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Economic analysis assumes that
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changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.
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Economic choice and competitive behavior are the result of
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scarcity.
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Economics is primarily the study of
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the choices we must make among alternatives because of scarcity.
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If you win the lottery this would be great for you, but if everyone simultaneously won the lottery this wouldn't be nearly as good, why?
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the fallacy of composition
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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
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$1
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Positive economics
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postulates a relationship that is potentially refutable and then seeks to determine whether the stated relationship is correct.
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Ralph wants to buy some milk and a box of cereal. If Ralph buys 4 gallons of milk at $3.00 per gallon, the box of cereal costs $2.00. If he buys 5 gallons of milk, the box of cereal is free. For Ralph, the marginal cost of buying a fifth gallon of milk is:
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$1
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The basic difference between macroeconomics and microeconomics is that
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macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).
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The basic difference between macroeconomics and microeconomics is that:
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microeconomics is concerned with individual markets and the behavior of people and firms, while macroeconomics is concerned with aggregate markets and the entire economy.
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The consequences of an economic change that are not immediately identifiable but are felt only with the passage of time are known in economics as
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secondary effects.
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The economic way of thinking stresses that
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incentives matter—when an option becomes less costly, people will be more likely to choose it.
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The expression, "There's no such thing as a free lunch," implies that
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opportunity costs are incurred when resources are used to produce goods and services.
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The expression "There's no such thing as a free lunch" means
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the use of resources to meet one need means that those resources can no longer be used to meet another need.
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The fallacy of composition is the incorrect view that
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if something is true for an individual, then it must also be true for the group.
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The highest valued alternative option that must be given up in order to choose an action is called its
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opportunity cost.
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The Latin phrase "ceteris paribus" means:
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that other potential causes are assumed to remain constant.
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What do economists mean when they state that a good is scarce?
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The amount of the good that people would like exceeds the supply freely available from nature.
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When the Oklahoma Sooners football team is up big after halftime, they often play their second and third team players. One of the coaches notices that when the third team plays that Oklahoma wins by a bigger margin than when just the first team plays. He recommends that the third team see more playing time as a result. What is wrong with his way of thinking?
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association is not causation
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Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.
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People will buy less gas if the price of gas increases by $.20 per gallon.
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Which of the following are NOT scarce?
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the air we breathe
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Which of the following is a positive economic statement?
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a reduction in the payroll tax will reduce the unemployment rate.
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Which of the following was a key belief of Adam Smith?
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he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way.
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Which one of the following states a central element of the economic way of thinking?
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Incentives matter—human choice is influenced in predictable ways by changes in personal costs and benefits.
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Which one of the following is a positive economic statement?
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An increase in the minimum wage will reduce employment.
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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
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20 cents.
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