Econ Test 1 T/F

T/F A marginal change is a small incremental adjustment to an existing plan of action.
True
T/F An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.
False- Depends on the marginal benefit; if the benefit exceeds cost, even after cost increase, people will still engage in the activity.
T/F The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
Fales- Is rational, based on the scarcity principle.
T/F A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit
False- Its the other way around.
T/F Trade allows each person to specialize in the activities he or she does best, thus increasing each individual’s productivity.
True
T/F Trade can make everyone better off except in the case where one person is better at doing everything.
False- No one is better at doing EVERYTHING
T/F The invisible hand ensures that economic prosperity is distributed equally.
False
T/F The government can potentially improve market outcomes if market inequalities or market faliure exists.
True
T/F One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarace resources.
True
T/F Productivity is defined as the quantity of goods and services produced from each unit of labor input.
True
T/F Inflation is the primary determinant of a country’s living standards.
False
T/F Inflation increases the value of money.
False- it decreases the value
T/F In the long run primary effect of increasing the quantity of money is higher prices.
True
T/F The business cycle refers to fluctuations in economic activity such as employment and production.
True
T/F Economists devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.
True
T/F While the scientific method is applicable to studying natural sciences, it is not applicable to studying a nation’s economy.
False
T/F Since economists cannot use natural experiments offered by history, they must use carefully constructed laboratory experiments instead.
False
T/F Good assumptions simplify a problem without substantially affecting the answer.
True
T/F Economists often find it worthwhile to make assumptions that do not necessarily describe the real world.
True
T/F Economic models can help us understand reality only when they include all details of the economy.
False
T/F An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world.
False
T/F In the circular-flow diagram, factors of production include land, labor, and capital.
True
T/F In the circular-flow diagram, firms own the factors of production and use them to produce goods and services.
False
T/F In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are sellers.
False
T/F The production possibilities frontier is a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology.
True
T/F The production possibilities frontier shows the opportunity cost of one good as measured in terms of the other good.
True
T/F When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other is constant.
False
T/F Economists believe that production possibilities frontiers rarely have a bowed shape.
False
T/F A production possibilities frontier will be bowed outward if some of the economy’s resources are better suited to producing one good than another.
True
T/F While the production possibilities frontier is a useful model, it cannot be used to illustrate economic growth.
False
T/F Economic growth causes a production possibilities frontier to shift outward.
True
T/F The effects of borrowing by the federal government would be studied by a micro economist rather than a macroeconomist.
False
T/F Microeconomics and macroeconomics are closely intertwined.
True
T/F Economists acting as scientists make positive statements, while economists acting as policy advisers make normative statements.
True
T/F Normative statements describe how the world is, while positive statements prescribe how the world should be.
False
T/F Positive statements are descriptive, while normative statements are prescriptive.
True
T/F There is only one explanation for why economists give conflicting advice on policy issues, and it is that they have different values about what policy should try to accomplish.
False
T/F Economists may disagree about the validity of alternative positive theories about how the world works.
True
T/F In economics, graphs serve two purposes: they offer a way to visually express ideas, and they provide a way of finding and interpreting patterns when analyzing economic data.
True
T/F Price elasticity of supply measures how much the quantity supplied responds to changes in the price.
True
T/F Scarcity means that there is less of a good or resource available than people with to have.
True
T/F Economics is the study of how evenly goods and services are distributed within society.
False- Economics focuses more on efficiency than equality.
T/F With careful planning, we can usually get something that we like without having to give up something else that we like.
False- We face trade offs normally, rarely do we get something for nothing.
T/F Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.
True
T/F Efficiency means everyone in the economy should receive an equal share of the goods and services produced.
False- Efficiency does not mean equality.
T/F Government policies that improve equality usually increase efficiency at the same time.
False- Usually decreases efficiency through trade-offs that must be made.

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