Question 1

A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

Accepted Answer

A) True 
 B)False

Question 2

When the government attempts to improve equality in an economy the result is often

Accepted Answer

A)  an increase in overall output in the economy. 
B)  additional government revenue since overall income will increase. 
C)  a reduction in equality. 
D)  a reduction in efficiency. 
A)  an increase in overall output in the economy. 
B)  additional government revenue since overall income will increase. 
C)  a reduction in equality. 
D)  a reduction in efficiency.

Question 3

The fact that different countries experience different standards of living is largely explained by differences in those countries'

Accepted Answer

A)  populations. 
B)  productivity levels. 
C)  locations. 
D)  None of the above is correct. Economists are puzzled by differences in standards of living around the world. 
A)  populations. 
B)  productivity levels. 
C)  locations. 
D)  None of the above is correct. Economists are puzzled by differences in standards of living around the world.

Question 4

In a particular country in 1998,the average worker needed to work 25 hours to produce 40 units of output.In that same country in 2008,the average worker needed to work 40 hours to produce 68 units of output.In that country,the productivity of the average worker

Accepted Answer

A)  decreased by 1.7 percent between 1998 and 2008. 
B)  remained unchanged between 1998 and 2008. 
C)  increased by 4.75 percent between 1998 and 2008. 
D)  increased by 6.25 percent between 1998 and 2008. 
A)  decreased by 1.7 percent between 1998 and 2008. 
B)  remained unchanged between 1998 and 2008. 
C)  increased by 4.75 percent between 1998 and 2008. 
D)  increased by 6.25 percent between 1998 and 2008.

Question 5

In a market economy,who makes the decisions that guide most economic activity?

Accepted Answer

A)  firms only 
B)  households only 
C)  firms and households 
D)  government 
A)  firms only 
B)  households only 
C)  firms and households 
D)  government

Question 6

When the government prevents prices from adjusting naturally to supply and demand,

Accepted Answer

A)  it equates the amount buyers want to buy with the amount sellers want to sell. 
B)  it adversely affects the allocation of resources. 
C)  it improves equality and efficiency. 
D)  it improves efficiency but reduces equality. 
A)  it equates the amount buyers want to buy with the amount sellers want to sell. 
B)  it adversely affects the allocation of resources. 
C)  it improves equality and efficiency. 
D)  it improves efficiency but reduces equality.

Question 7

Define opportunity cost.What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

Accepted Answer

Whatever must be given up to obtain some

Question 8

In the short run,an increase in the money supply is likely to lead to

Accepted Answer

A)  lower unemployment and lower inflation. 
B)  lower unemployment and higher inflation. 
C)  higher unemployment and lower inflation. 
D)  higher unemployment and higher inflation. 
A)  lower unemployment and lower inflation. 
B)  lower unemployment and higher inflation. 
C)  higher unemployment and lower inflation. 
D)  higher unemployment and higher inflation.

Question 9

Public policies

Accepted Answer

A)  may be able to improve either economic efficiency or equality. 
B)  may be able to improve economic efficiency but cannot improve equality. 
C)  may be able to improve equality but cannot improve economic efficiency. 
D)  cannot improve either equality or economic efficiency. 
A)  may be able to improve either economic efficiency or equality. 
B)  may be able to improve economic efficiency but cannot improve equality. 
C)  may be able to improve equality but cannot improve economic efficiency. 
D)  cannot improve either equality or economic efficiency.

Question 10

The principle that trade can make everyone better off applies to

Accepted Answer

A)  individuals. 
B)  families. 
C)  countries. 
D)  All of the above 
A)  individuals. 
B)  families. 
C)  countries. 
D)  All of the above

Question 11

Economists study how people make decisions.

Accepted Answer

A) True 
 B)False

Question 12

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million.If the company builds a 31ˢᵗ house,its total cost will increase to $7.76 million.Which of the following statements is correct?

Accepted Answer

A)  For the first 30 houses, the average cost per house was $250,000. 
B)  The marginal cost of the 31st house, if it is built, will be $260,000. 
C)  If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it. 
D)  All of the above are correct. 
A)  For the first 30 houses, the average cost per house was $250,000. 
B)  The marginal cost of the 31st house, if it is built, will be $260,000. 
C)  If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it. 
D)  All of the above are correct.

Question 13

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

Accepted Answer

A) True 
 B)False

Question 14

George has spent $600 purchasing and repairing an old fishing boat,which he expects to sell for $900 once the repairs are complete.George discovers that,in addition to the $600 he has already spent,he needs to make an additional repair,which will cost another $400,in order to make the boat worth $900 to potential buyers.He can sell the boat as it is now for $400.What should he do?

Accepted Answer

A)  He should sell the boat as it is now for $400. 
B)  He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell the boat for $900. 
C)  He should complete the repairs and sell the boat for $900. 
D)  It does not matter which action he takes; the outcome is the same either way. 
A)  He should sell the boat as it is now for $400. 
B)  He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell the boat for $900. 
C)  He should complete the repairs and sell the boat for $900. 
D)  It does not matter which action he takes; the outcome is the same either way.

Question 15

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

Accepted Answer

A)  the same as the total benefit of purchasing three pairs of flip-flops. 
B)  more than the marginal cost of purchasing the third pair of flip-flops. 
C)  the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops. 
D)  the total benefit Claire gets from purchasing four pairs of flip-flops minus the total benefit she gets from purchasing three pairs of flip-flops. 
A)  the same as the total benefit of purchasing three pairs of flip-flops. 
B)  more than the marginal cost of purchasing the third pair of flip-flops. 
C)  the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops. 
D)  the total benefit Claire gets from purchasing four pairs of flip-flops minus the total benefit she gets from purchasing three pairs of flip-flops.

Question 16

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke.This is an example of

Accepted Answer

A)  a market failure caused by an externality. 
B)  a market failure caused by market power. 
C)  a market failure caused by equality. 
D)  There is no market failure in this case. 
A)  a market failure caused by an externality. 
B)  a market failure caused by market power. 
C)  a market failure caused by equality. 
D)  There is no market failure in this case.

Question 17

The decisions of firms and households are guided by prices and self-interest in a

Accepted Answer

A)  command economy. 
B)  centrally-planned economy. 
C)  market economy. 
D)  All of the above are correct. 
A)  command economy. 
B)  centrally-planned economy. 
C)  market economy. 
D)  All of the above are correct.

Question 18

People are likely to respond to a policy change

Accepted Answer

A)  only if they think the policy is a good one. 
B)  only if the policy change changes the costs of their behavior. 
C)  only if the policy change changes the benefits of their behavior. 
D)  if the policy changes either the costs or benefits of their behavior. 
A)  only if they think the policy is a good one. 
B)  only if the policy change changes the costs of their behavior. 
C)  only if the policy change changes the benefits of their behavior. 
D)  if the policy changes either the costs or benefits of their behavior.

Question 19

Senator Bright,who understands economic principles,is trying to convince workers in her district that trade with other countries is beneficial.Senator Bright should argue that trade can be beneficial

Accepted Answer

A)  only if it allows us to obtain things that we couldn't make for ourselves. 
B)  because it allows specialization, which increases total output. 
C)  to us if we can gain and the others involved in the trade lose. 
D)  in only a limited number of circumstances because others are typically self-interested. 
A)  only if it allows us to obtain things that we couldn't make for ourselves. 
B)  because it allows specialization, which increases total output. 
C)  to us if we can gain and the others involved in the trade lose. 
D)  in only a limited number of circumstances because others are typically self-interested.

Question 20

Which of the following is an example of an externality?

Accepted Answer

A)  Annie purchases a handbag. 
B)  Bob's dog barks loudly during the night waking his neighbors. 
C)  Clark sells a book to Calvin. 
D)  David watches a scary movie. 
A)  Annie purchases a handbag. 
B)  Bob's dog barks loudly during the night waking his neighbors. 
C)  Clark sells a book to Calvin. 
D)  David watches a scary movie.

Exam 1: Ten Principles of Economics.

A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

When the government attempts to improve equality in an economy the result is often

The fact that different countries experience different standards of living is largely explained by differences in those countries'

In a particular country in 1998,the average worker needed to work 25 hours to produce 40 units of output.In that same country in 2008,the average worker needed to work 40 hours to produce 68 units of output.In that country,the productivity of the average worker

In a market economy,who makes the decisions that guide most economic activity?

When the government prevents prices from adjusting naturally to supply and demand,

Define opportunity cost.What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

In the short run,an increase in the money supply is likely to lead to

Public policies

The principle that trade can make everyone better off applies to

Economists study how people make decisions.

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million.If the company builds a 31ˢᵗ house,its total cost will increase to $7.76 million.Which of the following statements is correct?

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke.This is an example of

The decisions of firms and households are guided by prices and self-interest in a

People are likely to respond to a policy change

Senator Bright,who understands economic principles,is trying to convince workers in her district that trade with other countries is beneficial.Senator Bright should argue that trade can be beneficial

Which of the following is an example of an externality?

Thinking Like an Economist.

Interdependence and the Gains from Trade.

The Market Forces of Supply and Demand.

Elasticity and Its Application

Supply, Demand, And Government Policies.

Consumers, Producers, and the Efficiency of Markets.

Application: The Costs of Taxation.

Application: International Trade.

Externalities.

Public Goods and Common Resources.

The Design of the Tax System.

The Costs of Production.

Firms in Competitive Markets.

Monopoly.

Monopolistic Competition.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

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