LEC 1,2,3: Markets, Supply & Demand

Multiple Choice. Identify the choice that best completes the statement or answers the question. The overriding reason as to why households and societies face many decisions is that

• resources are scarce.

• goods and services are not scarce.

• incomes fluctuate with business cycles.

• people, by nature, tend to disagree.

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can

only buy one. This illustrates the basic concept that

• trade can make everyone better off.

• people face trade-offs.

• rational people think at the margin.

• people respond to incentives.

Multiple Choice. Identify the choice that best completes the statement or answers the question. Moira decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

• the value of the knowledge she would have received had she attended class.

• the $30 she could have earned if she had worked at her job for those two hours.

• the value of her nap less the value of attending class.

• nothing, since she would valued sleep more than attendance at class.

• Bill should only sell the remaining bread for $4 per loaf since that is the regular price.

• Bill should only sell the remaining bread for $1.50 per loaf or more since that is what the bread costs to make.

• Bill should be willing to sell the remaining bread for any price above $0 per loaf since he will have to throw it away if he does not sell it for something.

• Bill should just throw the bread away and change the price of his bread starting tomorrow to make sure he sells all of his bread each day.

Multiple Choice. Identify the choice that best completes the statement or answers the question. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

• cost of teaching increased.

• benefit of teaching increased.

• cost of teaching decreased.

• cost of a corporate job increased.

Multiple Choice. Identify the choice that best completes the statement or answers the question. In a market economy, economic activity is guided by

• the government.

• corporations.

• central planners.

• self-interest and prices.

Multiple Choice. Identify the choice that best completes the statement or answers the question. The term used to describe a situation in which markets do not allocate resources efficiently is

• economic meltdown.

• market failure.

• equilibrium.

• the effect of the invisible hand.

Multiple Choice. Identify the choice that best completes the statement or answers the question. What is the most important factor that explains differences in living standards across countries?

• the quantity of money

• the level of unemployment

• productivity

• equality

Multiple Choice. Identify the choice that best completes the statement or answers the question. Refer to Figure 2-1. Which arrow represents the flow of spending by households?

• A

• B

• C

• D

Multiple Choice. Identify the choice that best completes the statement or answers the question. Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital?

• A

• B

• C

• D