Ten Principles of Economics - Hard Difficulty Exam

$12,000, because tuition is the only direct monetary expense she incurs.

$25,000, because this represents the value of her time—the largest cost for most students.

$37,000, the sum of tuition plus foregone earnings.

$0, because living expenses and tuition are paid regardless of her choice.

The $300 price exceeds the average cost of $500, ensuring contribution to fixed costs.

The marginal cost of carrying one additional passenger is far less than $300, while the seat would otherwise fly empty.

Standby passengers are legally required to be accommodated, regardless of price.

The airline's fixed costs are reduced whenever an additional passenger boards.

Principle 1: People face trade-offs.

Principle 2: The cost of something is what you give up to get it.

Principle 3: Rational people think at the margin.

Principle 4: People respond to incentives.

The total usefulness of the good to society.

The marginal benefit of an additional unit, given how many units are already consumed.

The average production cost of the good.

The government's assessment of essential versus luxury goods.

Individuals pursuing their own interest are often led to promote the interests of society more effectively than if they intended to do so.

Self-interested behavior inevitably leads to exploitation of consumers by producers.

Government planners are better positioned than individuals to coordinate economic activity.

Benevolence, rather than self-interest, is the primary driver of market exchange.

Eliminates the need for any government regulation of ride services.

Incentivizes more drivers to supply rides precisely when they are most needed and allocates them to consumers who value them most.

Guarantees that every driver earns the same income regardless of demand conditions.

Replaces prices with government-imposed quantity quotas.

Producing more guns always reduces the country's economic growth.

The more resources devoted to national defense, the fewer resources available to produce consumer goods, given fixed resources.

Guns and butter are perfect substitutes in production, so any combination is possible.

The trade-off exists only in wartime economies.

Scarcity and choice.

Inflation and unemployment.

Efficiency and equality.

Marginal benefit and marginal cost.

An opportunity cost borne by the factory.

A market power problem that justifies price controls.

An externality that is a possible source of market failure.

An example of efficient resource allocation through the invisible hand.

Differences in natural resource endowments are the primary determinant of national wealth.

Differences in worker productivity—the quantity of goods and services produced per hour of labor—account for almost all variation in living standards.

Variations in the size of the money supply are the principal cause of differences in average income.

The strength of labor unions and minimum-wage laws is the most important factor.

A market economy guided by the invisible hand.

A centrally planned economy whose failure the chapter attributes largely to the absence of market-generated price information.

An economy in which property rights are strongly protected.

An example of a market failure caused by externalities.

Both inflation and unemployment will fall in the short run.

Inflation will fall but unemployment will rise in the short run.

Inflation will rise and unemployment will fall in the short run.

There is no relationship between monetary policy and these variables in the short run.

Powerful labor unions pushing up wages.

Government regulations raising production costs.

Rapid growth in the quantity of money, which reduces the value of each unit of currency.

An increase in productivity that flooded markets with cheap goods.

Market failure caused by externalities in sports markets.

The invisible hand rewarding players based on others' willingness to pay for their services.

Government subsidies that favor basketball over chess.

A central planning decision to set unequal wages in professional sports.

Marginal analysis in agricultural production decisions.

Government enforcement of property rights as a precondition for markets to function.

The short-run trade-off between inflation and unemployment.

The marginal cost of an additional bushel of wheat.

The owner has market power and may restrict output to charge a higher price.

Drinking water generates positive externalities that the market under-produces.

Residents are irrational and would not pay for water if prices were set by the market.

The invisible hand always corrects monopoly pricing in the long run.

Each country benefits because it can export more than it imports, generating a trade surplus.

Trade allows each country to specialize in what it does best and to enjoy a greater variety of goods and services.

Trade benefits countries only when they have no comparative advantage in producing any good.

Trade benefits the larger trading partner at the expense of the smaller one.

The average cost of producing shoes worldwide.

The opportunity cost of producing one more pair of shoes.

The marginal benefit of an additional pair of shoes compared to the marginal cost.

The short-run trade-off between inflation and unemployment.

Strengthen the invisible hand by ensuring housing affordability for all residents.

Distort the information conveyed by prices and lead to shortages or misallocation of housing.

Have no effect because the invisible hand automatically overrides price controls.

Increase equality without any efficiency cost because landlords absorb the loss.

Policymakers can fully eliminate business cycle fluctuations by appropriately adjusting spending, taxes, and the money supply.

In the short run, policymakers face a trade-off between inflation and unemployment, and how to exploit this trade-off is a subject of continuing debate.

Business cycles are caused by fluctuations in productivity and are unaffected by any policy.

Only changes in the money supply matter; fiscal policy is irrelevant.