Exam 1: Ten Principles of Economics

What is the term for what you give up to obtain an item?

Carol has spent $2000 purchasing and repairing an old car, which she expects to sell for $2400. She discovers that she needs an additional repair, which will cost $400. She can sell the car as it is now for $2000. What should she do?

In a market economy, what guides economic activity?

With careful planning, we can usually get something that we like without having to give up something else that we like.

How are goods and services allocated in a market economy?

What could policymakers do to raise productivity?

In the short run, what does the tenth principle of economics illustrate?

What happens if a sawmill creates too much air pollution?

What do we know about college-age athletes who drop out of college to play professional sports?

What do economists study?

Under what conditions might government intervention in an economy improve the market outcome?

Suppose you have your own pizza delivery business and receive a call to deliver to a remote client. You need to decide whether to take the call. If you don't, there are no consequences, since someone else will. Based on the distance to the client, you calculate that it would cost you $5 to deliver, and expect to receive $6 for the service. You also pay monthly rent for the car, which on average, based on past experience, comes down to about $2 per trip. Your time doesn't matter, as you have nothing more enjoyable or useful to do for the time being. How do you make this decision? What economic principle is at work in your decision process?

Lisa buys a 1982 BMW, which she plans to restore and sell. She anticipates that the cost of the car and the repairs will be $11,000 and that she can sell it for $20,000. After she has spent $11,000, she discovers she needs to replace the engine, which will cost $5000. She can sell the car without the new engine for $14,000. What should Lisa do?

What does economics study?

If the average income of an Australian is higher than the average income of a Russian, what is the most likely reason?

The tenth principle of economics shows the short-run tradeoff between inflation and economic growth.

Why are gasoline prices in Canada higher than in the United States?

What would happen to the study of economics if scarcity disappeared?

What was inflation in Canada in the 1990s?

Which of the following is an example of a firm with market power?