Exam 1: Ten Principles of Economics

The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased. As a result of the city's announced plan, Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should

A marginal change is a small incremental adjustment to an existing plan of action.

The cost of an action is measured in terms of foregone opportunities.

Market failure occurs when no individual has the ability to substantially influence market prices.

Large or persistent inflation is almost always caused by

In the short run, which of the following rates of growth in the money supply is likely to lead to the highest level of unemployment in the economy?

A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?

Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

Inflation is defined as

Economists are particularly adept at understanding that people respond to

The short-run tradeoff between inflation and unemployment implies that, in the short run,

For most students, the largest single cost of a college education is

You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing

The English word that comes from the Greek word for "one who manages a household" is

In a centrally-planned economy, economic activity is guided by ______.

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?