Exam 1: What Is Economics

In 1980, in order to stimulate agricultural production, Fidel Castro allowed Cuban farmers to sell their goods directly to consumers and keep whatever profit they made.Some farmers were earning $50,000 per year, compared with the average worker income of $2,400.The workers resented this.Castro denounced the farmers as "capitalist gangsters" and closed the free markets.Cuban cash income declined five percent and fresh vegetables were in short supply.This illustrates the economic concept of the

Externalities affect only the buyer and seller involved in an exchange.

Throughout the 1980s, accounting departments in U.S.universities were unable to fill many available faculty positions.This fact suggests that the salaries offered by these departments

An externality is defined as

What is the appropriate degree of abstraction?

A line that rises at a 45 degree angle has a slope of

The principle of comparative advantage explains how

Economists are often required to make unrealistic assumptions concerning the problems they are investigating.

If Taiwanese workers can produce all goods at lower wages than American workers, then

The optimal degree of abstraction depends on the objective of the analysis.

In her calculation of the cost of going to college, an economist would include the amount of forgone earnings over the years spent at college.

There is no trade-off between efficiency and equality.

A horizontal line has a slope of

It has been found that people die at a much higher rate in hospitals than in most other environments, leading some to conclude that hospitals cause death.What is the problem with this reasoning?

​Explain the following statement: "Good decisions typically require marginal analysis, which weighs added costs against added benefits."

If movement along a graph causes the value on the vertical axis to rise by 5 units and the value on the horizontal axis to fall by 10 units, the slope of the function is

Graphs are useful because of the way they

Which of the following is an example of an externality?

Graphs are valuable because they facilitate interpretation of data.

In Egypt, in 1970, the Aswan Dam was completed.By preventing the annual flood of the Nile (thereby providing millions of acres of arable land) and by providing electricity, the dam was expected to raise the living standard of the Egyptian people-and it has.However, it has also led to a rise in the water table which causes Egypt's limestone structures, including the pyramids, to absorb more salt water and to suffer serious erosion from crystallized salts.Combined with air pollution and traffic vibration, this erosion is turning the pyramids to dust.Economists analyze this type of problem with the concept of