Deck 1: What Is Economics

Question 1

Rational people act only when the marginal benefit of the action exceeds the marginal cost.

Answer 1

True

Question 2

Economics is the study of how

A) society manages its unlimited resources.
B) to reduce our wants until we are satisfied.
C) society manages its scarce resources.
D) to fully satisfy our unlimited wants.
E) to avoid having to make trade-offs.

Answer 2

society manages its scarce resources.

Question 3

There are three questions that any economy has to face: What goods and services should be produced? How should these goods and services be produced? ___________________?

A) How many goods and services should be produced?
B) When should the goods and services be produced?
C) Why should the goods and services be produced?
D) Who should get the goods and services that have been produced?

Answer 3

Who should get the goods and services that have been produced?

Question 4

Economics deals primarily with the concept of

A) scarcity.
B) money.
C) poverty.
D) banking.

Question 5

A rational person does not act unless

A) the action is ethical.
B) the action produces marginal costs that exceed marginal benefits.
C) the action produces marginal benefits that exceed marginal costs.
D) the action makes money for the person.
E) None of these answers.

Question 6

Adam Smith's "invisible hand" concept describes how corporate business reaches into the pockets of consumers like an "invisible hand."

Question 7

Suppose you are considering going to the cinema, and you place a R180 value on your anticipated enjoyment of the film. The ticket price is R90 and you would be giving up two hours of work, where you earn R75 per hour. You would go to

A) work as the opportunity cost of the movies exceeds the expected benefit.
B) see the film as your incentive is the R90 excess expected benefit.
C) see the film as your enjoyment will exceed the lost wages by R30.
D) see the film as the benefit of R270 exceeds the lost wages.

Question 8

The opportunity cost of building additional parking at your university is

A) the cost of the labour, concrete, etc. used to build the parking.
B) the value of the land used in its next best alternative use, and the cost of the labour, concrete, etc. used to build the parking.
C) the value of the land and resources used in all of their alternative uses.
D) infinite; we cannot estimate it.

Question 9

When the government redistributes income with taxes and welfare, the economy becomes more efficient.

Question 10

When economists say, "There is no such thing as a free lunch," they mean that all economic decisions involve trade-offs.

Question 11

Choices must be made in the use of resources

A) because they are limited in supply.
B) because they are limited in demand.
C) only if the resources are non-renewable.
D) because they are in infinite supply.

Question 12

Trade-offs are required because wants are unlimited and resources are

A) economical.
B) unlimited.
C) efficient.
D) marginal.
E) scarce.

Question 13

When a jet flies overhead, the noise it generates is an externality.

Question 14

Raising taxes and increasing welfare payments

A) reduces market power.
B) proves that there is such a thing as a free lunch.
C) improves efficiency at the expense of equity.
D) None of these answers.
E) improves equity at the expense of efficiency.

Question 15

High and persistent inflation is caused by excessive growth in the quantity of money in the economy.

Question 16

Andile is better at cleaning and Joe is better at cooking. It will take fewer hours to eat and clean if Joe specialises in cooking and Andile specialises in cleaning than if they share the household duties evenly.

Question 17

Which of the following involve a trade-off?

A) Taking a nap.
B) All of these answers involve trade-offs.
C) Watching a soccer game on Saturday afternoon.
D) Going to university.
E) Buying a new car.

Question 18

In the short run, a reduction in inflation tends to cause a reduction in unemployment.

Question 19

Resources are

A) scarce for households but plentiful for economies.
B) plentiful for households but scarce for economies.
C) scarce for households and scarce for economies.
D) plentiful for households and plentiful for economies.

Question 20

South Africa will benefit economically if we eliminate trade with other countries because South African citizens will be forced to produce more of their own cars and clothes.

Question 21

Since people respond to incentives, we would expect that, if the average salary of accountants increases by 50% while the average salary of teachers increases by 20%, then

A) fewer students will take degree courses in accounting and more will take education courses.
B) fewer students will take degree courses in education and more will take accounting courses.
C) fewer students will attend university.
D) None of these answers.

Question 22

Which of the following activities is most likely to produce an externality? A student

A) eats a hamburger in the student centre.
B) reads a novel for pleasure.
C) sits at home and watches TV.
D) has a party in her university residence room.

Question 23

The Phillips curve shows that

A) the business cycle has been eliminated.
B) an increase in inflation temporarily increases unemployment.
C) inflation and unemployment are unrelated in the short run.
D) a decrease in inflation temporarily increases unemployment.
E) None of these answers.

Question 24

High and persistent inflation is caused by

A) unions increasing wages too much.
B) OPEC raising the price of oil too much.
C) governments increasing the quantity of money too much.
D) regulations raising the cost of production too much.

Question 25

Foreign trade

A) increases the scarcity of resources.
B) makes a country more equitable.
C) allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.
D) allows a country to avoid trade-offs.

Question 26

Which of the following situations describes the greatest market power?

A) BMW's impact on the price of cars.
B) A farmer's impact on the price of corn.
C) Microsoft's impact on the price of desktop operating systems.
D) A student's impact on university fees.

Question 27

Which of the following statements is true about a market economy?

A) With a large enough computer, central planners could guide production more efficiently than markets.
B) Market participants act as if guided by an invisible hand to produce outcomes that maximise social welfare.
C) The strength of a market system is that it tends to distribute resources evenly across consumers.
D) Taxes help prices communicate costs and benefits to producers and consumers.

Question 28

The inflation rate is the

A) price level.
B) average price of goods and services in an economy.
C) rate of growth of the price level.
D) purchasing power of money.

Question 29

Suppose that Rebecca throws her cola bottle out of her car window and it smashes on the road. Shaun drives over the broken glass and gets a flat tyre. Rebecca's cola consumption has resulted in

A) the production of a public good.
B) an externality.
C) monopoly power for Rebecca.
D) greater efficiency in consumption.

Question 30

Adam Smith argues in the Wealth of Nations that an economy will produce more goods and services if

A) people act in the public interest, rather than if they act in their own self-interest.
B) people act in their own self-interest, rather than if the government directs economic activity.
C) the government controls the use of the nation's scarce resources.
D) people ignore their own interests and contribute to national wealth as a whole.

Question 31

The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to

A) increase efficiency and increase equality.
B) increase efficiency but decrease equality.
C) decrease efficiency but increase equality.
D) decrease efficiency and decrease equality.

Question 32

Suppose you find R450. If you choose to use the R450 to go to a rugby match, your opportunity cost of going to the game is

A) nothing, because you found the money.
B) R450 (because you could have used the R450 to buy other things) plus the value of your time spent at the game.
C) R450 (because you could have used the R450 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game.
D) R450 (because you could have used the R450 to buy other things).
E) none of these answers.

Question 33

Almost all variation in living standards in different countries

A) is attributable to variations in productivity.
B) is attributable to differences in countries' endowments of natural resources.
C) is attributable to differences in climate.
D) is attributable to variation in population sizes.

Question 34

In a market economy

A) people are rewarded according to their family size.
B) people are rewarded according to how well they achieve the goals set by government.
C) people are rewarded according to how many hours they work.
D) people are rewarded according to their ability to produce things for which other people are willing to pay.

Question 35

Which of the following products would be least capable of producing an externality?

A) Inoculations against disease.
B) Cigarettes.
C) Food.
D) Education.
E) Hi-fi equipment.

Question 36

Productivity is defined as the

A) amount of goods and services produced from each unit of labour input.
B) number of workers required to produce a given amount of goods and services.
C) amount of labour that can be saved by replacing workers with machines.
D) actual amount of effort workers put into an hour of working time.

Question 37

A nation's standard of living can be increased by

A) improvements in technology and international trade.
B) improvements in technology but not international trade.
C) international trade but not improvements in technology.
D) neither international trade nor improvements in technology.

Question 38

Inflation reduces

A) the price level.
B) employment.
C) the money supply.
D) the value of money.

Question 39

Government can improve market outcomes by

A) directing labour to priority areas.
B) printing money.
C) using well designed policies to reduce firms' market power.
D) taxing everyone equally.

Question 40

The market power that your university's bookstore has now, compared with the 1990s, is limited by

A) new competition laws.
B) public goods provided by the government.
C) university policies against monopoly power.
D) increased access to other booksellers provided by the internet.

Question 41

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

Question 42

Under what conditions might government intervention in a market economy improve the economy's performance?

Question 43

With the understanding that people respond to incentives, outline the possible outcome for teachers if school holidays are reduced.

Question 44

Why is a high quality education system important in raising living standards for future generations?

Question 45

Define opportunity cost. What is the opportunity cost to you of attending university? What was your opportunity cost of coming to class today?

Question 46

One trade-off society faces is between efficiency and equality. Define each term. If the South African government redistributes income from the rich to the poor, explain how this action affects equality as well as efficiency in the economy.

Question 47

When are markets not a good way to organise economic activity?

Question 48

An increase in the price of beef provides

A) no information because prices in a market system are managed by planning boards.
B) information which tells consumers to buy less pork.
C) information which tells producers to produce more beef.
D) information which tells consumers to buy more beef.

Question 49

The business cycle is the

A) relationship between unemployment and inflation.
B) irregular fluctuations in economic activity.
C) positive relationship between the quantity of money in an economy and inflation.
D) predictable changes in economic activity due to changes in government spending and taxes.

Question 50

Policymakers can affect inflation and unemployment in the short term by

A) eliminating externalities.
B) giving the central bank independence.
C) changing the amount that the government spends.
D) encouraging firms to think at the margin.

Question 51

How does the study of economics depend upon the phenomenon of scarcity?

Question 52

For which of the following individuals would the opportunity cost of going to university be highest?

A) A promising young mathematician who will command a high salary once she earns her university degree.
B) A student with average grades who has never held a job.
C) A famous, highly-paid actor who wants to take time away from show business to finish university and earn a degree.
D) A student who is the best player on his university rugby team, but who lacks the skills necessary to play professional rugby.

Question 53

Which of the following is not part of the opportunity cost of going on holiday? The money you

A) spent on a theatre show.
B) could have made if you had stayed at home and worked.
C) spent on airline tickets.
D) spent on another opportunity.

Question 54

Outline one example of the principle of 'thinking at the margin.'

Question 55

Both the production of goods and services and the unemployment rate are used to measure

A) the business cycle.
B) productivity.
C) the interest rate.
D) inflation.

Question 56

Productivity can be increased by

A) improving the education of workers.
B) raising union wages.
C) raising minimum wages.
D) restricting trade with foreign countries.

Question 57

Explain why there is a short-run trade-off between inflation and unemployment.