Ecomonic Essay

Class student ID name Multiple Choice Identify the choice that best completes the statement or answers the question - Ecomonic Essay introduction. ____1. Which of the following is correct? a. |The word economy comes from the Greek word for “rational thinker. ”| b. |Economists study the management of scarce resources. | c. |Because economists believe that people pursue their best interests, they are not interested in how people interact. | d. |All of the above are correct. | ____2. Which of the following is correct concerning Trade-offs? a.

|Recognizing that trade-offs exist is the only thing people need to know to determine what decisions to make. | b. |Government policies generally do not involve a trade-off between equity and efficiency. | c. |Laws that require firms to reduce pollution involve trade-offs. | d. |None of the above are correct. | ____3. When computing the opportunity cost of attending a football game you should include a. |the price you pay for the ticket and the value of your time. | b. |the price you pay for the ticket, but not the value of your time. | c. |the value of your time, but not the price you pay for the ticket.

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| d. |neither the price of the ticket nor the value of your time. | ____4. You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should a. |compare the total cost of your education to the total benefits of your education. | b. |compare the total cost of your education to the benefits of staying one more semester. | c. |compare the cost of staying one more semester to the benefits of staying one more semester. | d. |compare the total benefits of your education to the cost of staying one more semester.

| ____5. Senator Smith argues that replacing the income tax with a national sales tax would increase the level of output. Senator Wells objects that this policy would benefit the rich at the expense of the poor. a. |Both Senators’ arguments are primarily about equity. | b. |Both Senators’ arguments are primarily about efficiency. | c. |Senator Smith’s argument is primarily about equity, while Senator Well’s argument is primarily about efficiency. | d. |Senator Smith’s argument is primarily about efficiency, while Senator Well’s argument is primarily about equity. | ____6.

Which of the following could reduce economic efficiency? a. |laws that encourage lawsuits. | b. |policies that redistribute income| c. |policies that impose significant restrictions on international trade| d. |All of the above are correct| ____7. Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? a. |only the one with a low level of output per person. | b. |only the one with a high level of output per person. | c. |both| d. |neither| ____8. Prices usually reflect

a. |only the value of a good to society. | b. |only the cost to society of making a good. | c. |both the value of a good to society and the cost to society of making the good. | d. |neither the value of a good to society nor the cost to society of making the good. | ____9. The invisible hand refers to a. |how central planners made economic decisions. | b. |how the decisions of households and firms lead to desirable market outcomes. | c. |the control that large firms have over the economy. | d. |government regulations without which the economy would be less efficient.

| ____10. For which of the following problems can well-designed public policy enhance economic efficiency? a. |both externalities and market power| b. |externalities, but not market power| c. |market power, but not externalities| d. |neither externalities nor market power| ____11. Public policies a. |may be able to improve either economic efficiency or equity. | b. |may be able to improve economic efficiency but cannot improve equity. | c. |may be able to improve equity but cannot improve economic efficiency. | d. |cannot improve either equity or economic efficiency.

| ____12. In country A total annual output is worth $400 million and people work 50 million hours. In country B total annual output is worth $300 million and people work 30 million hours. Productivity is higher a. |in country A. Most variation in the standard of living across countries is due to differences in productivity. | b. |in country A. Differences in productivity explain very little of the variation in the standard of living across countries. | c. |in country B. Most variation in the standard of living across countries is due to differences in productivity.

| d. |in country B. Differences in productivity explain very little of the variation in the standard of living across countries. | ____13. Which of the following would a permanent increase in the growth rate of the money supply change permanently? a. |inflation| b. |unemployment| c. |both inflation and unemployment| d. |neither inflation nor unemployment| ____14. In which of the following decades was there both high inflation and rapid money supply growth in the US? a. |the 1970’s and the 1990’s| b. |the 1970’s but not the 1990’s| c. |the 1990’s but not the 1970’s| d.

|neither the 1970’s nor the 1990’s| ____15. For a very long time Tropicland has had inflation of 12%. Suddenly its inflation rate drops to 4%. The drop in the inflation rate a. |could be due to slower money supply growth. We would expect unemployment to be higher. | b. |could be due to slower money supply growth. We would expect unemployment to be lower. | c. |could be due to higher money supply growth. We would expect unemployment to be higher. | d. |could be due to higher money supply growth. We would expect unemployment to be lower. | ch1 Answer Section MULTIPLE CHOICE 1.

ANS:BPTS:1DIF:1REF:1-1 NAT:AnalyticLOC:The study of economics, and definitions of economics TOP:EconomicsMSC:Definitional 2. ANS:CPTS:1DIF:1REF:1-1 NAT:AnalyticLOC:Scarcity, trade-offs, and opportunity cost TOP:Trade-offsMSC:Interpretive 3. ANS:APTS:1DIF:2REF:1-1 NAT:AnalyticLOC:Scarcity, trade-offs, and opportunity cost TOP:Opportunity costMSC:Applicative 4. ANS:CPTS:1DIF:1REF:1-1 NAT:AnalyticLOC:Marginal costs and benefitsTOP:Marginal cost MSC:Applicative 5. ANS:DPTS:1DIF:1REF:1-1 NAT:AnalyticLOC:Efficiency and equityTOP:Equity | Efficiency MSC:Interpretive 6. ANS:DPTS:1DIF:1REF:1-2

NAT:AnalyticLOC:Efficiency and equityTOP:Efficiency MSC:Applicative 7. ANS:CPTS:1DIF:1REF:1-2 NAT:AnalyticLOC:Gains from trade, specialization and trade TOP:TradeMSC:Interpretive 8. ANS:CPTS:1DIF:1REF:1-2 NAT:AnalyticLOC:Markets, market failure, and externalities TOP:MarketsMSC:Definitional 9. ANS:BPTS:1DIF:1REF:1-2 NAT:AnalyticLOC:Markets, market failure, and externalities TOP:Invisible handMSC:Definitional 10. ANS:APTS:1DIF:2REF:1-2 NAT:AnalyticLOC:Markets, market failure, and externalities TOP:Public policy | Market failuresMSC:Interpretive 11. ANS:APTS:1DIF:2REF:1-2

NAT:AnalyticLOC:Efficiency and equity TOP:Public policy | Efficiency | EquityMSC:Interpretive 12. ANS:CPTS:1DIF:2REF:1-3 NAT:AnalyticLOC:Productivity and growthTOP:Productivity | Standard of living MSC:Analytical 13. ANS:APTS:1DIF:2REF:1-3 NAT:AnalyticLOC:Unemployment and inflation TOP:The short-run trade-off between inflation and unemployment MSC:Applicative 14. ANS:BPTS:1DIF:2REF:1-3 NAT:AnalyticLOC:The role of moneyTOP:Inflation MSC:Definitional 15. ANS:APTS:1DIF:2REF:1-3 NAT:AnalyticLOC:Unemployment and inflation TOP:The short-run trade-off between inflation and unemployment MSC:Applicative

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