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Macroeconomics is best defined by which of the following statements?
Macroeconomics is the study of the behavior of the economy as a whole.
 
Which of the following is the best definition of economics?
the study of how individuals and societies choose to use the scarce resources that nature and previous
generations have provided
 
Resources are unlimited in a wealthy society.
False
 
Microeconomics
Study of individual units that make up the economoy
 
Macroeconomics
The study of the overall aspects and workings of an economy
 
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
 
Economic choice and competitive behavior are the result of
scarcity
 
Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly.
Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is
$1.
 
Economists would most likely disagree with which of the following statements?
Resources and inputs used in production are unlimited.
 
Macroeconomics is the branch of economics studying:
fluctuations in the overall level of business activity.
 
Economists generally agree that people are most likely to change their behavior when they:
are given incentives to do so.
 
The economic way of thinking is
a set of basic concepts that helps one understand human choices.
 
Which of the following statements is correct?
Opportunity costs will always be incurred when scarce resources are used to produce a good.
 
Economists would most likely agree with which one of the following statements?
People usually exploit opportunities to make themselves better off.
 
Most individuals choose careers in which they specialize in producing only one type of good or service,
yet as consumers they have access to a wide variety of goods and services. What principle allows for this?
trade
 
In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:
specialization.
 
An opportunity cost arises:
whenever any choice is made.
 
Exchanges taking place in a market system:
are voluntary.
 
The condition of scarcity means that:
choices must be made in the allocation of productive resources.
 
The purpose of an economic system is to:
allocate scarce resources.
 
The focal point of economic inquiry is:
individual choice.
 
An economic system is in __________ when no individual would be better off by making a different choice.
equilibrium
 
Economic theory asserts that people will behave in ways that:
will enhance their own overall well-being.
 
An equilibrium outcome is one in which:
no one has as incentive to change his or her decisions or behavior.
 
Which one of the following statements is not true of a market economy? pursuit of individual self-interest leads to
bad results for society as
a whole.
 
Adam Smith used the idea of the invisible hand to refer to the ability of market economies to:
harness the power of individual self-interest for the good of society as a whole.
 
After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his
studies to become a doctor. This choice between the two careers can best be described by:
opportunity cost.
 
Which of the following sayings best reflects the concept of opportunity cost?
"Time is money."
 
Economics can be described as the study of how people use _______ resources to satisfy _______ wants.
limited; unlimited
 
Ifan economy is operating at a point inside the production possibilities curve,
its resources are not being used efficiently.
 
If market failures exist, the market can become efficient when:
the government intervenes to improve society's welfare.
 
The focal point of economic inquiry is:
individual choice.
 
An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off.
efficient
 
The crucial problem of economics is
allocating scarce productive resources to satisfy unlimited wants
 
When one decision is made, the next best alternative not selected is called
Opportunity cost
 
Which of the following is true if the production possibilities curve is a curved line concave to the origin?
As more of one good is produced, increasing amounts of the other good must be given up.
 
Which of the following will not change the demand for oranges?
a change in the price of oranges
 
To be considered scarce, an economic resource must be
limited and desirable, but not free
 
If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged?
Price:               Quantity:
Increase          Increase
 
Which of the following goods would be considered scarce?
Education, gold, and time
 
An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?
To the left, because gasoline and tires are complements
 
Which of the following indicated that the macroeconomy is achieving its economic goals?
economic growth
 
In which way does a straight-line production possibilities curve differ from a concave production possibilities curve?
A straight-line production possibilities curve has a constant opportunity cost.
 
The law of increasing opportunity cost is reflected in the shape of the
production possibilities curve concave to the origin
 
Which of the following would cause a leftward shift of the production possibilities curve?
a decrease in working-age population
 
With voluntary exchange,
both the buyer and seller will be made better off.
 
If Sean sells Tom a tennis racket for $50, we would expect
both parties to gain from this transaction.
 
Steve values his boat at $4,000, and Jennifer values it at $9,000. If Jennifer buys it from Steve for $7,000, which of the following is true?
Steve gains $3,000 of value, and Jennifer gains $2,000 of value.
 
If the Internet makes it easier for sellers to find buyers and makes it easier for buyers to learn about the products that are available for sale, we would expect that
the gains from trade will increase.
 
Which of the following would cause an outward or rightward shift in the production possibilities curve?
an increase in capital equipment
 
The crucial problem of economics is
allocating scarce productive resources to satisfy unlimited wants
 
When one decision is made, the next best alternative not selected is called
Opportunity cost
 
Which of the following is true if the production possibilities curve is a curved line concave to the origin?
As more of one good is produced, increasing amounts of the other good must be given up.
 
Which of the following will not change the demand for oranges?
a change in the price of oranges
 
To be considered scarce, an economic resource must be
limited and desirable, but not free
 
If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged?
Price:               Quantity:
Increase          Increase
 
Which of the following goods would be considered scarce?
Education, gold, and time
 
An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?
To the left, because gasoline and tires are complements
 
Which of the following indicated that the macroeconomy is achieving its economic goals?
economic growth
 
In which way does a straight-line production possibilities curve differ from a concave production possibilities curve?
A straight-line production possibilities curve has a constant opportunity cost.
 
The law of increasing opportunity cost is reflected in the shape of the
production possibilities curve concave to the origin
 
Which of the following would cause a leftward shift of the production possibilities curve?
a decrease in working-age population
 
Which of the following would cause an outward or rightward shift in the production possibilities curve?
an increase in capital equipment
 
According to the theory of comparative advantage, a good should be produced where
its opportunity costs are least
 
Which of the following will not cause the demand curve for athletic shoes to shift?
A decrease in the price of athletic shoes
 
Assume that the demand for apples is downward sloping. If the price of apples falls from $0.80 per pound to $0.65 per pound, which of the following will occur?
a larger quantity of apples will be demanded
 
Scarcity
we have unlimited wants but limited resources
 
Macroeconomics
study of large economy as a whole or economic aggregates
 
Marginal Analysis
making decisions based on increments
 
Opportunity cost
Most desirable alternative given up when you make a choice
 
Ceteris Paribus
Economists hold factors constant, except for what's being considered.
 
According to the theory of comparative advantage, a good should be produced where
its opportunity costs are least
 
Which of the following will not cause the demand curve for athletic shoes to shift?
A decrease in the price of athletic shoes
 
Assume that the demand for apples is downward sloping. If the price of apples falls from $0.80 per pound to
$0.65 per pound, which of the following will occur?
a larger quantity of apples will be demanded
 
When experts first predicted major weather-related coffee crop failures in Central and South America in 1986,
the price of coffee already on grocery shelves in the United States increased sharply. When coffee became
temporarily more scarce, the usefulness to society of "coffee conservation" increased. The immediate sharp
price increase (which soon leveled off) gave consumers an incentive to
start conserving coffee immediately and switch to other beverages if it was easy to do so.
 
When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in
the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence?
Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this higher expected cost.
 
If cigars and cigarettes are substitute goods, an increase in the price of cigars would result in
an increase in the demand for cigarettes.
 
Which of the following would be most likely to cause the demand for Miller beer to increase?
an increase in the price of Budweiser beer
 
"If gasoline were taxed, the price of gasoline would rise. Consequently, the demand for gasoline would fall,
causing the price to fall to the original level." This statement is
incorrect--demand and quantity demanded are confused. The price increase would reduce quantity demanded, not demand.
 
A decrease in the supply of a good will
lead to an increase in the price of the good.
 
If the demand for a good increases, which of the following will generally occur in a market setting?
The quantity supplied will increase.
 
When competition is present and property rights protected and enforced, market prices will
expected to be valuable in the future.
 
Economists would most likely disagree with which of the following statements?
Resources and inputs used in production are unlimited.
 
Macroeconomics is the branch of economics studying:
fluctuations in the overall level of business activity.
 
Economists generally agree that people are most likely to change their behavior when they:
are given incentives to do so.
 
The economic way of thinking is
a set of basic concepts that helps one understand human choices.
 
Which of the following statements is correct?
Opportunity costs will always be incurred when scarce resources are used to produce a good.
 
Economists would most likely agree with which one of the following statements?
People usually exploit opportunities to make themselves better off.
 
Most individuals choose careers in which they specialize in producing only one type of good or service,
yet as consumers they have access to a wide variety of goods and services. What principle allows for this?
trade
 
The expression, "There's no such thing as a free lunch," implies that
opportunity costs are incurred when resources are used to produce goods and services.
 
Which of the following is NOT an economic resource?
money
 
Which one of the following states a central element of the economic way of thinking?
Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.
 
Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction
of people to a change in incentives.
People will buy less gas if the price of gas increases by $.20 per gallon.
 
Which one of the following is a positive economic statement?
An increase in the minimum wage will reduce employment.
 
The basic difference between macroeconomics and microeconomics is that
macroeconomics is concerned with the forest (aggregate markets), while microeconomics is
concerned with the individual trees (subcomponents).
 
If a teacher tells a student that those who attend the study session typically score higher on the final exam,
the student has a positive incentive to attend the study session because she may get a higher grade.
 
"All Americans should have access to health care" is an example of
a normative statement.
 
The idea that people will not consciously make decisions that make them worse off is known as
rationality assumption.
 
Economic analysis assumes that
changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.
 
While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be
20 cents.
 
Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry.
Which is the most plausible economic explanation for this difference?
Sarah has a higher opportunity cost of laundering her clothes than Harold does.
 
For a college student who wishes to calculate the true costs of going to college, the costs of room and board
should be counted only to the extent that they are more expensive at college than elsewhere.
 
"The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?
the concept of opportunity cost.
 
Which of the following is an example of a positive economic statement?
If payroll taxes are raised, then the Social Security crisis will be resolved.
 
When economists say an individual displays economizing behavior, they simply mean that she is
seeking the lowest cost method to accomplish her objectives.
 
Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully
realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident. To an economist, Jim is
making a rational choice.
 
Which of the following is an example of a rational decision?
a. Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he
fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident.
b. Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the
house next door because the house next door has
a sign in the yard that says "home protected by a security system."
c. Brandon, a drug user, chooses to buy his cocaine from Pablo, because Pablo's cocaine is as good as the
cocaine from other dealers, but Pablo has lower prices.
All of the above are examples of rational choices.
 
The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles,
fewer red automobiles would be produced and sold.
 
Which of the following groups would most likely benefit from a law that is extremely tough on those who drink and drive?
taxi drivers
 
The basic economic problem is a situation of
limited resources and unlimited wants.
 
People are willing to pay more for a diamond than for a bottle of water because
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
 
If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal
cost per passenger is $100, then it will be profitable for the airline to
charge a stand-by passenger more than $100.
 
In economics, all the items that people would consume if they had unlimited income are known as
wants
 
While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has
a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be
50 cents.
 
Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on what he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is
using marginal decision making.
 
Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal?
a. The higher prices that result from making them illegal results in more property theft by users to afford the drugs.
b. The usage of police and law enforcement resources to enforce drug laws leads to lower enforcement
(and thus a higher amount) of other crimes.
c. Without the ability to use the legal system to enforce contracts, violence often results when one party to a drug deal does not live up to their end of the bargain, thus the amount of violence increases by making drugs illegal.
d. All of the above would be considered secondary effects of making drugs illegal.
All of the above would be considered secondary effects of making drugs illegal.
 
The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is
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
$10 per hour.
 
Does voluntary exchange create wealth (value)?
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.
 
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.
 
"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
the law of comparative advantage.
 
Three basic decisions must be made by all economies. What are they?
what will be produced, how goods will be produced, and for whom goods will be produced
 
If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who
have a comparative advantage in the productive activity.
 
"The economic wealth of this country is primarily the result of the profit made by some individuals at the expense of others.
" The person who made this statement
has failed to comprehend that mutual gains result from specialization and exchange.
 
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.
all of the above.
 
When property rights are clearly defined and enforced, private owners will
develop and direct their property toward uses that others value highly because the market
 
When individuals reap the benefits of choices that increase the value of their resources and bear the costs of choices that
reduce the value of their resources, decision makers have a strong incentive to search for more efficient ways of using the
resources.
 
Under a system of private property, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas first, most of which will not be ready to cut for 50 years?
Yes, the farmer will benefit because this action will increase the value of the land if and when the farmer decides to sell.
 
The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that
resources are not perfectly adaptable to the production of all goods
 
In economics, the term for a person who reduces transaction costs by arranging trades is
a middleman.
 
Which of the following most accurately indicates the implications of an economy's production possibilities curve?
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.
 
If an economy operates at a point within its production possibilities curve,
it is not efficiently using all of its resources.
 
In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population.
How would this affect the production possibilities curves for the countries of Europe at that time?
The production possibilities curves for these countries would have shifted inward.
 
If the citizens of a country were to work harder and take less leisure time, it would
shift the production possibilities curve outward.
 
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
capitalism.
 
What are incentives?
Factors that motivate someone to act or exert effort; incentives are everywhere and financial role
often plays a prominent role
 
Positive Incentive
Encourages action, usually to get something
 
Negative Incentive
Encourages action, usually to avoid getting something
 
Direct Incentive
Easy to recognize
 
"Here in East Abalone, we are proud of our ability to be self-sufficient. We do not trade with other nations." From an economic perspective, citizens of this (mythical) nation can be expected to  produce less total value than they could if they specialized and
engaged in trade with other nations.
 
The most important source of gain from the division of labor is
the benefits that result from specialization, adoption of mass production techniques, andexchange.
 
When collective decision making is utilized to resolve economic questions regarding the allocation of resources,
the role of markets will be replaced by political decision making.
 
Which of the following would most likely increase the demand for peanut butter?
a decrease in the price of jelly, a good that is often used with peanut butter
 
Producers are willing to offer greater quantities for sale at higher prices because
they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses
 
If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that
Harry reaped $10,000 of consumer surplus from the transaction.
 
The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available.
This is evidence that the price of the tickets is
lower than the equilibrium price.
 
Why do we have to make trade offs?
Because of scarcity, decisions incur costs
 
What is an opportunity cost?
The highest valued alternative that must be sacrificed in order to get something else
 
What does marginal mean?
Marginal thinking
 
What is marginal thinking?
Systematically evaluating a course of action; requires a purposeful evaluation of available opportunities
to make the best decision
 
"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in
demand for large cars, causing their prices to rise." These statements
contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an
increase in demand.
 
A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price.
Which of the following statements best explains the situation?
The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.
 
When the market for a good is in equilibrium,
all units valued more highly than the opportunity cost of production will be supplied.
 
Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will
decrease the supply of soybeans.
 
What is economics?
The study of how people allocate their limited resources to satisfy their nearly unlimited wants;
the study of how people make decisions
 
How is scarcity related to economics?
Scarcity refers to the limited nature of societies unlimited wants and needs
 
Indirect Incentive
Harder to recognize
 
If cable TV service and satellite TV service are substitutes,
a decrease in the price of cable will decrease the demand for satellite TV.
 
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.
 
In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:
specialization.
 
An opportunity cost arises:
whenever any choice is made.
 
Exchanges taking place in a market system:
are voluntary.
 
The condition of scarcity means that:
choices must be made in the allocation of productive resources.
 
The purpose of an economic system is to:
allocate scarce resources.
 
The focal point of economic inquiry is:
individual choice.
 
An economic system is in __________ when no individual would be better off by making a different choice.
equilibrium
 
Economic theory asserts that people will behave in ways that:
will enhance their own overall well-being.
 
An equilibrium outcome is one in which:
no one has as incentive to change his or her decisions or behavior.
 
Which one of the following statements is not true of a market economy? pursuit of individual self-interest leads to
bad results for society as
a whole.
 
Adam Smith used the idea of the invisible hand to refer to the ability of market economies to:
harness the power of individual self-interest for the good of society as a whole.
 
After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to
become a doctor. This choice between the two careers can best be described by:
opportunity cost.
 
Which of the following sayings best reflects the concept of opportunity cost?
"Time is money."
 
Economics can be described as the study of how people use _______ resources to satisfy _______ wants.
limited; unlimited
 
Ifan economy is operating at a point inside the production possibilities curve,
its resources are not being used efficiently.
 
If market failures exist, the market can become efficient when:
the government intervenes to improve society's welfare.
 
The focal point of economic inquiry is:
individual choice.
 
An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off.
efficient
 
The crucial problem of economics is
allocating scarce productive resources to satisfy unlimited wants
 
When one decision is made, the next best alternative not selected is called
Opportunity cost
 
Which of the following is true if the production possibilities curve is a curved line concave to the origin?
As more of one good is produced, increasing amounts of the other good must be given up.
 
Which of the following will not change the demand for oranges?
a change in the price of oranges
 
To be considered scarce, an economic resource must be
limited and desirable, but not free
 
If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged?
Price                Quantity
Increase          Increase
 
Which of the following goods would be considered scarce?
Education, gold, and time
 
An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?
To the left, because gasoline and tires are complements
 
Which of the following indicated that the macroeconomy is achieving its economic goals?
economic growth
 
In which way does a straight-line production possibilities curve differ from a concave production possibilities curve?
A straight-line production possibilities curve has a constant opportunity cost.
 
The law of increasing opportunity cost is reflected in the shape of the
production possibilities curve concave to the origin
 
Which of the following would cause a leftward shift of the production possibilities curve?
a decrease in working-age population
 
With voluntary exchange,
both the buyer and seller will be made better off.
 
If Sean sells Tom a tennis racket for $50, we would expect
both parties to gain from this transaction.
 
Steve values his boat at $4,000, and Jennifer values it at $9,000. If Jennifer buys it from Steve for $7,000, which of the following is true?
Steve gains $3,000 of value, and Jennifer gains $2,000 of value.
 
If the Internet makes it easier for sellers to find buyers and makes it easier for buyers to learn about the products that are available for sale, we would expect that
the gains from trade will increase.
 
Which of the following would cause an outward or rightward shift in the production possibilities curve?
an increase in capital equipment
 
According to the theory of comparative advantage, a good should be produced where
its opportunity costs are least
 
Which of the following will not cause the demand curve for athletic shoes to shift?
A decrease in the price of athletic shoes
 
Assume that the demand for apples is downward sloping. If the price of apples falls from $0.80 per pound to
$0.65 per pound, which of the following will occur?
a larger quantity of apples will be demanded