Ten Principles of Economics - Chapter Exam

Because most resources are owned by the government and must be rationed fairly.

Because resources are scarce and cannot satisfy all of the goods and services people desire.

Because most citizens are unwilling to work and contribute to the economy.

Because technology has not yet advanced enough to reduce the need for economic decisions.

Principle 1: People Face Trade-Offs

Principle 5: Trade Can Make Everyone Better Off

Principle 3: Rational People Think at the Margin

Principle 9: Prices Rise When the Government Prints Too Much Money

Only the tuition and required textbook costs.

The tuition plus the full value of the wages she would have earned at her job.

Only the wages she would have earned, since tuition is refundable.

Nothing, because education always pays for itself in the long run.

No, because the price is below the average cost of producing the cup.

No, because selling below the normal price devalues the brand.

Yes, because the marginal revenue ($0.50) exceeds the marginal cost (essentially zero).

Yes, but only if the price covers the average cost of all 50 cups.

Because water is produced more cheaply than diamonds.

Because water is essential for survival, but diamonds are not.

Because water is plentiful and diamonds are rare, so each additional diamond is more highly valued than each additional unit of water.

Because the government sets the price of water lower than the price of diamonds.

More people will switch to public transportation permanently.

Some car owners may become less careful about locking their cars, increasing theft attempts.

The price of anti-theft devices will fall due to economies of scale.

Insurance companies will refuse to insure cars without the device.

Countries should limit imports to protect domestic jobs.

When nations specialize in what they do best and trade, both nations can enjoy a greater variety of goods and services.

International trade is beneficial only if one country has an absolute advantage in all goods.

Trade benefits the country with the larger economy and hurts the smaller one.

It refers to the central government's role in setting prices to ensure fairness.

It refers to the way self-interested behavior, guided by prices, can lead to outcomes that benefit society as a whole.

It describes a secret conspiracy among business owners to fix prices.

It refers to the hidden taxes that government places on market transactions.

To enforce property rights so markets can function.

To correct market failures caused by externalities such as pollution.

To ensure that the most productive firms dominate every market.

To promote a more equal distribution of income.

a firm earns above-normal profits in a competitive market.

the actions of one person or firm affect the well-being of a bystander who is not part of the decision.

the government imposes a tax that raises the price of a good.

consumers choose to buy less of a good when its price rises.

Rising labor union membership and higher minimum wages.

The expansion of the U.S. money supply by the Federal Reserve.

Increases in the productivity of U.S. workers, allowing them to produce more goods and services per hour.

Restrictions on international trade that protected American industries.

A significant and sustained rise in the overall level of prices (inflation).

A long-lasting decrease in the unemployment rate.

An increase in worker productivity across the economy.

A reduction in the trade deficit.

higher inflation and higher unemployment.

lower inflation and lower unemployment.

higher inflation and lower unemployment in the short run.

no change in either inflation or unemployment.

Opportunity cost

Marginal analysis

Incentive theory

Comparative advantage

the benefits produced by the economy are distributed equally among its members.

society is getting the maximum benefits it can from its scarce resources.

firms in the market are earning economic profits.

the government is not interfering with the market.

using incentives to internalize an externality.

central planning of the economy.

eliminating the role of the invisible hand.

a redistribution policy aimed only at equality.

Seat belts malfunction more often than people realize.

Drivers feel safer and therefore drive less carefully, offsetting some safety gains.

Pedestrians begin to jaywalk more often.

More people buy cars once seat belts are required.

natural resources and climate.

the size of the country's population.

productivity, or the amount of goods and services produced per unit of labor input.

the total amount of money in circulation.

An economy in which the government decides what is produced and consumed.

An economy that allocates resources through the decentralized decisions of households and firms interacting in markets.

An economy in which only large corporations are allowed to produce goods.

An economy where prices are set by the central bank.

Because centrally planned economies produced too many consumer goods and not enough capital goods.

Because central planners lacked the information about consumer tastes and producer costs that is normally conveyed by market prices.

Because workers in centrally planned economies refused to do any work at all.

Because central planning required too much use of technology.