Question 1

What can hinder the invisible hand's ability to coordinate the decisions of the firms and households in the economy?

Accepted Answer

A)  government actions that distort prices 
B)  increased competition in the market 
C)  extended periods of unemployment 
D)  a dramatic reduction in consumer spending 
A)  government actions that distort prices 
B)  increased competition in the market 
C)  extended periods of unemployment 
D)  a dramatic reduction in consumer spending

Question 2

John buys a 1948 Ford F47, which he plans to restore and sell. He anticipates that the cost of the truck and the repairs will be $10,000 and that he can sell it for $15,000. After he has spent $10,000, he discovers he needs to replace the engine, which will cost $4000. He can sell the truck without the new engine for $11,000. What should John do?

Accepted Answer

A)  He should complete the repairs for $4000 and sell the truck for $15,000. 
B)  He should sell the truck now for $11,000. 
C)  He should keep the truck because selling it would be a loss. 
D)  He should be totally indifferent between finishing the project and selling the truck now. 
A)  He should complete the repairs for $4000 and sell the truck for $15,000. 
B)  He should sell the truck now for $11,000. 
C)  He should keep the truck because selling it would be a loss. 
D)  He should be totally indifferent between finishing the project and selling the truck now.

Question 3

Although the tenth principle of economics is controversial, what do most economists believe?

Accepted Answer

A)  Society faces a tradeoff between unemployment and inflation in the short run only. 
B)  Society faces a tradeoff between unemployment and inflation in the long run only. 
C)  No tradeoff exists between unemployment and inflation. 
D)  Society faces a continuous tradeoff between unemployment and inflation. 
A)  Society faces a tradeoff between unemployment and inflation in the short run only. 
B)  Society faces a tradeoff between unemployment and inflation in the long run only. 
C)  No tradeoff exists between unemployment and inflation. 
D)  Society faces a continuous tradeoff between unemployment and inflation.

Question 4

For society, when is a good NOT scarce?

Accepted Answer

A)  if at least one individual in society can obtain all he or she wants of the good 
B)  if firms are producing at full capacity 
C)  if all members of society can have all they want of the good 
D)  if those who have enough income can buy all they want of the good 
A)  if at least one individual in society can obtain all he or she wants of the good 
B)  if firms are producing at full capacity 
C)  if all members of society can have all they want of the good 
D)  if those who have enough income can buy all they want of the good

Question 5

What happened when the German government increased the quantity of money in the German economy in the 1920s?

Accepted Answer

A)  Germany experienced hyperinflation. 
B)  More people in Germany could afford luxury goods. 
C)  Unemployment increased. 
D)  Germany was able to repay all its foreign debts. 
A)  Germany experienced hyperinflation. 
B)  More people in Germany could afford luxury goods. 
C)  Unemployment increased. 
D)  Germany was able to repay all its foreign debts.

Question 6

Which concept best defines efficiency?

Accepted Answer

A)  absolute fairness 
B)  equal distribution 
C)  minimum waste 
D)  consumer satisfaction 
A)  absolute fairness 
B)  equal distribution 
C)  minimum waste 
D)  consumer satisfaction

Question 7

What are two very likely reasons for a government to intervene in a market?

Accepted Answer

A)  to promote stability and to raise revenues 
B)  to promote equity and to promote efficiency 
C)  to promote equity and to promote stability 
D)  to promote efficiency and to raise revenues 
A)  to promote stability and to raise revenues 
B)  to promote equity and to promote efficiency 
C)  to promote equity and to promote stability 
D)  to promote efficiency and to raise revenues

Question 8

In a market economy, what guides economic activity?

Accepted Answer

A)  the government 
B)  businesses 
C)  central planners 
D)  prices 
A)  the government 
B)  businesses 
C)  central planners 
D)  prices

Question 9

To increase living standards, what should public policy do?

Accepted Answer

A)  ensure that workers are well educated and have the necessary tools and technology 
B)  make unemployment benefits easier to obtain 
C)  move workers into jobs directly from high school 
D)  ensure that workers have access to union membership and benefits 
A)  ensure that workers are well educated and have the necessary tools and technology 
B)  make unemployment benefits easier to obtain 
C)  move workers into jobs directly from high school 
D)  ensure that workers have access to union membership and benefits

Question 10

What does economics study?

Accepted Answer

A)  finance 
B)  how society manages its scarce resources 
C)  central planning 
D)  government regulation 
A)  finance 
B)  how society manages its scarce resources 
C)  central planning 
D)  government regulation

Question 11

From which of the following is the word "economy" derived?

Accepted Answer

A)  one who consumes goods 
B)  one who manages a household 
C)  one who participates in a market 
D)  one who governs a country 
A)  one who consumes goods 
B)  one who manages a household 
C)  one who participates in a market 
D)  one who governs a country

Question 12

For your birthday, your friends have joined forces and offer you a choice among the following options (they will pay all expenses of your choice): A) A two-week trip to an exotic destination; B) A new, high-tech mountain bike, C) An annual pass to your preferred sports team games, and D) A dinner with your preferred celebrity. Suppose your subjective valuations of these options are as follows: A) $800, B) $700, C) $1500, and D) $1000. If you are a rational individual, you will obviously choose C, the annual pass, because it is the option of your highest valuation.
a) What is your opportunity cost of choosing option C? Explain.
b) Now, suppose your friends announce at the last minute a fifth option, E, a cheque of $1100. What is now your opportunity cost of choosing option C?
c) As you can see, the theory of opportunity cost implies that the cost of an action depends on other, seemingly unrelated facts. Why does this make sense?

Accepted Answer

a) The opportunity cost of an action is

Question 13

Under what conditions might government intervention in an economy improve the market outcome?

Accepted Answer

If there is a market failure, such as an

Question 14

A friend of yours asks you why market prices are better than government-determined prices. What do you say?

Accepted Answer

A)  Because they generally reflect the value of a good to society, but not the cost of making it. 
B)  Because they generally reflect the cost to society of making a good, but not its value. 
C)  Because they generally reflect both the value of a good to society and the cost of making it. 
D)  Because they generally reflect neither the value of a good to society nor the cost of making it. 
A)  Because they generally reflect the value of a good to society, but not the cost of making it. 
B)  Because they generally reflect the cost to society of making a good, but not its value. 
C)  Because they generally reflect both the value of a good to society and the cost of making it. 
D)  Because they generally reflect neither the value of a good to society nor the cost of making it.

Question 15

When people act in their self-interest, what typically happens in a market system, according to Adam Smith?

Accepted Answer

A)  They help only themselves. 
B)  They harm others. 
C)  They help others, but not as much as they would have if they were not self-interested. 
D)  They help others even more than when they seek to help others. 
A)  They help only themselves. 
B)  They harm others. 
C)  They help others, but not as much as they would have if they were not self-interested. 
D)  They help others even more than when they seek to help others.

Question 16

What is the business cycle?

Accepted Answer

A)  the relationship between unemployment and inflation 
B)  the irregular fluctuations in economic activity 
C)  the positive relationship between the quantity of money in an economy and inflation 
D)  the negative relationship between imports and net exports 
A)  the relationship between unemployment and inflation 
B)  the irregular fluctuations in economic activity 
C)  the positive relationship between the quantity of money in an economy and inflation 
D)  the negative relationship between imports and net exports

Question 17

During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. What best explains the difference?

Accepted Answer

A)  The United Kingdom was more industrialized than Turkey. 
B)  The United Kingdom printed money at a slower rate than Turkey. 
C)  Workers in the United Kingdom were more productive than workers in Turkey. 
D)  There were more cases of market failure in Turkey than in the United Kingdom. 
A)  The United Kingdom was more industrialized than Turkey. 
B)  The United Kingdom printed money at a slower rate than Turkey. 
C)  Workers in the United Kingdom were more productive than workers in Turkey. 
D)  There were more cases of market failure in Turkey than in the United Kingdom.

Question 18

What are economists illustrating when they use the phrase "There is no such thing as a free lunch"?

Accepted Answer

A)  how inflation increases prices 
B)  that to get one thing, we must give up something else 
C)  that nothing is free in a market economy 
D)  that if something looks too good to be true, it probably is 
A)  how inflation increases prices 
B)  that to get one thing, we must give up something else 
C)  that nothing is free in a market economy 
D)  that if something looks too good to be true, it probably is

Question 19

The average cost per seat on an airplane trip from Toronto to Halifax is $300. Suppose no refreshments are served and seven seats are empty. How could the airline company increase its profit?

Accepted Answer

A)  if it charged no less than $300 for the seven remaining seats 
B)  if it charged more than $300 for the seven remaining seats 
C)  if it charged any ticket price above $0 for the remaining seats 
D)  if it left the seats empty 
A)  if it charged no less than $300 for the seven remaining seats 
B)  if it charged more than $300 for the seven remaining seats 
C)  if it charged any ticket price above $0 for the remaining seats 
D)  if it left the seats empty

Question 20

What is one necessary role of government in a market economy?

Accepted Answer

A)  to tax goods and services that are most desired by consumers 
B)  to maintain subsidized housing for low-income households 
C)  to provide services such as pensions 
D)  to enforce property rights 
A)  to tax goods and services that are most desired by consumers 
B)  to maintain subsidized housing for low-income households 
C)  to provide services such as pensions 
D)  to enforce property rights

What can hinder the invisible hand's ability to coordinate the decisions of the firms and households in the economy?

Although the tenth principle of economics is controversial, what do most economists believe?

For society, when is a good NOT scarce?

What happened when the German government increased the quantity of money in the German economy in the 1920s?

Which concept best defines efficiency?

What are two very likely reasons for a government to intervene in a market?

In a market economy, what guides economic activity?

To increase living standards, what should public policy do?

What does economics study?

From which of the following is the word "economy" derived?

Under what conditions might government intervention in an economy improve the market outcome?

A friend of yours asks you why market prices are better than government-determined prices. What do you say?

When people act in their self-interest, what typically happens in a market system, according to Adam Smith?

What is the business cycle?

During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. What best explains the difference?

What are economists illustrating when they use the phrase "There is no such thing as a free lunch"?

The average cost per seat on an airplane trip from Toronto to Halifax is $300. Suppose no refreshments are served and seven seats are empty. How could the airline company increase its profit?

What is one necessary role of government in a market economy?

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 1: Ten Principles of Economics

What can hinder the invisible hand's ability to coordinate the decisions of the firms and households in the economy?

Although the tenth principle of economics is controversial, what do most economists believe?

For society, when is a good NOT scarce?

What happened when the German government increased the quantity of money in the German economy in the 1920s?

Which concept best defines efficiency?

What are two very likely reasons for a government to intervene in a market?

In a market economy, what guides economic activity?

To increase living standards, what should public policy do?

What does economics study?

From which of the following is the word "economy" derived?

Under what conditions might government intervention in an economy improve the market outcome?

A friend of yours asks you why market prices are better than government-determined prices. What do you say?

When people act in their self-interest, what typically happens in a market system, according to Adam Smith?

What is the business cycle?

During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. What best explains the difference?

What are economists illustrating when they use the phrase "There is no such thing as a free lunch"?

The average cost per seat on an airplane trip from Toronto to Halifax is $300. Suppose no refreshments are served and seven seats are empty. How could the airline company increase its profit?

What is one necessary role of government in a market economy?

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters