Chapter 01: What is Economics?

Chapter 01: What is Economics?

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• Both parties gain in a voluntary exchange.
• True
• False

ANSWER: True

• It is not possible for both parties to gain in a voluntary trade.
• True
• False

ANSWER: False

• Even though international trade is undertaken voluntarily, a country that engages in trade may not benefit from it.
• True
• False

ANSWER: False

• In international trade, one country’s gain is another country’s loss.
• True
• False

ANSWER: False

• It is impossible for both nations to gain when trading with one other.
• True
• False

ANSWER: False

• In economics, the true cost of making a choice is the value of what must be given up.
• True
• False

ANSWER: True

• Opportunity cost is the value of the next best alternative to a given choice.
• True
• False

ANSWER: True

• Opportunity cost is the highest possible price you can receive when you sell an object.
• True
• False

ANSWER: False

• As a student, one of the costs of sleeping in rather than going to class is likely to be a lower grade in the class.
• True

(Economics Principles and Policy, 14e William Baumol, Alan Blinder) (Test Bank, For Complete File, Download link at the end of this File) 1 / 4

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Class:

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Chapter 01: What is Economics?

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• False

ANSWER: True

• If you go to the movies on Thursday night, the only cost to you is the price you pay for the movie ticket.
• True
• False

ANSWER: False

• In her calculation of the cost of going to college, an economist would include the amount of forgone earnings over the

years spent at college.

• True
• False

ANSWER: True

• When controls over market prices are enacted, the consequences are always clear.
• True
• False

ANSWER: False

• In the calculation of the cost of going to college, an economist would always include the cost of room and board.
• True
• False

ANSWER: False

• Government controls over market prices frequently “backfire.”
• True
• False

ANSWER: True

• Government controls over market prices are often enacted to benefit a specific group.
• True
• False

ANSWER: True

• There are never any adverse consequences of government attempts to modify the laws of supply and demand.
• True
• False

ANSWER: False

• Comparative advantage explains how two nations can benefit from trade.
• True
• False 2 / 4

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Chapter 01: What is Economics?

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ANSWER: True

• When nations trade based upon comparative advantage, only one side of the transaction will benefit.
• True
• False

ANSWER: False

• If Japan is twice as good at producing cameras and three times as good at producing TV sets as the United States,

Japan is said to have a comparative advantage in TV sets and the United States has a comparative advantage in cameras.

• True
• False

ANSWER: True

• The marginal cost of an airline ticket is the total cost of operating a flight divided by the number of passengers who

buy tickets.

• True
• False

ANSWER: False

• Airlines can use marginal analysis to set ticket prices, which can increase profits for the company.
• True
• False

ANSWER: True

• Marginal analysis involves looking at the extra costs involved in a decision.
• True
• False

ANSWER: True

• Market-based policies are effective methods that the government can use to address externality problems.
• True
• False

ANSWER: True

• Externalities are costs to society, which have an impact on parties not directly involved into a particular economic

transaction.

• True
• False

ANSWER: True

• Externalities affect only the buyer and seller involved in an exchange.
• True 3 / 4

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Chapter 01: What is Economics?

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• False

ANSWER: False

• Externalities are created when parties not involved in an economic transaction are affected by it.
• True
• False

ANSWER: True

• Externalities can only involve the imposition of harm on a party not directly involved in an economic transaction.
• True
• False

ANSWER: False

• The market price of a transaction always includes all of the costs and benefits associated with the transaction.
• True
• False

ANSWER: False

• All economic transactions involve only buyers and sellers; no third parties are involved.
• True
• False

ANSWER: False

• The market mechanism provides a financial incentive for firms to minimize the pollution they create.
• True
• False

ANSWER: False

• The relatively low rate of inflation coupled with a low unemployment rate that occurred in the 1990s represented a

“normal” economic situation.

• True
• False

ANSWER: False

• In both the 1970s and the 1990s, extreme economic events caused unemployment to move in the same direction as

inflation.

• True
• False

ANSWER: True

• The high unemployment of 2008–2010 caused a substantial decrease in inflation, which created fears of deflation.
• True
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