Exam 1: Economics: Foundations and Models

In a centrally planned economy, the government decides how economic resources will be allocated.

Scenario 1-1 Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." -Refer to Scenario 1-1. Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and by how much?

Making optimal decisions "at the margin" requires

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?

Which of the following generates allocative efficiency in a market economy?

Examining the conditions that could lead to economic growth is an example of a macroeconomic topic.

In a modern mixed economy, who decides what goods and services will be produced?

Scenario 1-4 Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production -Refer to Scenario 1-4. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 500 cigars?

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

In 2017, President Trump considered imposing a tariff on automobiles assembled by U.S. manufacturers in Mexico that were to be sold in the United States. If this tariff was imposed and as a result, some of these manufacturers moved their automobile assembly from Mexico back to the United States, these firms would be reacting to which of the three key economic ideas?

Households ________ factors of production and ________ goods and services.

Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production.

Suppose the extra cost for a municipality to enact a "no texting while driving" law is $15,000 per year. Then, the municipality should enact the law if it receives a total benefit from all of its traffic laws of $15,000 per year.

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

Which of the following is not an example of an economic trade-off that a firm has to face?

Which of the following statements about scarcity is true?

Define allocative efficiency. Explain the significance of this concept in economics?

One reason some manufacturing companies have moved production from overseas locations back to the United States is rising foreign labor costs. Assuming that managers at these companies used all available information, including the rising cost of foreign labor, when making the decision to move production back to the United States exemplifies which key economic idea?

The government makes all economic decisions in a mixed economy.

Which of the following statements about economic resources is true?