True and False: Basic Economic
Decision
True/False
1. The
basic economic decision rule is to undertake an action only when the marginal
benefit of an action exceeds its marginal cost.
2. If
caviar prices doubled, while sales of caviar rose 20 percent, this example
would definitely refute the law of demand.
3. In
1998, Hurricane Mitch not only destroyed homes in Central America, but also
damaged around 40 percent of the bean crop. The damage of this crop is best
represented by a shift to the right in the supply curve.
4. If
the price of a good goes up by 5 percent and the quantity demanded falls by 15
percent, the price elasticity of demand is 1/3.
5. Jane
is maximizing utility when consuming two goods, coke and pizza. If the marginal
utility from the last piece of pizza Jane consumed is 100 and the marginal utility
of the last coke consumed is 75 and pizza cost $1.00 apiece, a coke must cost
75 cents.
6. The
law of diminishing marginal productivity states that as more and more of a
variable input is added to an existing fixed input, the additional output one
gets from that additional input is going to rise.
7. An
economically efficient method of production is a method that produces a given
level of output at the lowest possible cost.
8. The
supply of labor is generally considered to be upward sloping because the
opportunity cost of work will increase as wages increase.
9. All
real-world Lorenz curves are above the 45-degree line because income is always
distributed unequally in the real world.
10. Income
inequality decreased in the United States from 1929 to 1970 and increased
thereafter.
11. Private
property rights are not essential to market economies.
12. The
economic well being of the U.S. is mostly attributed to the use of markets and
the institutions supporting the development of such markets.
13. One
of the conditions for a perfect competitive market to exist is that there must
be a large number of firms producing identical products.
14. A
monopoly can exist when competitors other than the one currently producing
cannot enter the market.
15. Firms
facing a great deal of competitive pressure tend to be the least efficient.
16. The
Clayton Antitrust Act declared that tie-in contracts, in which buyers agreed to
deal exclusively with one seller and not to buy from competitors, were legal.
17. An
excise tax on alcohol causes the supply of alcohol to decrease and the price of
alcohol to increase.
18. Even
though the seller pays a tax, buyers and sellers usually share the full amount
of the tax.
19. When
government uses the judgment by structure criterion, a firm is considered a
monopoly if it controls a significant segment of the market.
20. The
Sherman Antitrust Act explicitly defined the conditions under which a firm
would be judged guilty of monopolistic behavior.
21. Economists
generally prefer incentive-based programs to explicit regulation because
incentive-based programs are more efficient.
22. According
to the principle of rational choice, a consumer should spend money on those
goods that give the most marginal utility.
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