Ten Principles of Economics 181
43.
Variations in the standard of living across countries are due almost entirely to differences in each
nation’s total output of goods and services.
a.
True
b.
False
44.
In the short-run, society faces a tradeoff between inflation and unemployment.
a.
True
b.
False
45.
In the long run the primary effect of increasing the quantity of money is higher prices.
a.
True
b.
False
46.
The business cycle refers to fluctuations in economic activity such as employment and production.
a.
True
b.
False
47.
The broken window fallacy states that when a window breaks and someone spends money to
repair it, they have
created new economic activity that would not have otherwise taken place.
a.
True
b.
False
48.
How does the study of economics depend upon the phenomenon of scarcity?
49.
One tradeoff society faces is between efficiency and equality. Define each term. If the U.S.
government
redistributes income from the rich to the poor, explain how this action affects equality
as well as efficiency in the
economy.
50.
Define opportunity cost. What is the opportunity cost to you of attending college? What was your
opportunity cost of
coming to class today?
51.
With the understanding that people respond to incentives, outline the possible outcome for
teachers if the K-12
school year is extended to 11 months per year instead of the existing 9
months per year.
52.
Under what conditions might government intervention in a market economy improve the
economy’s performance?
53.
Explain how an attempt by the government to lower inflation could cause unemployment to
increase in the short-run.
186 Ten Principles of Economics
Problems
1.
Economics is the study of ______.
2.
The term refers to the size of the economic pie, and the term refers to how the
pie is divided.
3.
Explain how government policies that redistribute income from the rich to the poor might reduce
efficiency.
Ten Principles of Economics 187
Scenario 1-1
You have the afternoon free. You have a choice between going to the movies with a friend or
studying economics
for three hours. If you go to the movies, you will spend $8.00 on a ticket and
$4.50 on popcorn. If you choose to
study economics for three hours, you will raise your exam
grade by 10 points.
4.
Refer to Scenario 1-1. What is your opportunity cost of going to the movies?
5.
Refer to Scenario 1-1. What is your opportunity cost of studying economics?
6.
Refer to Scenario 1-2. What is your opportunity cost of going to the movies?
7.
Refer to Scenario 1-2. What is your opportunity cost of working?
8.
Debbie quits her job, which pays $30,000 a year, to finish her college degree. Her annual college
expenses are $10,000 for tuition, $2,000 for books, and $700 for food. What is her opportunity
cost of attending college for the year?
9.
Zack quits his job at a consulting firm, which pays $40,000 a year, to enroll in a two-year
graduate program. His
annual school expenses are $30,000 for tuition, $2,000 for books, and $600
for food. What is his opportunity cost of
attending the two-year graduate program?
Ten Principles of Economics 189
10.
Give an example of a trade-off faced by society.
11.
Refer to Scenario 1-3. What is the company’s average cost?
12.
Refer to Scenario 1-3. What is the company’s marginal cost?
13.
Refer to Scenario 1-3. A customer is willing to pay $60 for the 701th calculator. Should the
company produce and
sell it? Explain.
14.
Refer to Scenario 1-3. What is the minimum price the company will charge for the 701th
calculator?
15.
Refer to Scenario 1-4. What is your opportunity cost of going to the movies?
Ten Principles of Economics 191
16.
Refer to Scenario 1-4. What is your opportunity cost of studying economics?
17.
What is another word for “marginal”?
18.
The term refers to a small incremental adjustment to an existing plan of action.