Exam 1: Ten Principles of Economics

What is the best example of a marginal change?

In each of the following situations, identify the relevant economic principle and explain how it applies.?a) Peter has lived in his own apartment for many years. However, rents have recently increased so much that Peter considers moving into a smaller apartment and renting out his own.?b) Alfonso is a talented singer and he strongly wants to pursue an artist's career. However, he is two years short of graduating from law school. He is certain he will never be a lawyer because he does not like it and has no gift to be a lawyer. However, his family insists he finish his studies, since he has already spent so much time and money on law studies. What should he do??c) There are a few industrial sites in town, producing essential goods and services for the residents and providing the citizens with vital jobs. However, the businesses, including an airport in the very downtown, also produce pollution, congestion, and noise. People understand the blessings of economic and civil freedoms and are pleased and proud to have productive activities in their town. They started, though, to crave for a more pleasant place to live in. What economic principle can give these people some guidance about what to do?

Government spending is the primary source of inflation.

When was Adam Smith's book The Wealth of Nations published?

If the average cost of transporting a passenger on the train from Brockville to Toronto is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Which statement best describes the relationship between inflation and unemployment?

A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.

When is a good considered scarce in a society?

How does the invisible hand direct economic activity?

What term refers to a situation in which markets fail to allocate resources efficiently?

In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?

In what economy are the decisions of firms and households guided by profit and self-interest?

How is the self-interest of the participants in an economy guided into promoting general economic self-interest?

What is one definition of equity?

Murray receives $100 as a birthday gift. In deciding how to spend the money, he narrows his options down to four choices: A, B, C, and D. Each option costs $100, but Murray values each option differently. Finally, he decides on C. What is the opportunity cost of C?

What is a marginal change?

What is likely to occur when the government implements programs such as progressive income tax rates?

Tuition is the single-largest cost of attending college for most students.

If an externality is present in a market, what may enhance economic efficiency?

What is an externality?