Unit I and II Quizzes Flashcards
Because economics is “value free,” economists generally believe that people should be allowed to do whatever they please. T/F
False
Which good is not scarce for some people in some places in the world, but can become scarce under certain circumstances?
a. air b. water c. marijuana d. sugar
a. air
Opportunity cost is defined as “what you give up when you choose a particular course of action.” T/F
True
When economists say people are rational, we mean they always carefully calculate the consequences of their actions and almost never make mistakes or errors. T/F
False
To be effective, incentives must be compatible with ________________.
a. scarcity b. methodology c. theory d. self-interest
a. scarcity
Self interest + rationality means that people can be relied upon to respond to incentives in predictable ways. T/F
True
If a product’s money price is $0, there is still an opportunity cost associated with taking the product. T/F
True
Prices are “_______________ wrapped in _____________”
information, incentives
“Spontaneous order” means that someone has to actively manage a system in a top-down fashion in order for it to function well. T/F
False
Innovation refers to:
a. developing new products b. developing new technologies c. developing new production methods d. all of the above
d. all of the above
Dr. Watts loves Milk Stout beer and hates olives. This is a demonstration of which economic concept?
a. wants are unlimited b. means are scarce c. preferences are subjective d. more is preferred to less
c. preferences are subjective
In economics, “marginal” is best thought of as meaning:
a. extra or additional b. total c. minimal d. partial
a. extra or additional
Consumer surplus consists of the area between:
a. price and quantity b. demand and price c. supply and demand d. price and the x axis
b. demand and price
What happens to the demand for orange juice when the price of orange juice goes down?
demand does not change
In Europe, gas is expensive and people generally own fewer cars than they do in the United States. This is due to the fact that gas and cars are ________________.
complements
Many students reduce or cease consumption of Ramen when they graduate and land a high-paying job. For these students, Ramen represents a __________________ good.
inferior
What is equal at equilibrium?
quantity supplied and quantity demanded
When the price of a good increases, consumers cut back on low-value/low-importance uses of the good first, but will still use the good for high-value/high-importance uses. T/F
True
A shortage will not generally occur unless which of the following is true?
a. there are more buyers than sellers b. price is consistently above equilibrium c. price is consistently below equilibrium d. the market is not a live auction market
c. price is consistently below equilibrium
Consumers like low prices, and dislike price increases for the products they regularly consume. But what do consumers dislike even more than price increases?
a. shortages of a product b. surpluses of a product c. equilibrium d. rising marginal costs
a. shortages of a product
The sum of consumer and producer surplus is maximized when
the market is at equilibrium
In Excel, what do you use to “lock” a cell reference, so that the reference cell “stays put” when you fill a formula or function across other cells?
$
What the “factors of production” (inputs) listed in the lecture?
Land, labor, capital, technology, and entrepreneurship
What happens to the demand for chocolate when the price of chocolate increases?
nothing
Market equilibrium is described as “efficient” because only the highest ________________ uses of the good are undertaken, and only the lowest _______________ sources of supply are drawn upon.
value, cost
What metric is the best measure of a country’s standard of living?
real GDP per capita
How is real GDP per capita calculated?
real GDP divided by the population
A car engine produced by a supplier to Ford Motor Company is an example of
a. an inferior good. b. a final good. c. a common good. d. an intermediate good.
d. an intermediate good.
The sale of sugar will contribute to GDP when
a. the buyer is Krispy Kreme Doughnuts. b. the buyer is a mother who is baking cookies. c. the buyer is a Mexican food restaurant. d. the buyer is a grocery store chain.
b. the buyer is a mother who is baking cookies.
This summer you have a paid internship for Kia Motors (a Korean company) in Canada. For which nation, or nations, are you contributing to GDP? Assume you are a U.S. citizen.
Canada
What is the term for the value of a nation’s entire stock of assets?
national wealth
The difference between nominal and real GDP is that nominal GDP is valued in _______________ year prices and real GDP is valued in ________________ year prices.
current, base
The difference between nominal GDP and real GDP is nominal GDP
measures a country’s production of final goods and services at current prices, whereas real GDP measures a country’s production of all final goods and services at fixed historical prices.
A country experiences high GDP growth and low population growth will have a
high per capita GDP growth rate
Imported goods consumed in the U.S. are counted as part of the U.S. GDP. T/F
False
According to the “naive growth theory,” countries with high real GDP per-capita all have abundant domestic supplies and land, labor, and capital. T/F
True
The economically relevant factor shared in common by the “Angloshere” countries is their common law legal system. T/F
True
The picture of a busy Indian street scene reveals:
a. high levels of capital per worker b. low levels of capital per worker c. social customs that discourage use of new technologies d. a country crippled by limited access to natural resources
b. low levels of capital per worker
An economic system in which the government owns or controls all factors of production results in the absence of: (select all that apply)
a. markets b. prices c. trade in resources and capital goods.
all. Markets, prices, and trade in resources and capital goods.
Which economist predicted, in his 1920 book Socialism, that socialist economies would not function well due to the impossibility of ‘economic calculation?”
Ludwig von Mises
The northern European nation of Sweden was presented in the lectures as an example of a socialist economy in which the government owns most or all of the “means of production.” T/F
False
High levels of government corruption in a society (e.g. a high prevalence of bribery) act as a tax on entrepreneurship and investment. T/F
True
The United States ranks as one of the world’s most free and least corrupt economies. T/F
True
President George Washington is known for stepping down from office, even though it is widely assumed that he could have remained President for life. This action is exemplary of which institutional factor for the United States economy?
political stability
The economic differences between North and South Korea can be explained by non-institutional facts such as demographics, culture, and access to natural resources. T/F
False
In the Solow model, if the first unit of capital increases output by one unit, then the second unit of capital will cause total ouput to
a. increase, but by less than one unit. b. double. c. remain the same as with one unit of capital. d. increase exponentially.
a. increase, but by less than one unit.
In the Solow model production function, an increase in capital stock with all other variables held constant will __________ the country’s real GDP but at a(n) _________________ rate.
Fill in with increase/decrease and increasing/decreasing
increase, decreasing
Which of the following is NOT a governmental program that would encourage technological advancement?
a. requiring banks to offer no-money-down incentives for loans to buy homes. b. creation and enforcement of patent and copyright laws. c. providing loans to people to obtain higher education in the basic sciences. d. providing a tax credit for businesses that conduct research and development.
a. requiring banks to offer no-money-down incentives for loans to buy homes.
The production function expresses a relationship between
a. capital stock and risk. b. output and growth. c. inflation and growth. d. output and the factors of production.
d. output and the factors of production.
Governments can play a role in supporting the production of new ideas by
a. taxing industries that become too competitive. b. erecting protective trade barriers for the computer and telecommunication industries. c. directing the exchange of all scientific ideas. d. protecting intellectual property.
d. protecting intellectual property.
If investment is ___________ depreciation, the nation’s capital stock will grow.
greater than
An increase in depreciation will cause the capital stock to
a. decrease. b. grow at a slower pace. c. remain unchanged. d. become unprofitable.
a. decrease.
The economics of ideas (select all that apply)
a. refers to cutting edge growth. b. helps explain why countries like the United States have been growing for the past two centuries. c. explains why the simple Solow growth model incorrectly predicts no long-run economic growth.
All answers are correct. a. refers to cutting edge growth. b. helps explain shy countries like the United States have been growing for the past two centuries. c. explains why the simple Solow growth model incorrectly predicts no long-run economic growth.
Institutions that are important to the development of knowledge and new ideas include a well-functioning market system, property rights, and a good legal system. T/F
True
An increase in investment results in a higher level of steady-state output. T/F
True
In analyzing human behavior, economists are most interested in:
a. people’s stated intentions b. people’s unseen, inner desires c. people’s rational responses to changes in the incentive environment d. people’s various moral precepts
c. people’s rational responses to change in the incentive environment
Every exchange-based economy requires basic rules regarding human life and personal property. T/F
True
According to Thomas Sowell (the greatest living economist), “Scarce resources have______________”
alternative uses
Scarcity applies primarily to:
a. poor people b. rich people c. all people
c. all people
Fresh air can be, but is not necessarily, a non-scarce good. T/F
True
Scarcity implies tradeoffs: more of one thing implies less of something else. The technical term for this is:
opportunity costs
At a minimum, the self interest principle is morally neutral. It states that:
people care more about themselves than strangers.
Opportunity costs are only associated with products you have to pay for. T/F
False
“Spontaneous Order” refers to the idea that:
prices guide people’s decisions and coordinate their interactions
The price system helps people: (select all that apply)
a. compare opportunity costs b. decide what goods or services to produce c. manage their consumption options
all. Compare opportunity costs, decide what goods or services to produce and manage their consumption options
Because people face outlays (or receive payments), we say that prices act as:
a. incentives b. penalties c. rewards d. data points
a. incentives
“Pure economics: is equipped to make value judgements about people’s consumption choices. T/F
False
“Marginal” choices can be thought of as: (select all that apply)
a. “all or nothing” b. “a bit more or less” c. categorical preferences
b. “a bit more or less”
What happens to the demand for Tesla cards when the price of Teslas goes down?
demand does not change
What happens to the demand for jelly if the price of peanut butter goes down?
demand increases
Which acronym properly lists all the “determinants of demand?”
TIPE#
Tastes & preferences
Incomes
Prices of other goods (substitutes/complements)
Expectations
# of consumers
Hot dogs are an “inferior” good. What will happen to the demand for hot dogs in a recession, when consumer incomes decline?
go up
“People buy less when the price rises.” This is known as the:
law of demand
If price is consistently held below equilibrium, the market will most likely face a:
shortage
Equilibrium occurs when quantity demanded is equal to quantity supplied. T/F
True
The only factor that could NOT potentially shift the demand curve is:
a. consumer preferences b. producer costs c. consumers’ incomes d. prices of other (related) goods.
b. producer costs
The only factor that could NOT potentially shift the demand curve is:
a. the product’s price b. consumer population c. advertising d. expectations about future need for the product
a. the product’s price
What are the determinants of supply and the acronym?
TTEP#
Technology
Taxes
Expectations
Price of inputs
# of producers
If a shortage looms, businesses face incentives to increase product prices T/F
True
A reduction in gasoline prices would likely lead to a(n) _____________ in demand for SUVs.
increase
Government imposes new taxes on big, wealthy insurance companies. What will happen to the price of insurance?
prices rise
If resources are scarce, that means they have __________ uses.
one of the following: alternate, alternative, other, opportunity costs
Which financial statement allows entrepreneurs to compare revenues and costs and assess a business’ success?
the income statement
Which aspect of entrepreneurship does Watts emphasize as central to the market process?
“crunching the numbers”
Prices reveal the opportunity costs of various combinations of resources. T/F
True
What are the “three I’s” of prices?
information, incentives, innovation
In economics, we assume entrepreneurs are mainly motivated by the public interest. T/F
False
Competition among businesses promotes:
lower prices, product improvements and more efficient production methods
What value is a measure of output of new goods and services produced in a country, not adjusted for price changes?
nominal GDP
2x4 lumber purchased by a home builder will NOT count toward current GDP. T/F
True
Trim lumber exported from Canada for purchase by US consumers should count in which country’s/countries’ GDP?
Canada only
GDP measures the ___________ of new production; national wealth measures the _____________ of total productive assets.
flow, stock
Currently, US real GDP per capita is about
$65,000
According to lecture, over the course of US history America’s real GDP per capita doubles roughly every ________ years.
40
Which countries disprove “naive growth theory”?
Hong Kong, India
The most important common factor among rich, successful economies is their natural resource endowments. T/F
False
What are all the institutional factors noted in the lecture video?
property rights, rule of law, political stability, competitive markets
Corruption is like a “tax” because it allows dishonest officials to take people’s property and entrepreneurs’ profits. T/F
True
The United State is the largest (by population) country in the top 30 list of real GDP per capita. T/F
True
What are institutions?
Rules–or the elements of government that determine people’s incentives to work, invest, innovate, etc.
The main problem with Indian agriculture is a lack of money for investing in capital (such as tractors). T/F
False
Name the two most important inputs in the Solow Model:
capital and tecnology
The shape of the output (and investment) function reflects:
diminishing marginal product to capital
In the Solow Model, as capital is added, output (real GDP):
grows at a decreasing rate
Economic growth will stall because depreciation eventually catches up to investment. T/F
True
