The word "economy" comes from the Greek word oikonomos, which means
"one who manages a household"
The overriding reason why societies and individuals face decisions is that
resources are scarce
Economics deals primarily with the concept of:
scarcity
Scarcity exists when
there is less of a good or resource available than people wish to have
In most societies, resources are allocated by
the combined actions of millions of households and firms
Economists use the word equality to describe a situation in which
each member of society has the same income
The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
people face tradeoffs
Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
is more equal but less efficient for society
When the government implements welfare programs, which of the following is likely to occur?
equity is increased and efficiency is decreased
The opportunity cost of an item is
what you give up to get that item
Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your graduate program cost?
the $45,000 salary that you will be able to earn after having completed the program
A marginal change is a
small, incremental change
A construction company has built 50 houses so far this year at a total cost to the company of $8 million. If the company builds a 51st house, its total cost will increase to $8.18 million. Which of the following statements is correct?
all of the above
According to Adam Smith, the success of decentralized market economies is primarily due to
Individuals' pursuit of self-interest
The fact that different countries experience different standards of living is largely explained by differences in those countries’
productivity levels
To raise productivity, policymakers could
all of the above
To improve living standards, policymakers should
formulate policies designed to increase productivity
The short-run tradeoff between inflation and unemployment implies that, in the short-run
a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate
Large or persistent inflation is almost always caused by
government printing too much money
Both the production of goods and services and the unemployment rate are used to measure
the business cycle
The business cycle is the
irregular fluctuations in economic activity
Economists make assumptions
to make the world easier to understand
Economists, like mathematicians, physicists and biologists
all of the above
The circular-flow diagram is a
visual model of how the economy is organized
The two loops in the circular-flow diagram represent the flow of
inputs and outputs and the flow of dollars
The production possibilities frontier is a
graph that shows the various combinations of output the economy can possibly produce given the available resources and technology
A production possibilities frontier shifts outward when
the economy experiences economic growth
Given the table shown below, if the production possibilities frontier is bowed outward, then "?" could be
310 (If the question said "straight line", then answer would be 320 )
If a nation has an absolute advantage in the production of a good,
it can produce that good using fewer resources then its trading partner
Which goods will a nation typically import?
those goods in which the nation has a comparative advantage
Canada and the U.S. both produce wheat and computer software. Canada is said to have comparative advantage in producing wheat if
the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.
Please use the data provided below to answer this and the following question:
Which of the statements is true?
Australia has an absolute advantage in the production of both food and electronics
Korea should
specialize in electronics production, export electronics, and import food
In a competitive market, the price of the product
none of the above
A market is a
group of demanders and suppliers of a particular good or service
The law of supply clearly states that
an increase in price of the product leads to an increase in quantity supplied, other things equal
Suppose rose are currently selling for $40 per dozen, but the equilibrium prose of roses is $30 per dozen. We would expact
surplus to exist and the market price of roses to decrease
Suppose roses are currently selling for $40.00 per dozen. The equilibrium price of roses is $30.00 per dozen. We would expect a
surplus to exist and the market price of roses to decrease
What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
price will fall and the effect on quantity is ambiguous
Which of the following is the correct definition of GDP?
none of the above are correct
Which of the following is not included in GDP?
market value of vegetables grown in your garden
If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as_____ hamburgers
15
The value of housing service provided by the economy’s stock of houses is
counted and is based on an estimate of its rental value
Over the last few decades Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself,
increased measured GDP
Which of the following transactions added to U.S. GDP in 2010?
your friend bought a new house which, according to reliable estimates, could be rented for $1,500 a month
An Italian company operates a pasta restaurant in San Francisco. The value of the output produced by this pasta restaurant is included in:
U.S. GDP only
Which is the largest component of GDP?
consumption
Which of the following examples of household spending is categorized as investment rather than consumption?
expenditures on new housing
Real GDP
evaluates current production at the prices that prevailed in some specific year in the past
When economists talk about growth in the economy, they measure that growth with the
percentage change in real GDP
Suppose GDP consists of wheat and rice. In 2002, 20 bushels of wheat are sold at $4 per bushel, and 10 bushels of rice are sold at $2 per bushel. If the price of wheat was $2 per bushel and the price of rice was $1 per bushel in 2001, the base year, nominal 2002 GDP is
$100, real 2002 GDP is $50, and the GDP deflator is 200
If a country reported a nominal GDP of 85 billion in 2002 and 100 billion in 2001 and reported a GDP deflator of 100 in 2002 and of 105 in 2001, then from 2001 to 2002 real output
and prices both fell
The term "inflation" is used to describe a situation in which
the overall level of prices in the economy is increasing
The CPI is a measure of the overall cost of
goods and services bought by a typical consumer
Please use the data provided below to answer this and the following question:
Suppose that the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans and that the base year is 2000. What is the consumer price index for 2001?
120
What was the inflation rate in 2001?
20 percent
According to economic studies CPI
overstates inflation
The largest component in the basket of goods and services used to compute the CPI is
housing
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