Chapter 1 Review Question Answers

1. Government policies designed to promote efficiency:

a. usually do so at the expense of equity.

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2.	All of the following can be considered a student's costs of going to college, EXCEPT: c. room and board (that costs her about the same as she was paying before entering college).

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3.

An airline's plane from Los Angeles to New York is about to take off, but it still has a few seats empty. If the average cost per seat is $500, what price should the airline charge passengers in standby to fill in those remaining seats? (Consider that quantitative decisions are made at the margin) c. Any price above zero that will entice standby passengers to take the flight.

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4.	The Federal government enacted regulation in the 1960s requiring people to wear seatbelts in their cars. All of the following resulted from this regulation, EXCEPT: c. fewer pedestrians were killed in car accidents.

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5.	When two persons trade goods: b. both persons usually gain from the exchange.

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6.	In a market economy, the decisions of what and how much to produce are made by: b. all producers and consumers.

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7.	Even though markets do a great job in organizing economic activity, governments are needed to do all of the following EXCEPT: d. decide what and how much should be produced.

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8.	Living standards in the United States have risen tremendously over the years, mainly due to: a. relentless increases in the productivity of labor over the years.

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9.	Rapid and persistent inflation occurs mainly due to: c. rapid increases in the quantity of money in the economy.

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10.	A government that implements a policy designed to reduce inflation can expect unemployment to: a. increase in the short-run.