question
Scarcity exists because economies cannot produce enough to meet the perceived desires of all individuals.
answer
True
Scarcity exists because what people desire exceeds what they are able to produce.
Scarcity exists because what people desire exceeds what they are able to produce.
question
Only marginal costs, not sunk costs, affect economic decisions if individuals are rational.
answer
True
Sunk costs are costs that have already been incurred and cannot be recovered no matter what action is taken. Marginal costs represent the additional costs associated with undertaking an economic activity, and an individual must balance these costs against the marginal benefit from the activity to make a rational choice.
Sunk costs are costs that have already been incurred and cannot be recovered no matter what action is taken. Marginal costs represent the additional costs associated with undertaking an economic activity, and an individual must balance these costs against the marginal benefit from the activity to make a rational choice.
question
The economic decision rule is to undertake an action only when the marginal benefits of that action are greater than its total costs.
answer
false
The economic decision rule is to undertake an action only when the marginal benefits of that action are greater than its marginal costs.
The economic decision rule is to undertake an action only when the marginal benefits of that action are greater than its marginal costs.
question
The opportunity cost of undertaking an activity includes any sunk cost.
answer
false
Sunk costs are costs that already have been incurred and cannot be recovered no matter what action is taken. Thus, they do not represent an opportunity cost, which are an additional cost.
Sunk costs are costs that already have been incurred and cannot be recovered no matter what action is taken. Thus, they do not represent an opportunity cost, which are an additional cost.
question
Dorm rooms usually are not allocated by markets. Allocating dorm rooms is:
answer
an economic problem
question
If allocating dorm rooms changes from allocation by lottery to allocation by the market:
answer
the allocation problem is still an economic problem.
The economic problem arises when limited resources must be allocated among individuals. The problem existed before any allocation mechanism was chosen.
The economic problem arises when limited resources must be allocated among individuals. The problem existed before any allocation mechanism was chosen.
question
Economic systems:
answer
address the questions what is produced, how it is produced, and for whom it is produced.
Any economic system must solve the three coordination problems. An economic system does not necessarily eliminate scarcity. Individual decisions within an economic system are what solve the three central problems. An economic system allocates what is produced but may not do so equally.
Any economic system must solve the three coordination problems. An economic system does not necessarily eliminate scarcity. Individual decisions within an economic system are what solve the three central problems. An economic system allocates what is produced but may not do so equally.
question
Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from a 75 to a 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should:
answer
study for the quiz as long as her hourly wage rate is less than $20.
It is efficient for Alexandra to study if the marginal benefit exceeds the marginal cost. The marginal benefit is $20 and the marginal cost is equal to her hourly wage rate, and so marginal benefit exceeds marginal cost as long as her hourly wage rate is less than $20.
It is efficient for Alexandra to study if the marginal benefit exceeds the marginal cost. The marginal benefit is $20 and the marginal cost is equal to her hourly wage rate, and so marginal benefit exceeds marginal cost as long as her hourly wage rate is less than $20.
question
Microsoft filed a lawsuit against people who sent spam (junk email) and a website owner who hosted spam services. A spokesman for Microsoft said that Microsoft was "trying to change the economics of spam" by increasing the cost of being a spammer. An economist most likely would agree with which statement about Microsoft's actions?
answer
Microsoft's approach of trying to change the costs of spamming is the most efficient way to change behavior.
When economists want to change behavior, they will change either the costs or the benefits of the behavior. By filing a lawsuit against the spammers, Microsoft is imposing a cost on sending spam email, and therefore creating a disincentive from the action.
When economists want to change behavior, they will change either the costs or the benefits of the behavior. By filing a lawsuit against the spammers, Microsoft is imposing a cost on sending spam email, and therefore creating a disincentive from the action.
question
The answers to an economy's three central economic problems are determined by the interaction of three forces: economic forces, political forces, and social forces
answer
true
Economic, political, and social forces determine how an economy operates and thus answers the three economic problems.
Economic, political, and social forces determine how an economy operates and thus answers the three economic problems.
question
The "invisible hand" is the price mechanism that guides people's actions in the market.
answer
true
question
Social and political forces affect the way in which the invisible hand works.
answer
true
Social and political forces place cultural and legal limits on how the market mechanism works.
Social and political forces place cultural and legal limits on how the market mechanism works.
question
More than 10,000 visitors waited up to two hours in line to see the rare flower titan arum at the Cambridge Botanical Gardens. What does this situation illustrate to an economist about rationing?
answer
When goods are not fully rationed by monetary price, other rationing mechanisms such as waiting arise.
Anything scarce must be rationed. Rationing by queue is an alternative to rationing by price. It is evident that the demand to see the rare flower exceeds the supply of viewings.
Anything scarce must be rationed. Rationing by queue is an alternative to rationing by price. It is evident that the demand to see the rare flower exceeds the supply of viewings.
question
Prostitution is legal in Churchill County, Nevada, but a referendum threatened to close two brothels (prostitution businesses) in that county. What idea from Chapter 1 of the text does this story best illustrate?
answer
Social and political forces sometimes rein in market forces.
question
An economic force given relatively free rein by society to work through the market is a:
answer
market force
The price mechanism is the mechanism that converts economic forces into market forces. See the definition of market force.
The price mechanism is the mechanism that converts economic forces into market forces. See the definition of market force.
question
Microsoft has just taken some senators out to dinner in Paris in a private jet. This is probably an example of an attempt to influence:
answer
political forces
This is an example in which Microsoft is lobbying lawmakers in order to influence political decisions and forces.
This is an example in which Microsoft is lobbying lawmakers in order to influence political decisions and forces.
question
A cultural norm is a(n):
answer
social force
A cultural norm defines what is socially acceptable and is thus a social force.
A cultural norm defines what is socially acceptable and is thus a social force.
question
social forces:
answer
affect the price mechanism through cultural norms.
question
Many drugs are illegal in the United States. Despite this law, illegal drugs are usually available at a price many times higher than they would be if the drugs weren't illegal. The high price of illegal drugs is an example of:
answer
political forces affecting the market.
The fact that selling drugs is illegal is the consequence of the legal system. Economic forces, however, still operate, and the price mechanism, the invisible hand, also operates in this case in the black market. The illegality of drugs causes a spike in the quantity demanded, thus augmenting prices.
The fact that selling drugs is illegal is the consequence of the legal system. Economic forces, however, still operate, and the price mechanism, the invisible hand, also operates in this case in the black market. The illegality of drugs causes a spike in the quantity demanded, thus augmenting prices.
question
Deciding what the distribution of income should be is an example of normative economics.
answer
true
This statement questions what the goals of the economy should be and is thus an example of normative economics.
This statement questions what the goals of the economy should be and is thus an example of normative economics.
question
Based on scientific nutritional studies, in most countries an income of $1 a day does not provide sufficient food, shelter, and clothing to live. Under these conditions the medical risk of death is high. This statement is:
answer
a positive statement:
The statement, because it is stating factual information, is positive.
The statement, because it is stating factual information, is positive.
question
Which of the following is the best example of a positive question?
answer
How are price and quantity demanded related?
The answer to this question does not involve a value judgment, and so the question is not normative.
The answer to this question does not involve a value judgment, and so the question is not normative.
question
Using the impartial spectator tool, one arrives at normative judgments based on your estimation of:
answer
what the blended judgment of all members of society would arrive at.
question
"We should support the market because it is efficient" is an example of:
answer
normative economics.
Although economic theory (positive economics) says that the market is efficient, a statement that we should support it is a normative statement because it is making a value judgment.
Although economic theory (positive economics) says that the market is efficient, a statement that we should support it is a normative statement because it is making a value judgment.
question
What relates positive economics to normative economics?
answer
The art of economics
The art of economics is the application of the knowledge learned in positive economics, to the suggestions made in normative economics.
The art of economics is the application of the knowledge learned in positive economics, to the suggestions made in normative economics.
question
"Price controls in competitive markets cause shortages" is an example of:
answer
positive economics.
Positive economics is the study of what is. We know that price controls usually cause shortages from the text.
Positive economics is the study of what is. We know that price controls usually cause shortages from the text.
question
Maintaining objectivity is easiest in:
answer
positive economics
Maintaining objectivity is easiest when one is working with abstract models to understand how the economy works, as is the case in positive economics.
Maintaining objectivity is easiest when one is working with abstract models to understand how the economy works, as is the case in positive economics.
question
Which of the following is a normative statement?
answer
The government should spend more to help the poor.
A normative statement is a statement about what should be.
A normative statement is a statement about what should be.
question
You rent a car for $29.95. The first 100 miles are free, but each mile thereafter costs 10 cents. You plan to drive it 200 miles. What is the marginal cost of driving the car beyond the first 100 free miles?
answer
The marginal cost is $10.00 plus the cost of gas.
The marginal costs are the additional costs of the additional activity. In this case, the additional activity is driving (200 - 100) miles. The marginal cost is the 10 cents per mile for all miles over 100 plus the additional cost of gas. Therefore, the marginal cost is $10.00 = [0.10 × (200 - 100)] plus the cost of gas. The initial payment can be forgotten because it is a sunk cost; it is not part of the marginal costs.
The marginal costs are the additional costs of the additional activity. In this case, the additional activity is driving (200 - 100) miles. The marginal cost is the 10 cents per mile for all miles over 100 plus the additional cost of gas. Therefore, the marginal cost is $10.00 = [0.10 × (200 - 100)] plus the cost of gas. The initial payment can be forgotten because it is a sunk cost; it is not part of the marginal costs.
question
Does economic theory prove that the free market system is best?
why?
why?
answer
1. no
2. It simply gives ways to look at systems and determine what the advantages and disadvantages of various systems will likely be. Normative decisions about what is best can only follow from one's value judgments
2. It simply gives ways to look at systems and determine what the advantages and disadvantages of various systems will likely be. Normative decisions about what is best can only follow from one's value judgments
question
a. In a market, when quantity supplied exceeds quantity demanded, price tends to fall.
b. When determining tax rates, the government should take into account the income needs of individuals.
c. Given society's options and goals, a broad-based tax is generally preferred to a narrowly-based tax.
d. California currently rations water to farmers at subsidized prices. Once California allows the trading of water rights, it will allow economic forces to be a market force.
b. When determining tax rates, the government should take into account the income needs of individuals.
c. Given society's options and goals, a broad-based tax is generally preferred to a narrowly-based tax.
d. California currently rations water to farmers at subsidized prices. Once California allows the trading of water rights, it will allow economic forces to be a market force.
answer
a. positive economics
b. normative economics
c. Could be either normative economics or art of economics
d. positive economics
b. normative economics
c. Could be either normative economics or art of economics
d. positive economics
question
What is the opportunity cost of buying a $20,000 car?
answer
The benefit from spending that $20,000 on the next-best alternative
The opportunity cost of buying a $20,000 car is the benefit you would have gained by using that $20,000 for the next-best alternative, which could be spending it on other goods and services or saving it.
The opportunity cost of buying a $20,000 car is the benefit you would have gained by using that $20,000 for the next-best alternative, which could be spending it on other goods and services or saving it.
question
Two examples of political or legal forces that interact with market forces are
answer
rent control laws and restrictions on immigration.
question
A ________ a proposition that is logically true based on the assumptions of the model, whereas a _________ a policy rule that a particular course of action is preferable.
Is it possible for two economists to agree about theorems but disagree about precepts?
Is it possible for two economists to agree about theorems but disagree about precepts?
answer
theorem, precept
Economists can agree about theorems, but disagree about precepts if they have different value judgments regarding the intended goals.
Economists can agree about theorems, but disagree about precepts if they have different value judgments regarding the intended goals.
question
Which of the following statements explains why the textbook author focuses on coordination rather than on scarcity when defining economics?
answer
Wants are changeable and partially determined by society, and the degree of scarcity changes as the quantity of goods, services, and usable resources changes with technology and human action that underlie production.
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