Principles of Economics: Chapters 1–4 Exam

People face trade-offs.

Markets are usually a good way to organize economic activity.

Productivity is the ultimate source of higher living standards.

Society faces a short-run trade-off between inflation and unemployment.

Study for the additional hour.

Ignore the additional hour because average benefits are more relevant.

Study only if the opportunity cost of the first hour is zero.

Avoid studying because the benefit of any additional study is always smaller than its cost.

Enrollment increases because the policy changes an incentive.

Enrollment decreases because every policy reduces individual choice.

Enrollment is unchanged because incentives do not affect rational choices.

The policy must shift the entire production possibilities frontier.

Households buy goods and services and supply factors of production.

Households sell goods and services and buy factors of production.

Households receive only government payments and make no market decisions.

Households produce all final goods without purchasing them.

Resources are not being used efficiently.

The economy is producing an unattainable combination of goods.

The economy must reduce production of both goods to remain feasible.

The economy has exhausted every available resource.

The government should reduce the growth rate of the money supply.

A rapid growth rate of the money supply causes inflation.

Society faces a short-run trade-off between inflation and unemployment.

Lower tax rates encourage more saving.

The second country, because its opportunity cost of one ton of grain is lower.

The first country, because it produces more cars with the same labor.

The first country, because its opportunity cost of one ton of grain is lower.

Neither country, because both countries can produce both goods.

Each party obtains the good at a cost below its own opportunity cost but sells it at a price above its own opportunity cost.

Each party must have an absolute advantage in producing the traded good.

The price must be identical to the equilibrium price of a perfect market.

Both parties must give up the same amount of their other good.

It increases.

It decreases.

It remains unchanged because the demand curve shifts.

It becomes zero.

Supply decreases, causing the equilibrium price to rise and equilibrium quantity to fall.

Demand decreases, causing both the equilibrium price and quantity to fall.

Supply increases, causing the equilibrium price to fall and equilibrium quantity to rise.

There is movement along the supply curve, but equilibrium remains unchanged.

People face trade-offs.

Markets usually coordinate economic activity.

Productivity determines the standard of living.

Money growth is the ultimate source of inflation.

Compare the course's marginal benefit with its marginal cost.

Compare the course's total benefit with the total cost of all other courses.

Determine whether the course is a normal good or an inferior good.

Determine whether the course creates a market surplus.

The requirement lowers the perceived marginal cost of unsafe driving.

The requirement raises the marginal benefit of safe driving.

The requirement causes the demand for vehicles to shift to the right.

The requirement eliminates the externality associated with accidents.

The flow of dollars between households and firms

The flow of inputs and outputs between households and firms

Government tax revenues and public expenditures

Imports and exports between countries

Resources are being used inefficiently because one good could be increased without reducing the other.

Production is productively efficient, but the particular mix of goods may or may not reflect the most desired allocation.

The combination of output is impossible with current resources and technology.

Both goods can be increased without reducing either one.

A loss of part of the labor force

An improvement in production technology

A movement from producing computers to producing cars

A shift in consumer preferences toward cars

Positive statements prescribe which policies governments should adopt.

Normative statements can be tested directly against economic data.

A claim that higher income increases demand for a normal good is positive, while a claim that the government should provide income support is normative.

Economists reject normative analysis because it is unrelated to economics.

They assign different values to the policy's costs and benefits.

They disagree about whether economic models should use assumptions.

They disagree about whether markets should be competitive.

They disagree about the definition of opportunity cost.

The first worker, because the opportunity cost of a table is 2 chairs rather than 2 chairs for the second worker.

Neither worker, because each has the same opportunity cost of producing a table.

The first worker, because the worker can produce more tables in absolute terms.

The second worker, because the opportunity cost of a table is one-half of a chair.

Quantity demanded decreases, represented by a movement along the demand curve.

Demand decreases, represented by a leftward shift of the demand curve.

Quantity supplied increases, represented by a shift of the supply curve.

Market equilibrium must be at a point where quantity demanded equals zero.