Chapters One Two and Three Test PDF

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Chapters One, Two and Three Test 1. In economics, transaction costs refer to the Time, effort, and other resources needed to search out and negotiate an exchange 2. When there is an excess supply of a product in a market Price must be above the equilibrium price 3. In a market economy, what is produced is ultimately determined by Consumers 4. Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives? People will buy less gas if the price of gas increases by $.20 per gallon 5. Which of the following most accurately states the economic significance of exchange? Exchange creates value by moving goods from parties who value them less to parties who value them more. 6. If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that Harry reaped $10,000 of consumer surplus from the transaction 7. When private ownership rights are well-defined and enforced, owners of capital assets Bear the opportunity cost of ignoring the wishes of others 8. Ms. Liebowitz has a choice of driving or flying from Morgantown, West Virginia to Washington, D.C. for a one-day business trip. If she travels by air, she will be able to work seven hours in D.C., while if she drives, she will only have time to work four hours once there. Her expected income from each hour of work in D.C. is $40. If Ms. Liebowitz is a rational decision maker, she will choose to fly if and only if the price differential (air cost minus driving cost) is less than 120 9. The opportunity cost of choosing an alternative Is the value of the highest valued alternative forgone as the result of the choice 10. Which of the following will not increase the demand for new tires? A decrease in the price of tires 11. Which of the following is true of the production possibilities curve? It assumes a fixed level of technology

12. As soon as I announced my get tough on crime policy, criminals got scared and the crime rate went down. Suppose that the lower crime rate was actually caused by freezing cold temperatures in January it was just too cold for anybody to be out robbing other people. Which fundamental economic mistake did the politician make? Believing that association is the same as causation 13. Which of the following is often referred to as the basic postulate of economics? Incentives matter individuals respond in predictable ways to changes in personal costs and benefits 14. If the Internet makes it easier for sellers to find buyers and makes it easier for buyers to learn about the products that are available for sale, we would expect that The gains from trade will increase 15. The resources now going into the War on Terrorism and into improved airport security would save more lives if they were invested in medical research. This statement most clearly reflects which of the following? There is no such thing as a free lunch the use of scarce resources always has an opportunity cost. 16. Positive economics Is the scientific study of what is among economic relationships? 17. According to the law of demand, if Product price increases, quantity demanded will decrease 18. Which of the following goods are most likely to be substitutes? Bananas and apples 19. According to the law of supply, as the price of a good increases Sellers will produce more of the good 20. The difference between microeconomics and macroeconomics is that Microeconomics deals with narrowly defined units, and macroeconomics focuses on highly aggregated markets 21. When economists say the supply of a product has increased, they mean the Supply curve has shifted to the right 22. The Invisible Hand Principle suggests that Market forces tend to channel the actions of self-interested individuals into activities that promote the general betterment of society 23. Economics is primarily the study of The choices people make as the result of scarcity

24. Cotton prices have doubled recently. Some of the reasons are a bad crop in China, a cut in exports from India, and floods in Pakistan. These situations will cause either the demand curve or the supply curve to move. Which curve will move and in which direction? The supply curve will shift to the left 25. Figure 3-14

In Figure 3-14, suppose D1 and S1 indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S1 to S2? A decrease in the price of wood, a resource used to produce kitchen cabinets 26. Other things constant, which of the following would most likely cause the supply of garden hoses to decrease? An increase in the price of plastic used to make garden hoses 27. What is the best test of an economic theory? Its ability to predict real-world events, patterns, and changes 28. Capital is a term economists use to refer to Man-made resources used to produce other goods and services 29. Other things constant, an increase in consumer income will Shift the demand curve for automobiles to the right 30. The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles Fewer red automobiles would be produced and sold 31. In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries? In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level

32. In economics, secondary effects refer to the Unintended consequences of a change that are not immediately identifiable but are felt only with time 33. Figure 3-16

In Figure 3-16, the market for margarine was initially in equilibrium at point e. Other things constant, an increase in the price of soybean oil, an important ingredient used to produce margarine, would likely move the equilibrium in this market toward point U 34. In the first few months after the September 11, 2001 terrorist attacks, many Americans were reluctant to fly on airplanes. Which of the following would you have expected to happen as a result? A decrease in the demand for air travel 35. A point outside the production possibilities curve represents a combination of goods that is Unattainable 36. A middleman Promotes trade by lowering the transaction costs of buyers and sellers 37. If an economy is operating at a point inside the production possibilities curve Its resources are not being used efficiently 38. Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says home protected by a security system. To an economist, Doris is Making a rational choice

39. Figure 3-12

In Figure 3-12, if D and S represent the demand and supply for gasoline, what is the equilibrium price and quantity? Price, $2; Quantity, 30 40. To an economist, scarcity means that The human desire for goods exceeds the amount freely available from nature...