ECO 1104 Study Guide - Final Guide: Marginal Utility, Opportunity Cost, Market Economy

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ECO 1104 Full Course Notes

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Economics: the study of how society manages its scarce resources. 10 principles of economics: first 4 about how people make decisions, next 3 about how people interact with each other and the last 3 about how the economy as a whole works. Tradeoff: what you give up for another thing. Ex: a clean environment and higher incomes. Environment laws reduce pollution but is also a higher cost on firms, thus reducing profit. Efficiency: getting the most out of scare resources. Better decisions are made by recognizing tradeoffs, and their available options. Principle #2: the cost of something is what you give up to get it. Opportunity cost: what must be given up to obtain an item. Principle #3: rational people think at the margin. Rational people: consumers who do the best they can to achieve their goals given the opportunities they have. Marginal changes: small adjustments to an already established plan of action.

Related Questions

1.The production possibilities frontier can be used to demonstrate which of the following?
(i) The best tradeoffs that individuals and societies should make
(ii) The tradeoffs forced on individuals and societies because of scarcity
(iii) The wealth maximizing output combination that an individual or society should choose

Select one:

a. (ii) only

b. (i), (ii) and (ii)

c. (i) only

d. (iii) only

2. Unlimited wants and limited resources:

Select one:

a. Can be overcome through innovation

b. Are not problems faced by wealthy industrialized nations

c. Necessitate choices about the goods to services to consume

d. Can be overcome by increasing wealth

3. What are the two sub-fields of economics?

Select one:

a. For-profit economics and not-for-profit economics

b. Private markets and the public sector

c. Microeconomics and macroeconomics

d. Market and non-market economics

4. What do economists mean by "self-interested behavior"?

Select one:

a. It means undertaking activities that benefit yourself and a small group of others who are important to you

b. It means undertaking activities motivated by greed

c. It means undertaking activities that maximize one's own welfare

d. It means wanting to pursue a life of leisure

5. When economists say that people act rationally, they mean that:

Select one:

a. People do not make incorrect choices

b. People are governed by what others think about them and act accordingly

c. People consider the significant consequences of their actions and make decisions that further their self-interests

d. There are certain common codes of conduct that everyone adheres to

6. Which of the following actions reflect self-interested behavior?
(i) Warren Buffett, one of the world's wealthiest individuals, donated more than $30 billion to humanitarian causes such as AIDS and tuberculosis initiatives.
(ii) Pfizer Inc., a private pharmaceutical company, sponsored a disease-management program for Florida's Medicaid patients with chronic illnesses such as asthma, diabetes and heart disease.
(iii) You agree to babysit your 8-year-old brother instead of going to a kick-boxing class.
(iv) You agree to babysit your 8-year-old brother instead of going to a kick-boxing class only if your mother pays you $8 an hour.

Select one:

a. All of the above actions except (iii)

b. All of the above actions

c. (ii) and (iii) only

d. (iv) only

7. Which of the following does not qualify as a market?

Select one:

a. Bloomingdales Department Store

b. The underground drug trade

c. Amazon.com

d. The French Immigration Department

8. Which of the following is not a key assumption of economics?

Select one:

a. People do not undertake activities that make others better off

b. People are self-interested

c. People have limited resources to acquire their wants

d. People are rational

9. Which of the following is not likely to cause the production possibility frontier to shift out?

Select one:

a. An increase in the quantity of innovations

b. An increase in specialization which allows people to develop higher levels of skill at their chosen profession

c. Developing markets where self-interested individuals can interact

d. Relying only on governments to allocate resources

10. Which of the following statements is false?

Select one:

a. Scarcity affects everyone, including very wealthy people

b. Rational people never make mistakes

c. Economists assume people are rational

d. Economists assume people have unlimited desires

11. Which of the following statements is false?

Select one:

a. When you volunteer to help at a soup kitchen, you face an opportunity cost of your time

b. Mother Teresa faced trade-offs when deciding to help lepers in India rather than some other needy group

c. Economics brings tradeoffs to light but does not inform us of which trade-offs society should make

d. When the government funds research into cancer, it is able to avoid trade-offs because public funds are used rather than private funds

12. Which of the following topics does economics study: (i) the study of human behavior; (ii) the market for organ transplants; (iii) cost and benefits of building a suicide barrier in the Golden Gate Bridge; (iv) the functioning of political institutions.

Select one:

a. (i) and (iii) only

b. (ii) and (iii) only

c. All of the topics listed

d. All of the topics except (iv)

13. Which the following would be likely to raise your opportunity cost of going to college full-time?
(i) You have been offered a full-time job as wardrobe assistant to Paris Hilton that pays $60,000 per year.
(ii) You have been offered a merit scholarship that pays for two years of tuition.
(iii) Your landlord increases the rent on the apartment you are currently living in and will continue to live in even if you choose to attend college full-time.
(iv) An increase in the value of your college trust fund set up by your grandfather.

Select one:

a. All of the above

b. (i) and (iii) only

c. All of the above except (ii)

d. (i) only

14. While microeconomics is concerned with the behavior of individuals and firms, macroeconomics:

Select one:

a. Does not make use of "micro" ideas such as opportunity cost or self-interest

b. Is concerned with the performance of entire economies

c. Is concerned with normative matters such as fairness, equality and ethics

d. Is only concerned with government activity

15. You own a Ford car that has lousy gas mileage. You finally trade it for a Hyundai, which is equal in virtually every aspect except that the Hyundai gets much better mileage. What is likely to happen to your gas consumption?

Select one:

a. I get better gas mileage and since the cost of driving has gone down, I will drive more so my gas consumption will remain the same

b. It will fall since I will now use less gas

c. I get better gas mileage and since the cost of driving has gone down, I will drive more so the effect on my gas consumption is indeterminate

d. It will go up since I will now drive more

azurewoodchuck319

21. The English word that comes from the Greek word for "one who manages a household" is

A- market
B- consumer
C- producer
D- economy

Question 22. 22. For a college student who wishes to calculate the true costs of going to college, the costs of room and board

A- should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B- should be counted only to the extent that they are more expensive at college than elsewhere.
C- usually exceed the opportunity cost of going to college.
D- plus the cost of tuition, equals the opportunity cost of going to college.

Question 23. 23. The phenomenon of scarcity stems from the fact that

A- most economies' production methods are not very good.
B- in most economies, wealthy people consume disproportionate quantities of goods and services.
C- governments restrict the production of too many goods and services.
D- resources are limited.

Question 24. 24. Central planning refers to

A- markets guiding economic activity. Today many countries that had this system have abandoned it.
B- markets guiding economic activity. Today many countries that did not have this system have implemented it.
C- government guiding economic activity. Today many countries that had this system have abandoned it.
D- government guiding economic activity. Today many countries that did not have this system have implemented it.

Question 25. 25. Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that

A- we should agree with Senator Brown.
B- we should agree with Senator Johnson.
C- a good decision requires that we recognize both viewpoints.
D- there are no tradeoffs between equity and efficiency.

Question 26. 26. Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information, it follows that

A- they should leave the price at $10.
B- it does not matter if they charge $10 or $15.
C- they would do better charging $15 than $10.
D- they should raise the price even more.

Question 27. 27. A circular flow diagram is a model that

A- helps to explain how participants in the economy interact with one another.
B- helps to explain how the economy is organized.
C- incorporates all aspects of the real economy.
D- Both (a) and (b) are correct.

Question 28. 28. In the markets for goods and services in the circular-flow diagram,

A- households provide firms with savings for investment.
B- households provide firms with labor, land, and capital.
C- firms provide households with output.
D- firms provide households with profit.

Question 29. 29. Incomes of U.S. households in the 1970s and 1980s

A- grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades.
B- grew rapidly, due to several increases in the minimum wage during those decades.
C- grew rapidly, due to government policies that discouraged the importation of foreign products during those decades.
D- grew slowly, due to the slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

Question 30. 30. For economists, statements about the world are of two types:

A- assumptions and theories.
B- true statements and false statements.
C- specific statements and general statements.
D- positive statements and normative statements.

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ECO 1104 Study Guide - Final Guide: Marginal Utility, Opportunity Cost, Market Economy

ECO 1104 Full Course Notes

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