32. Which of the following statements does NOT apply to a market economy? a. Fir

Question

32. Which of the following statements does NOT apply to a market economy? a. Firms decide whom to hire and what to produce b. Households decide which firms to work for and what to buy with their incomes. c. Prices act as a "visible hand" to direct economic activities in allocating scarce resources. d. Prices act as an "invisible hand"' to direct economic activities in allocating scarce resources.. 33. In economics, the cost of something is what you give up to get it. For instance, the adage, is used to illustrate the principle that people face tradeoffs and associated with opportunity costs. As you hav college is not a free lunch, what is the opportunity cost of going to college? a. the cost that the parents pay for their children to attend the college. b. the value of the best opportunity that a student gives up to attend college such as working. c. the total spent on food, clothing, books, transportation, tuition, lodging, and other exp d. zero, since a college education will allow a student to earn a larger income after graduation. There is no such thing as a 34. In the simple circular-flow diagram, the participants in the economy are households and firms. In the circular-flow diagran which of the following items flows from firms to households through the markets of factors of production? a. factors of production such as land, labor, or capital b. dollars paid to land, labor, and capital. d. goods and services. c. dollars spent on goods and services. 35. The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in conducting a control experiment in an economic system is not easy to conduct. Thus, to refute their theories, economists often data from historical episodes of economic change. Which of these statements about economic models a. For economists, economic models provide insights about the world. b. Economic models are built without assumptions c. Economic models are often composed of equations and diagrams. d. All of the above are correct. When an economist evaluates a positive statement, he or she is primarily examining evidence. Thus, which of the followir 36. example of a positive, as opposed to normative, statement? a. When the quantity of money grows rapidly, inflation is a predictable c e tax rates should not have been cut as they were a few years ago. b. Incom c. The quantity of money has grown too slowly in recent years. d. All of the above are positive statements ppose the United States has a comparative advantage over Mexico in producing cars. The principle of comparative ad 37. Su asserts that a. b. the United States should produce a moderate quantity of cars and import the remainder of what it requires from Mexico. the United States should refrain altogether from producing cars and import all of what it requires from Mexico. United States should produce more cars than what it requires and export some of it to Mexico d. Mexico has nothing to gain from importing United States cars.

Explanation / Answer

32.

Option C

Prices act as an invisible hand and not an visible hand to direct economic activities in allocating scarce resources.Price mechanism operates through demand and supply prices. At higher prices, consumers demand less so demand curve slopes downward showing inverse relationship between price and quantity demanded. However, suppliers are prompted to supply more if they can get higher prices so supply curve slopes upward due to the positive relationship between price and quantity supplied.

33.

Option B

Opportunity Cost is the cost of the sencond best choice given up when buying a product. For the student who went to college, the opportunity cost would be anything that the student gave up like working.

34.

Option A

A circular flow diagram represents how goods, services, and money move through our economy. There are two major actors known as households and firms. Firms offer goods and services for households to consume. They also offer incomes to the households.

35.

Option B

The economic models are built on a series of assumptions, including that individual actors have perfect information about their choices or that subjective human values can be measured quantitatively. Some models even assume away competition, substitute goods and marketing. Therefore, all economic models are built over assumptions.

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