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Rational people make decisions "at the margin" by comparing ______.

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marginal c...

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A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?


A) Yes, because cutting hair is profitable.
B) No, because he may not be able to sell more services.
C) It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
D) It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

E) B) and D)
F) None of the above

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The term used to describe a situation in which markets do not allocate resources efficiently is


A) economic meltdown.
B) market failure.
C) equilibrium.
D) the effect of the invisible hand.

E) A) and B)
F) A) and C)

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What do prices reflect in a market economy?

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The value of a good ...

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During the early 1920s in Germany, prices


A) doubled annually.
B) doubled monthly.
C) tripled monthly.
D) tripled annually.

E) A) and B)
F) A) and C)

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Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.


A) The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise.
B) The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.
C) Only half of the cost of the parking permit is part of the opportunity cost of attending college.
D) The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.

E) None of the above
F) C) and D)

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Suppose that in Germany total annual output is worth $600 million and people work 40 million hours. In France total annual output is worth $700 million and people work 50 million hours. In which country do people enjoy a higher standard of living?

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In Germany. Almost all variati...

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In the early 1920s,


A) Germany experienced a very high rate of inflation.
B) the quantity of German money was declining rapidly.
C) the value of German money remained almost constant.
D) All of the above are correct.

E) B) and D)
F) B) and C)

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A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?


A) Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.
B) Lower the price of the remaining bagels, but under no circumstances should the price fall below $1.00 per dozen.
C) Throw the bagels away and produce 8 fewer dozen bagels tomorrow.
D) Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day.

E) All of the above
F) None of the above

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Market failure occurs when no individual has the ability to substantially influence market prices.

A) True
B) False

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Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is


A) the value of the knowledge she would have received had she attended class.
B) the $24 she could have earned if she had worked at her job for those two hours.
C) the value of her nap minus the value of attending class.
D) nothing, since she valued sleep more than attendance at class.

E) None of the above
F) All of the above

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Adam Smith's insight was that prices adjust to guide individual buyers and sellers to reach outcomes where, in many cases,


A) opportunity cost is minimized for buyers.
B) scarcity is reduced for society.
C) well-being of society is maximized.
D) opportunity cost of production is maximized.

E) A) and C)
F) All of the above

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Scenario 1-3 It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. -Refer to Scenario 1-3. What is the company's marginal cost?

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Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of


A) a market failure caused by an externality.
B) a market failure caused by market power.
C) a market failure caused by equality.
D) There is no market failure in this case.

E) A) and C)
F) All of the above

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Tuition is the single-largest cost of attending college for most students.

A) True
B) False

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The ability of an individual to own and exercise control over scarce resources is called


A) market failure.
B) property rights.
C) externality.
D) market power.

E) None of the above
F) B) and D)

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Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because


A) the Federal Reserve is worried about inflation.
B) the Federal Reserve is worried about unemployment.
C) the Federal Reserve is hoping to reduce the demand for goods and services.
D) the Federal Reserve is worried that the economy is growing too quickly.

E) B) and D)
F) A) and C)

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To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

A) True
B) False

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The word "economy" comes from the Greek word oikonomos, which means


A) "environment."
B) "production."
C) "one who manages a household."
D) "one who makes decisions."

E) A) and D)
F) B) and D)

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If the United States decides to trade with Yemen, we know that


A) Yemen will benefit, but trade with a less developed country could not benefit the United States.
B) it will not benefit Yemen because workers in the United States are more productive.
C) Yemen and the United States can both benefit.
D) it will not benefit either country because their cultural differences are too vast.

E) B) and C)
F) All of the above

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