour.​

Question 61

Scenario 1-5
Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If you choose to work, you will earn $10 an hour.
Refer to Scenario 1-5. What is your opportunity cost of working?

Question 62

Scenario 1-3
It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators.
Refer to Scenario 1-3. A customer is willing to pay $60 for the 701^th calculator. Should the company produce and sell it? Explain.

Question 63

In a centrally-planned economy, economic activity is guided by ______.

Question 64

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
Refer to Scenario 1-6. What is the company's marginal cost?

Question 65

Give an example of a trade-off faced by society.

Question 66

What is another word for "marginal"?

Question 67

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
Refer to Scenario 1-6. A customer is willing to pay $60 for the 601^st heart rate monitor. Should the company produce and sell it? Explain.

Question 68

What does the term "marginal change" mean?

Question 69

Scenario 1-5
Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If you choose to work, you will earn $10 an hour.
Refer to Scenario 1-5. What is your opportunity cost of going to the movies?

Question 70

Scenario 1-3
It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators.
Refer to Scenario 1-3. What is the minimum price the company will charge for the 701^th calculator?

Question 71

Melinda quits her job at a bank, which pays $30,000 a year, to enroll in a two-year graduate program. Her annual school expenses are $22,000 for tuition and fees and $2,000 for books. What is her opportunity cost of attending the two-year graduate program?

Question 72

Scenario 1-4 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $12.00 on a ticket and $4.75 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 15 points.
Refer to Scenario 1-4. What is your opportunity cost of studying economics?

Question 73

The term ______ refers to a small incremental adjustment to an existing plan of action.

Question 74

Rational people make decisions "at the margin" by comparing ______.

Question 75

Tracy quits her job, which pays $25,000 a year, to finish her college degree. Her annual college expenses are $12,000 for tuition and fees and $1,000 for books. What is her opportunity cost of attending college for the year?

Question 76

Scenario 1-4 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $12.00 on a ticket and $4.75 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 15 points.
Refer to Scenario 1-4. What is your opportunity cost of going to the movies?

Question 77

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
Refer to Scenario 1-6. What is the company's average cost?

Question 78

Scenario 1-3
It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators.
Refer to Scenario 1-3. What is the company's marginal cost?

Question 79

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
Refer to Scenario 1-6. What is the minimum price that would induce this company to produce the 601^st heart rate monitor?

Question 80

Scenario 1-3
It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators.
Refer to Scenario 1-3. What is the company's average cost?