Mic Tut 1

Which of the following is correct?

• The word economy comes from the Greek word for “rational thinker.”

• Economists study the management of scarce resources.

• Because economists believe that people pursue their best interests, they are not interested in how people interact.

• All of the above are correct.

When the government attempts to improve equality in an economy the result is often

• an increase in overall output in the economy.

• additional government revenue since overall income will increase.

• a reduction in equality.

• a reduction in efficiency.

Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8 an hour. Her opportunity cost of working is

• the $24 she earns working.

• the $24 minus the enjoyment she would have received from watching the video.

• the enjoyment she would have received had she watched the video.

• nothing, since she would have received less than $24 of enjoyment from the video.

A rational decision maker takes an action only if the

• marginal benefit is less than the marginal cost.

• marginal benefit is greater than the marginal cost.

• average benefit is greater than the average cost.

• marginal benefit is greater than both the average cost and the marginal cost.

A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering expanding her operation in order to make more tables. Should she expand?

• Yes, because making tables is profitable.

• No, because she may not be able to sell the additional tables.

• It depends on the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables.

• It depends on the average cost of producing more tables and the average revenue she will earn from selling more tables.

Which of the following statements exemplifies a principle of individual decision-making?

• Trade can make everyone better off.

• Governments can sometimes improve market outcomes.

• The cost of something is what you give up to get it.

• All of the above are correct.

Which of the following statements does not apply to a market economy?

• Firms decide whom to hire and what to produce.

• The “invisible hand” usually maximizes the well-being of society as a whole.

• Households decide which firms to work for and what to buy with their incomes.

• Government policies are the primary forces that guide the decisions of firms and households.

Economists, like mathematicians, physicists, and biologists,

• make use of the scientific method.

• try to address their subject with a scientist’s objectivity.

• devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.

• All of the above are correct.

Which of the following statements about the circular-flow diagram is correct?

• One must imagine that the economy operates without money in order to make sense of the diagram.

• The diagram leaves out details that are not essential for understanding the economic transactions that occur between households and firms.

• The government cannot be excluded as a decision maker in a circular-flow diagram.

• All of the above are correct.

When constructing a production possibilities frontier, which of the following assumptions is not made?

• The economy produces only two goods or two types of goods.

• Firms produce goods using factors of production.

• The technology available to firms is given.

• The quantities of the factors of production that are available are increasing over the relevant time period.