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Micro Exam 1 (Chapter 1)

The main incentive for business activity is
profit
Adam Smith coined the term “invisible hand” to mean
a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.
What best illustrates the concept of Adam Smith’s “invisible hand”?
A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
The opportunity cost of a choice is:
the value of the next best opportunity foregone.
In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student’s opportunity cost of chatting with friends is:
the value of studying economics.
Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:
$48,900.
What is thinking on the margin?
Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.
A grocery store is running a “buy-one-get-another-at-one-half-off” promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:
greater than $3
One benefit of trade is that it:
allows for increased specialization and mass-production techniques that lower per unit costs of production.
The better Martha Stewart is at running her business:
the higher her opportunity cost of ironing her own shirts.
The historical rise in living standards of American workers is primarily a result of:
the rise of american productivity.
What are the institutions that help foster the appropriate incentives for economic growth?
a dependable legal system, property rights, and competitive and open markets
Institutions that support economic growth are the ones that:
provide incentives for entrepreneurs to take risks and innovate.
Booms and busts refer to the:
fluctuations in economic activity over time.
What explains why economic booms and busts cannot be avoided?
The economy is always being struck by unavoidable shocks.
The Zimbabwean government printed money as fast as it could for years. As a result:
Zimbabwe experienced inflation at a rate of billions of percent per month.
A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:
needs to know the causes of inflation, for example, the government’s printing of too much money.
The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:
too much money or too little money might induce inflation or unemployment due to bad timing of decisions.
If the central bank creates too much money, _____ is the result. If the central bank doesn’t create enough money, an economic _____ is the result.
inflation; slowdown.
The average starting salary of economics majors is just behind that of:
chemical and nuclear engineering majors.
The _____ tax rate is the tax rate on additional income.
margin
The benefits of trade extend beyond simple exchange. For example, trade allows us to take advantage of _____, the reduction in costs that arise when goods are mass-produced.
economies of scale
_____ matters, and understanding economic growth is one of the most important tasks of economics.
wealth
What is NOT an example of non-monetary incentives?
interest
When self-interest aligns with the broader public interest, we get _____ outcomes.
good
The opportunity cost of attending college increases as _____ increase(s).
job opportunities for high school graduates
The marginal tax rate is the tax rate on ________ income.
more
When two people voluntarily trade with each other
they both benefit.
Why do some countries have more physical and human capital than others, and why is it organized well using the latest technological knowledge?
incentives.
Suppose Betty can produce two auto repairs or eight pies in a day. Don can produce one auto repair or five pies in a day. When Betty bakes one pie, she forgoes the opportunity to have performed _____ auto repairs.
(2/8) 0.25
Among the most powerful institutions for supporting good _____ are property rights, political stability, honest government, a dependable legal system, and competitive and open markets.
incentives
Most economists today believe that if the government, especially the U.S. Federal Reserve, had acted more quickly and more appropriately:
the Great Depression would have been shorter and less deep.
What does NOT happen if the central bank prints too much money?
The general level of prices falls
What is an example of self-interest NOT being aligned with social interest?
A firm does not have to pay for its pollution emissions.
What is TRUE about monetary and fiscal policy?
Monetary and fiscal policy can affect the length and severity of recessions.

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