Question 1

Which of these statements concerning externalities is correct?

Accepted Answer

A) There would be no justification for government involvement in the economy if it were not for externalities. 
B) An externality can only arise when one person (or a small group of persons) has the ability to unduly influence market prices. 
C) An externality can arise only when two or more countries are engaged in trade with one another. 
D) An externality arises when one person's actions have an impact on the well-being of others. 
A) There would be no justification for government involvement in the economy if it were not for externalities. 
B) An externality can only arise when one person (or a small group of persons) has the ability to unduly influence market prices. 
C) An externality can arise only when two or more countries are engaged in trade with one another. 
D) An externality arises when one person's actions have an impact on the well-being of others.

Question 2

One necessary role of government in a market economy is to

Accepted Answer

A) impose taxes on those goods and services that are most desired by consumers. 
B) maintain welfare programs for the poor. 
C) provide services such as mail delivery and garbage collection. 
D) enforce property rights. 
A) impose taxes on those goods and services that are most desired by consumers. 
B) maintain welfare programs for the poor. 
C) provide services such as mail delivery and garbage collection. 
D) enforce property rights.

Question 3

Productivity is the primary determinant of a country's living standards.

Accepted Answer

A) True 
 B)False

Question 4

In most societies,resources are allocated by

Accepted Answer

A) a single central planner. 
B) a small number of central planners. 
C) those firms that use resources to provide goods and services. 
D) the combined actions of millions of households and firms. 
A) a single central planner. 
B) a small number of central planners. 
C) those firms that use resources to provide goods and services. 
D) the combined actions of millions of households and firms.

Question 5

A marginal change is a

Accepted Answer

A) change that involves little, if anything, that is important. 
B) large, significant adjustment. 
C) change for the worse, and so it is usually a short-term change. 
D) small, incremental adjustment. 
A) change that involves little, if anything, that is important. 
B) large, significant adjustment. 
C) change for the worse, and so it is usually a short-term change. 
D) small, incremental adjustment.

Question 6

A worker in Bangladesh can earn $1 per day making cotton cloth on a hand loom.A worker in the United States can earn $100 per day making cotton cloth with a mechanical loom.What accounts for the difference in wages?

Accepted Answer

A) U.S.textile workers belong to a union. 
B) There is little demand for cotton cloth in Bangladesh and great demand in the U.S. 
C) Labor is more productive making cotton cloth with a mechanical loom than with a hand loom. 
D) Bangladesh has a low-wage policy to make its textile industry more competitive in world markets. 
A) U.S.textile workers belong to a union. 
B) There is little demand for cotton cloth in Bangladesh and great demand in the U.S. 
C) Labor is more productive making cotton cloth with a mechanical loom than with a hand loom. 
D) Bangladesh has a low-wage policy to make its textile industry more competitive in world markets.

Question 7

Economics is the study of

Accepted Answer

A) production methods. 
B) how society manages its scarce resources. 
C) how households decide who performs which tasks. 
D) the interaction of business and government. 
A) production methods. 
B) how society manages its scarce resources. 
C) how households decide who performs which tasks. 
D) the interaction of business and government.

Question 8

Which of the following statements exemplifies a principle of individual decisionmaking?

Accepted Answer

A) Trade can make everyone better off. 
B) Governments can sometimes improve market outcomes. 
C) The cost of something is what you give up to get it. 
D) All of the above are correct. 
A) Trade can make everyone better off. 
B) Governments can sometimes improve market outcomes. 
C) The cost of something is what you give up to get it. 
D) All of the above are correct.

Question 9

A direct or positive relationship exists between a country's

Accepted Answer

A) productivity and its standard of living. 
B) amount of government spending and its productivity. 
C) total population and its average citizen's income. 
D) rate of population growth and the extent of its trade with other countries. 
A) productivity and its standard of living. 
B) amount of government spending and its productivity. 
C) total population and its average citizen's income. 
D) rate of population growth and the extent of its trade with other countries.

Question 10

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 11

To improve living standards,policymakers should

Accepted Answer

A) impose restriction on foreign competition. 
B) formulate policies designed to increase productivity. 
C) impose tougher immigration policies. 
D) provide tax breaks for the middle class. 
A) impose restriction on foreign competition. 
B) formulate policies designed to increase productivity. 
C) impose tougher immigration policies. 
D) provide tax breaks for the middle class.

Question 12

An example of a firm with market power is a

Accepted Answer

A) delicatessen in New York. 
B) cable TV provider in St.Louis. 
C) clothing store in Los Angeles. 
D) family farm in Illinois. 
A) delicatessen in New York. 
B) cable TV provider in St.Louis. 
C) clothing store in Los Angeles. 
D) family farm in Illinois.

Question 13

Which of the following statements does not apply to a market economy?

Accepted Answer

A) Firms decide whom to hire and what to produce. 
B) No one is looking out for the economic well-being of society as a whole. 
C) Households decide which firms to work for and what to buy with their incomes. 
D) Government policies are the primary forces that guide the decisions of firms and households. 
A) Firms decide whom to hire and what to produce. 
B) No one is looking out for the economic well-being of society as a whole. 
C) Households decide which firms to work for and what to buy with their incomes. 
D) Government policies are the primary forces that guide the decisions of firms and households.

Question 14

Inflation increases the value of money.

Accepted Answer

A) True 
 B)False

Question 15

One of history's most severe episodes of inflation occurred

Accepted Answer

A) in the U.S.in the 1920s. 
B) in Germany in the 1920s. 
C) in the U.S.in the 1970s. 
D) in Germany in the 1970s. 
A) in the U.S.in the 1920s. 
B) in Germany in the 1920s. 
C) in the U.S.in the 1970s. 
D) in Germany in the 1970s.

Question 16

A marginal change is best illustrated by which of the following?

Accepted Answer

A) Nancy retires and takes a part-time job.She was working 40 hours per week and now works 15 hours per week. 
B) A large, state-supported university has announced that due to state budget deficits, tuition must rise by 20 percent next year. 
C) Ryan moved to a new apartment and now pays 40 percent more rent than before. 
D) Arizona, which usually receives 10 inches of rain per year, received 11 inches last year. 
A) Nancy retires and takes a part-time job.She was working 40 hours per week and now works 15 hours per week. 
B) A large, state-supported university has announced that due to state budget deficits, tuition must rise by 20 percent next year. 
C) Ryan moved to a new apartment and now pays 40 percent more rent than before. 
D) Arizona, which usually receives 10 inches of rain per year, received 11 inches last year.

Question 17

A construction company has built 50 houses so far this year at a total cost to the company of $8 million.If the company builds a 51ˢᵗ house,its total cost will increase to $8.18 million.Which of the following statements is correct?

Accepted Answer

A) For the first 50 houses, the average cost per house was $160,000. 
B) The marginal cost of the 51ˢᵗ house, if it is built, will be $180,000. 
C) If the company can experience a marginal benefit of $190,000 by building the 51ˢᵗ house, then the company should build it. 
D) All of the above are correct. 
A) For the first 50 houses, the average cost per house was $160,000. 
B) The marginal cost of the 51ˢᵗ house, if it is built, will be $180,000. 
C) If the company can experience a marginal benefit of $190,000 by building the 51ˢᵗ house, then the company should build it. 
D) All of the above are correct.

Exam 1: Ten Principles of Economics

Which of these statements concerning externalities is correct?

One necessary role of government in a market economy is to

Productivity is the primary determinant of a country's living standards.

In most societies,resources are allocated by

A marginal change is a

A worker in Bangladesh can earn $1 per day making cotton cloth on a hand loom.A worker in the United States can earn $100 per day making cotton cloth with a mechanical loom.What accounts for the difference in wages?

Economics is the study of

Which of the following statements exemplifies a principle of individual decisionmaking?

A direct or positive relationship exists between a country's

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

To improve living standards,policymakers should

An example of a firm with market power is a

Which of the following statements does not apply to a market economy?

Inflation increases the value of money.

One of history's most severe episodes of inflation occurred

A marginal change is best illustrated by which of the following?

A construction company has built 50 houses so far this year at a total cost to the company of $8 million.If the company builds a 51ˢᵗ house,its total cost will increase to $8.18 million.Which of the following statements is correct?

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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