Exam 1: Ten Lessons From Economics

Which of the following is the most correct statement about the relationship between inflation and unemployment?

Russell learned in his economics class that income depends primarily on productivity. He took a summer job in construction, and worked very hard as a manual labourer for one month at $8 per hour. His hard work and reliability led the foreman to give Russell a new responsibility - operating a steel roller at $15 per hour. The new job required much less effort than the old job, and left Russell wondering why his income had increased when his effort had gone down. How can you explain this situation to Russell?

Most analysts believe that the failure of communism can be blamed on the failure of central planning to allocate resources efficiently. Why is it difficult for central planners to allocate resources efficiently?

To increase living standards, the most appropriate public policy measure is to:

Trade between Australia and New Zealand:

If stricter regulations are used to reduce pollution then:

For society, a good is not scarce if:

Inflation in an economy is primarily caused by profiteering by greedy firms.

Households face many of the same decisions that societies face. Explain why this is true.

A marginal change is a large and significant change to an existing plan of action.

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

In international trade, if one party gains, the other party loses.

Protecting domestic jobs from foreign competition is the best way to raise labour productivity.

If paper-pulp factories generate too much water pollution with their discharge, which kills local fish stocks then:

Lee accepts a contract to photograph a wedding on Saturday for $1000. She cancels plans to go to the zoo with her friends instead. Her opportunity cost of photographing the wedding is:

Market power refers to the:

In the old days of the Soviet Union, ideology dictated that the prices of consumer goods should decline over time. Hence, the Soviet planners consistently set the prices of goods like bread and meat much below the cost of the materials used to produce them. They did not, however, subsidise the prices of the goods and materials used by producers. Soviet fur breeders were supposed to purchase animal products at high prices to feed their mink and sable, and bread and meat at low prices to feed their families. If these producers responded to incentives, how do you think they adjusted their purchases of grain, animal products, bread and meat?

Stan buys a 1966 Mustang with the intention of repairing, restoring and selling it. He anticipates that it will cost him $10 000 to purchase, repair and restore the car, and that he can sell the finished car for $13 000. When he has spent a total of $10 000 on the project, he discovers that he needs to replace the engine. It will cost Stan $4000 to replace the engine. He can sell the car without the new engine for $9000. What should he do?

When markets allocate resources efficiently, the natural outcome of this is market failure.

In economics, the cost of something is: