UST- Macro Test #1 (ch. 1-4, 10 & 11) – Wu (Well-enlightened with correct answers)

Economics correct answers the study of how society manages its scarce resources 5 principles correct answers 1. People Face Trade-Offs 2. Opportunity Cost 3. People respond to incentives 4. Markets are usually a good way to organize economic activities 5. Governments can sometimes improve market outcomes 1. People Face Trade-Offs correct answers Individual Trade-Offs Society's Trade-Offs -efficiency and equality -ex: progressive income tax (equ. inc, effic. dec) 2. Opportunity Cost correct answers whatever must be given up to obtain some items -private vs. public schools 3. People respond to incentives correct answers If a policy changes incentives, it will cause people to alter their behavior -more weights on attendance, gas tax, lower interest rates 4. Markets are usually a good way to organize economic activities correct answers Market Economy: (more efficient) -millions of firms and households -guided by prices and self-interest Centrally Planned Economy: (more equal)(NK, china before 1970s) -government -adam smith (1776) - "invisible hand" 5. Governments can sometimes improve market outcomes correct answers -Provide public goods + protect property rights (schools, highways, patent laws) -Promote equality + efficiency 2 kinds of market failure correct answers Inefficient market outcomes 1. Externality 2. Market Power Externality correct answers the impact of 1 person's actions on the well-being of a bystander -Pollution (negative) -Education (positive)