Deck 1: Fundamental Concepts in Economics

Question 1

Economics is the study of how ________ manages its ________ resources to satisfy its wants.

A) society; unlimited
B) society; scarce
C) a household; unlimited
D) a household; scarce

Answer 1

society; scarce

Question 2

An economy's resources include

A) raw materials.
B) factories and machinery.
C) human knowledge.
D) all of the above

Answer 2

all of the above

Question 3

Economies can be organizations such as

A) households.
B) individual states of the United States.
C) entire countries.
D) households, states, and countries.

Answer 3

households, states, and countries.

Question 4

Which of the following is a key question that must be addressed by an economy?

A) What will be made with our resources?
B) How much will we spend producing products?
C) Where will we produce our products?
D) When should we produce our products?

Question 5

Which of the following is a key question that must be addressed by an economy?

A) Why should we produce a product?
B) When should we replenish out resources?
C) How will we distribute our products?
D) What should we do when we use up all our resources?

Question 6

In a market system, the ultimate decision about what to produce is left to

A) buyers.
B) the government.
C) sellers.
D) households.

Question 7

In a command economy, the ultimate decision about what to produce is left to

A) buyers.
B) the government.
C) sellers.
D) households.

Question 8

In a mixed economy, the ultimate decision about what to produce is left to

A) buyers.
B) the government.
C) sellers.
D) all of the above

Question 9

Economies where production and distribution decisions are made by the government are called

A) command economies.
B) market economies.
C) mixed economies.
D) capitalist economies.

Question 10

Economies where some production decisions are made by the government and some are made by buyers and sellers are called

A) command economies.
B) market economies.
C) mixed economies.
D) capitalist economies.

Question 11

Of the following countries, which is the best example of a command economy?

A) the United States
B) Cuba
C) Japan
D) Brazil

Question 12

Of the following countries, which is the best example of a mixed economy?

A) Mexico
B) Cuba
C) North Korea
D) China

Question 13

Resources are items that a society uses to create goods and services.

Question 14

An economy is an organization that produces goods and services and then allocates those goods and services to its members.

Question 15

Command economies are never effective at organizing the production and distribution of goods and services.

Question 16

Explain the differences between a market system, a command economy, and a mixed economy with respect to production and distribution decisions.

Question 17

A situation where limited resources make it impossible to fulfill all of our wants is known as

A) scarcity.
B) opportunity cost.
C) a trade-off.
D) responding to incentives.

Question 18

The opportunity cost of an activity is

A) the dollar cost to engage in the activity.
B) the value of the resources needed to conduct the activity.
C) the same for all who participate in the activity.
D) what you sacrifice to engage in the activity.

Question 19

Who faces trade-offs?

A) individuals
B) households
C) governments
D) all of the above

Question 20

You decide to spend time studying for a philosophy exam, even though you have offers to go to see a movie, go out to dinner, or go to a poetry reading. This is a difficult choice for you because you really want to go to the poetry reading and would choose that over seeing the movie or going out to dinner. Your opportunity cost of spending time studying for your philosophy exam is

A) going to the movie.
B) going out to dinner.
C) going to the poetry reading.
D) all of the above, since you have offers to do all three

Question 21

Your opportunity cost of attending a lecture on the number of brain cells lost by binge-watching episodes of Here Comes Honey Boo Boo is

A) zero, since you already know that binge-watching will kill all of your brain cells.
B) the price of the ticket for the lecture.
C) the value of attending a meditation class, which is your next-best alternative.
D) the total value of all other options you could have chosen instead of going to the lecture.

Question 22

Explicit costs are

A) costs that are measured in dollars.
B) costs that do not involve an exchange of money.
C) the same as opportunity costs.
D) the same as implicit costs.

Question 23

Implicit costs are

A) costs that are measured in dollars.
B) costs that do not involve an exchange of money.
C) costs that typically involve the exchange of money.
D) the same as explicit costs.

Question 24

While falling prey to the seductive ways of Catwoman, Batman sacrifices the opportunity of protecting Gotham City from a crime spree initiated by the Joker. That foregone opportunity is a(n) ________ cost of (yet again) falling prey to Catwoman.

A) monetary
B) explicit
C) sunk
D) implicit

Question 25

You paid $145 for an iPod Nano. The cash you sacrificed is a(n)

A) explicit cost.
B) implicit cost.
C) deferred cost.
D) accrued cost.

Question 26

The amount you pay for apps to download to your cell phone is an example of a(n) ________ cost.

A) implicit
B) opportunity
C) explicit
D) network

Question 27

You decide to spend Thanksgiving with your grandparents instead of going to Las Vegas with 20 of your closest friends. Losing the chance to be with your friends is the ________ cost of spending Thanksgiving with your grandparents.

A) explicit
B) implicit
C) deferred
D) accrued

Question 28

You spend $20 on a lottery ticket instead of buying groceries. The $20 spent on the lottery ticket represents an ________ and the forgone groceries represent an ________.

A) explicit cost; explicit cost
B) implicit cost; explicit cost
C) explicit cost; implicit cost
D) implicit cost; implicit cost

Question 29

Governments,

A) like individuals, face opportunity costs.
B) unlike individuals, do not face opportunity costs.
C) only if they are relatively poor, face opportunity costs.
D) only if they are running budget deficits, face opportunity costs.

Question 30

The collection of laws, regulatory measures, and actions concerning a particular topic that originate with some body of government is called

A) fiscal policy.
B) public policy.
C) private policy.
D) antitrust policy.

Question 31

The money the North Korean government spent to purchase a closed British brewery was a(n) ________ cost, and the choice to brew beer in this brewery instead of using the resources to feed the people of North Korea is a(n) ________ cost.

A) explicit; explicit
B) explicit; implicit
C) implicit; implicit
D) implicit; explicit

Question 32

The branch of economics that examines the self-interested behavior of politicians, lobbyists, agencies, bureaucrats, and voters is called

A) microeconomics.
B) macroeconomics.
C) econometrics.
D) public choice.

Question 33

Research suggests that mandatory seat belt laws

A) reduce the number of automobile accidents.
B) cause drivers to drive more cautiously.
C) actually create more automobile accidents.
D) have had no impact on the behavior of drivers.

Question 34

The opportunity cost of doing something can be defined as the value of the next-best alternative.

Question 35

Opportunity cost is usually measured in terms of money.

Question 36

Explicit costs are measured in dollars.

Question 37

Implicit costs involve an exchange of money.

Question 38

Implicit costs are usually easier to measure than explicit costs.

Question 39

What are explicit costs? What are implicit costs?

Question 40

You decide to quit your $40,000 a year job to go back to school. Your rent is $9,600 per year, you spend $6,000 per year on food, your tuition costs $24,000 per year, and textbooks cost $3,000 per year. Based on these numbers, what are your yearly explicit and implicit costs of going back to school?

Question 41

Explain the statement "There is no such thing as a free lunch."

Question 42

Inducements to act in particular ways are called

A) collusive tactics.
B) incentives.
C) trade-offs.
D) opportunity costs.

Question 43

Incentives

A) are always used to encourage particular behaviors.
B) are always used to discourage particular behaviors.
C) can be used to either encourage or discourage particular behaviors.
D) are never used to encourage or discourage particular behaviors.

Question 44

If the federal government imposes a new tax on golf clubs, that tax

A) encourages people to take up golf.
B) encourages people to buy more golf balls.
C) encourages fewer people to play golf.
D) discourages people from switching from playing tennis to playing golf.

Question 45

Marge would like her husband Homer to drink less beer. All of the following are ways she could encourage Homer to drink less beer except

A) pay him to drink less beer.
B) convince him that beer is good for his health.
C) refuse to cook dinner for him if he does not cut back on his beer drinking.
D) make him pay her $10 for every beer he drinks.

Question 46

If the government proposed a one-time tax of 25% on accumulated wealth, this would likely

A) reduce the incentive for individuals to accumulate wealth.
B) increase the incentive for individuals to accumulate wealth.
C) have no impact on individual accumulation of wealth since it is a one-time tax.
D) All of the above are equally likely to happen.

Question 47

A major principle of economics is that people respond to incentives.

Question 48

Incentives work by changing the trade-offs faced by individuals.

Question 49

________ are inducements to act in certain ways.

Question 50

The U.S. tax code allows taxpayers to deduct the value of charitable contributions from their taxable income. Explain if this is an example of an incentive, and what effect this policy is likely to have on the amount of charitable contributions in the United States.

Question 51

A problem that exists when naturally occurring incentives encourage sufficient numbers of people to act in a way that makes everybody worse off is called a

A) zero-sum problem.
B) cause-and-effect problem.
C) collective action problem.
D) trade-off.

Question 52

Because collective action problems are ________ to solve, society often ________.

A) relatively easy; handles the problems itself
B) relatively easy; ignores the problems
C) impossible; chooses to live with the problems
D) difficult; requests help from the government

Question 53

One general characteristic of collective action problems is that

A) no individual has any incentive to act in the best interest of the group.
B) groups are forced to act in the best interest of every individual.
C) private incentives are usually aligned with social goals.
D) individuals usually have the power to solve the problem through individual action.

Question 54

Which of the following represents a collective action problem?

A) The battery in Billy's pickup truck has died so he must leave his house 90 minutes earlier than usual to take public transportation to work.
B) Sonia cuts down a diseased oak tree in her back yard, eliminating the shade that blocked the afternoon sun from shining through her living room windows.
C) Miss Lander's third grade class has to cut short their field trip to Insect World because someone in Mr. Rutherford's fourth grade class accidentally opened the safety door in the bumblebee exhibit.
D) Most of the audience cannot hear the dialog at a midnight showing of The Room because the film's most ardent fans insist on shouting with the dialog throughout the entire screening.

Question 55

With collective action problems, individual trade-offs are different than the trade-offs for society as a whole.

Question 56

When a collective action problem exists, the government often has the ability to direct behaviors in ways that make society better off.

Question 57

A ________ exists when naturally occurring incentives encourage sufficient numbers of people to act in a way that makes everybody worse off.

Question 58

The New York Yankees are playing the Boston Red Sox at Fenway Park. It is the bottom of the ninth inning, the score is tied 4-4, the bases are loaded, and there are no outs. Starting in the seats closest to the field, the crowd begins to stand and cheer , hoping that the Red Sox can drive in one more run and win the game. Describe the collective action problem that has developed in this situation.

Question 59

An objective analysis of "what is"in the economy is referred to as

A) positive economics.
B) normative economics.
C) command economics.
D) implicit economics.

Question 60

A subjective analysis of "what should be" in the economy is referred to as

A) positive economics.
B) normative economics.
C) command economics.
D) implicit economics.

Question 61

Which of the following statements is an example of positive economic analysis?

A) To ensure the highest graduation rates, colleges should limit enrollment.
B) As tuition rates increase, fewer students are enrolling in college.
C) Living in a dorm is too expensive and colleges should subsidize the cost of housing for their students.
D) Universities should offer a wider variety of extracurricular activities to broaden the horizons of their student bodies.

Question 62

All of the following statements are examples of positive economic analysis except

A) as the unemployment rate decreases, fewer people are willing to relocate to find jobs.
B) as the economy improves, more workers from other countries are migrating to the United States.
C) exports from the United States should be increased to offset the growing number of imports into the United States.
D) the U.S. economy is growing at a slower rate than the economy of Brazil.

Question 63

Which of the following statements is an example of normative economic analysis?

A) Pollution regulations have raised the cost of production for energy companies.
B) As the wage rate increases, companies are hiring fewer workers.
C) Improvements in technology have reduced the time needed to manufacture automobiles.
D) Tablet computers should be manufactured in countries that do not restrict internet access to their citizens.

Question 64

All of the following statements are examples of normative economic analysis except

A) as the demand for emergency room nurses increases, more students are choosing to enroll in nursing school.
B) to provide better care, doctors should be required to limit the number of patients they see each day.
C) people should be able to choose whether they want to purchase health insurance.
D) prescription drugs are too expensive and the government needs to regulate prices in the pharmaceutical industry.

Question 65

One reason that economists usually engage in ________ economic analysis is because the question of fair division of resources is ________ to decide objectively.

A) positive; easy
B) positive; hard
C) normative; easy
D) normative; hard

Question 66

The imaginary figure who advises us whether society is making the most of its scarce resources is the

A) opportunity-cost pixie.
B) benevolent social planner.
C) scarcity goddess.
D) compassionate dictator.

Question 67

The benevolent social planner engages in

A) positive economic analysis.
B) normative economic analysis.
C) both positive and normative economic analysis.
D) neither positive nor normative economic analysis.

Question 68

The benevolent social planner wants to extract the ________ the limited resources we have been given, and her objective is to ________ the size of the economic pie.

A) greatest amount of happiness from; minimize
B) greatest amount of happiness from; maximize
C) least productive of; minimize
D) least productive of; maximize

Question 69

Positive economics statements are testable.

Question 70

Most economists analyze economic issues from a normative approach.

Question 71

The benevolent social planner is based on an actual 19th century economist named Karl Marx.

Question 72

Explain the differences between positive economic analysis and normative economic analysis. Which of these approaches do economists generally adhere to and why?

Question 73

Explain the objective of the benevolent social planner.

Question 74

If the quantity of a good or service demanded at the existing price is greater than the quantity supplied, ________ exists.

A) a shortage
B) a surplus
C) market equilibrium
D) All of the above are possible.

Question 75

If the quantity of a good or service demanded at the existing price is less than the quantity supplied, ________ exists.

A) a shortage
B) a surplus
C) market equilibrium
D) All of the above are possible.

Question 76

A shortage tends to put ________ pressure on the price of the product, which ________ the quantity demanded.

A) upward; increases
B) upward; decreases
C) downward; increases
D) downward; decreases

Question 77

A condition in a market where there is no upward or downward pressure on price is called

A) a shortage.
B) a surplus.
C) market equilibrium.
D) All of the above are possible correct answers.

Question 78

A condition in a market where quantity demanded equals quantity supplied is called

A) a shortage.
B) a surplus.
C) market equilibrium.
D) All of the above are possible correct answers.

Question 79

A decrease in demand will cause the equilibrium price to ________ and the equilibrium quantity to ________.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 80

An increase in supply will cause the equilibrium price to ________ and the equilibrium quantity to ________.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease