Principle No. 6: Markets Are Usually A Good Way To Organize Economic
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Questions and Answers

What is the most significant cost of going to college according to the text?

  • Opportunity cost (correct)
  • Room and board expenses
  • Transportation costs
  • Tuition fees

    • Which of the following is NOT mentioned as a problem with calculating the cost of going to college?

  • Including unrelated expenses
  • Ignoring time as a cost
  • Considering only direct costs
  • Ignoring the monetary costs (correct)

    • What does the opportunity cost of an item represent?

  • The price paid for the item
  • What you give up to acquire the item (correct)
  • The value of the item obtained
  • The financial investment required for the item

    • Principle No. 3 mentioned in the text refers to which concept?

    <p>Thinking at the margin</p> Signup and view all the answers

    When discussing decisions during exams, what are economists referring to when they mention 'marginal changes'?

    <p>Incremental adjustments to existing plans</p> Signup and view all the answers

    What is emphasized as a key aspect of decision-making in the context of exams, according to the text?

    <p>Optimizing the use of time</p> Signup and view all the answers

    What is one goal of studying economics mentioned in the text?

    <p>To determine when government policy is justifiable</p> Signup and view all the answers

    Which factor primarily explains the differences in living standards among countries?

    <p>Productivity levels</p> Signup and view all the answers

    According to Principle No. 8, what is a key determinant of a country's standard of living?

    <p>The ability to produce goods and services efficiently</p> Signup and view all the answers

    How does the text describe the relationship between productivity and living standards?

    <p>They are highly positively correlated</p> Signup and view all the answers

    What is the key consideration mentioned in the text when evaluating how a policy will affect living standards?

    <p>How it influences productivity</p> Signup and view all the answers

    Principle No. 9 suggests that prices rise when:

    <p>The government prints too much money</p> Signup and view all the answers

    What does the circular-flow diagram illustrate?

    <p>Economic transactions between households and businesses</p> Signup and view all the answers

    Why is a more complex circular-flow model suggested?

    <p>To better represent the interactions in the economy</p> Signup and view all the answers

    What does the production possibilities frontier graph show?

    <p>The possible combinations of output an economy can produce</p> Signup and view all the answers

    If an economy allocates all its resources to the sugar industry, what can it produce?

    <p>3000 sugar and no pizza</p> Signup and view all the answers

    How are the two endpoints of the production possibilities frontier defined?

    <p>By full resource allocation to a specific industry</p> Signup and view all the answers

    Why is the circular-flow diagram considered useful despite its simplicity?

    <p>It shows how different parts of the economy fit together</p> Signup and view all the answers

    What is the main benefit of trade for countries and families?

    <p>Allowing specialization and enjoyment of various goods and services</p> Signup and view all the answers

    In a market economy, who makes the decisions that were traditionally made by central planners?

    <p>Both firms and households</p> Signup and view all the answers

    What does the term 'invisible hand' refer to in economics?

    <p>Market forces that guide self-interested individuals to promote the social interest</p> Signup and view all the answers

    What do economists refer to as 'market failure'?

    <p>When a market fails to allocate resources efficiently</p> Signup and view all the answers

    Which statement best describes a market economy?

    <p>Decisions are made by millions of firms and households based on self-interest</p> Signup and view all the answers

    Why might a government intervene in the economy according to the text?

    <p>To promote efficiency and equity</p> Signup and view all the answers

    What does 'margin' mean in the context of the text?

    <p>Edge</p> Signup and view all the answers

    Why might one be tempted to conclude that the airline should never sell a ticket for less than $500?

    <p>Because the average cost per seat is $500.</p> Signup and view all the answers

    Why does the text suggest that the airline should sell a ticket to a standby passenger willing to pay $300 even though the average cost per seat is $500?

    <p>Because the marginal cost of adding one more passenger is low.</p> Signup and view all the answers

    What does 'Principle No. 4: People Respond To Incentives' suggest about how people make decisions?

    <p>They make decisions by comparing costs and benefits.</p> Signup and view all the answers

    In the context of the text, what happens when the price of apples rises?

    <p>People buy fewer apples.</p> Signup and view all the answers

    Why do people change their behavior according to 'Principle No. 4' in the text?

    <p>Because they respond to incentives by comparing costs and benefits.</p> Signup and view all the answers

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