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Resources are
scarce for households and scarce for economies
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Economics deals primarily with the concept of
Scarcity
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Which of the following products would be considered scarce?
Golf clubs, Picasso paintings, apples
All of the above
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Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This
illustrates the basic concept that
people face trade-offs
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A tradeoff exists between a clean environment and a higher level of income in that
laws that reduce pollution raise costs of production and reduce incomes
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You have driven 1,000 miles on a vacation and then you notice that you are only 50 miles from an attraction you hadn’t known about, but would really like to see. In computing the opportunity cost of visiting this
attraction you had not planned to visit, you should include
1. neither the cost of driving the first 1,000 miles nor the cost of driving the next 50 miles.
2. the cost of driving the next 50 miles, but not the cost of driving the
first 1,000
2. the cost of driving the next 50 miles, but not the cost of driving the first 1,000
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Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $12,000. Stan should
1. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it. Lose $1,000 either way
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Suppose the state of Iowa passes a law that increases the price of cigarettes by $1 per pack. As a result, residents in Iowa start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
People respond to incentives
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Trade between the United States and India
benefits both the United States and India.
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The "invisible hand" directs economic activity through
Prices
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1. The invisible hand's ability to coordinate the
decisions of the firms and households in the economy can be hindered by
government actions that distort prices
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Which of the following statements does not apply to a market economy?
Government policies are the primary forces that guide the decisions of firms and households
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A friend of yours asks you why market prices are
better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect
both the value of a good to society and the cost of making it
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Acompany that formerly produced software went
out of business because too many potential customers bought illegally-produced copies of the software instead of buying the product directly from the company. This instance serves as an example of
inadequate enforcement of property rights
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Causes of market failure include
externalities and market power
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Which of these consumption activities will most likely impose an external cost?
A secretary smokes a cigarette in a crowded break room.
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In the United States, incomes historically have grown about 2 percent per year. At this rate, average income doubles every
35yrs
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Suppose that in Chile total annual output is worth $600 million and people work 70 million hours. In Argentina total annual output is worth $450 million and people work 40 million hours
1. in Argentina. Differences in productivity explain very little of the variation in the standard of living across countries.
2. in Argentina. Most variation in the standard of living across
countries is due to differences in productivity.
- in Argentina. Most variation in the standard of living across
- countries is due to differences in productivity.
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