EOC_Answers_Ch02 - Chapter 2: The Economic Way of Thinking...

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Chapter 2: The Economic Way of Thinking True or False 1. In economics, labor includes physical and mental effort, and land includes natural resources. T 2. Entrepreneurship is the process of combining labor, land, and capital together to produce goods and services. T 3. Even intangible goods can be subjected to economic analysis. T 4. Even the wealthy individual who decides to donate all of her money to charity faces the constraints of scarcity. T 5. Increases in production could enable us to eliminate scarcity. F 6. If we had unlimited resources, we would not have to choose among our desires. T 7. Scarcity implies that “there’s no such thing as a free lunch.” T 8. The actual result of changing behavior following the rule of rational choice will always make people better off. F 9. In terms of the rule of rational choice, zero levels of pollution, crime, and safety would be far too costly in terms of what we would have to give up to achieve them. T 10. Most choices in economics are all or nothing. F 11. Good economic thinking requires thinking about average amounts rather than marginal amounts. F 12. Positive incentives are those that either increase benefits or reduce costs, resulting in an increase in the level of the related activity or behavior; negative incentives either reduce benefits or increase costs, resulting in a decrease in the level of the related activity or behavior. T 13. The safety issue is generally not whether a product is safe, but rather how much safety consumers want. T 14. People can gain by specializing in the production of the good in which they have a comparative advantage. T 15. Without the ability to trade, people would not tend to specialize in those areas where they have a comparative advantage. T 16. Voluntary trade directly increases wealth by making both parties better off, and it is the prospect of wealth-increasing exchange that leads to productive specialization. T 17. Government price controls can short-circuit the market’s information transmission function. T 18. When the economy produces too little or too much of something, the government can potentially improve society’s well-being by intervening. T 19. Not only does the market determine what goods are going to be produced and in what quantities, but it also determines the distribution of output among members of society. T Multiple Choice 1. Which of the following is part of the economic way of thinking? a. When an option becomes less costly, individuals will become more likely to choose it. b. Costs are incurred whenever scarce resources are used to produce goods or services. c. The value of a good is determined by its cost of production. d. Both a and b are part of the economic way of thinking. 2.
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This note was uploaded on 03/30/2010 for the course ACCOUNTING BUS2241 taught by Professor Kickland during the Spring '09 term at Troy.

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EOC_Answers_Ch02 - Chapter 2: The Economic Way of Thinking...

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