Question 1

In economics,the cost of something is

Accepted Answer

A) the dollar amount of obtaining it. 
B) always measured in units of time given up to get it. 
C) what you give up to get it. 
D) often impossible to quantify, even in principle. 
A) the dollar amount of obtaining it. 
B) always measured in units of time given up to get it. 
C) what you give up to get it. 
D) often impossible to quantify, even in principle.

Question 2

Making rational decisions "at the margin" means that people

Accepted Answer

A) make those decisions that do not impose a marginal cost. 
B) evaluate how easily a decision can be reversed if problems arise. 
C) compare the marginal costs and marginal benefits of each decision. 
D) always calculate the marginal dollar costs for each decision. 
A) make those decisions that do not impose a marginal cost. 
B) evaluate how easily a decision can be reversed if problems arise. 
C) compare the marginal costs and marginal benefits of each decision. 
D) always calculate the marginal dollar costs for each decision.

Question 3

Which of these consumption activities will most likely impose an external cost?

Accepted Answer

A) An executive plays a vigorous game of golf. 
B) A student in a dorm plays her CDs at 120 decibels late at night. 
C) A young mother exercises to an aerobics video. 
D) A construction worker eats a sandwich during his lunch break. 
A) An executive plays a vigorous game of golf. 
B) A student in a dorm plays her CDs at 120 decibels late at night. 
C) A young mother exercises to an aerobics video. 
D) A construction worker eats a sandwich during his lunch break.

Question 4

Maurice receives $100 as a birthday gift.In deciding how to spend the money,he narrows his options down to four choices: Option A,Option B,Option C,and Option D.Each option costs $100.Finally he decides on Option B.The opportunity cost of this decision is

Accepted Answer

A) the value to Maurice of the option he would have chosen had Option B not been available. 
B) the value to Maurice of Options A, C and D combined. 
C) $100. 
D) $300. 
A) the value to Maurice of the option he would have chosen had Option B not been available. 
B) the value to Maurice of Options A, C and D combined. 
C) $100. 
D) $300.

Question 5

Large or persistent inflation is almost always caused by

Accepted Answer

A) excessive government spending. 
B) excessive growth in the quantity of money. 
C) foreign competition. 
D) higher-than-normal levels of productivity. 
A) excessive government spending. 
B) excessive growth in the quantity of money. 
C) foreign competition. 
D) higher-than-normal levels of productivity.

Question 6

The business cycle is the

Accepted Answer

A) relationship between unemployment and inflation. 
B) irregular fluctuations in economic activity. 
C) positive relationship between the quantity of money in an economy and inflation. 
D) predictable changes in economic activity due to changes in government spending and taxes. 
A) relationship between unemployment and inflation. 
B) irregular fluctuations in economic activity. 
C) positive relationship between the quantity of money in an economy and inflation. 
D) predictable changes in economic activity due to changes in government spending and taxes.

Question 7

Stan buys a 1966 Mustang for $2,000,planning to restore and sell the car.He goes on to spend $8,000 restoring the car.At this point he can sell the car for $9,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $12,000.Stan should

Accepted Answer

A) complete the repairs and sell the car for $12,000. 
B) sell the car now for $9, 000. 
C) never try such an expensive project again. 
D) be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it. 
A) complete the repairs and sell the car for $12,000. 
B) sell the car now for $9, 000. 
C) never try such an expensive project again. 
D) be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Question 8

Which is the most correct statement about the invisible hand?

Accepted Answer

A) The invisible hand always ensures both equity and efficiency. 
B) The invisible hand is more effective at ensuring equity than it is at ensuring efficiency. 
C) The invisible hand is more effective at ensuring efficiency than it is at ensuring equity. 
D) Market power is the instrument with which the invisible hand directs economic activity. 
A) The invisible hand always ensures both equity and efficiency. 
B) The invisible hand is more effective at ensuring equity than it is at ensuring efficiency. 
C) The invisible hand is more effective at ensuring efficiency than it is at ensuring equity. 
D) Market power is the instrument with which the invisible hand directs economic activity.

Question 9

Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.

Accepted Answer

A) True 
 B)False

Question 10

In the former Soviet Union,producers were paid for meeting output targets,not for selling products.Under those circumstances,what were the economic incentives for producers?

Accepted Answer

A) to produce good quality products so that society would benefit from the resources used 
B) to conserve on costs, so as to maintain efficiency in the economy 
C) to produce enough to meet the output target, without regard for quality or cost 
D) to produce those products that society desires most 
A) to produce good quality products so that society would benefit from the resources used 
B) to conserve on costs, so as to maintain efficiency in the economy 
C) to produce enough to meet the output target, without regard for quality or cost 
D) to produce those products that society desires most

Question 11

Adam Smith's book The Wealth of Nations was published in

Accepted Answer

A) 1692. 
B) 1776. 
C) 1816. 
D) 1936. 
A) 1692. 
B) 1776. 
C) 1816. 
D) 1936.

Question 12

A friend of yours asks you why market prices are better than government-determined prices.Because you understand economic principles,you say that market-determined prices are better because they generally reflect

Accepted Answer

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

Question 13

In the early 1920s,

Accepted Answer

A) Germany experienced a very high rate of inflation. 
B) the quantity of German money was declining rapidly. 
C) the value of German money remained almost constant. 
D) All of the above are correct. 
A) Germany experienced a very high rate of inflation. 
B) the quantity of German money was declining rapidly. 
C) the value of German money remained almost constant. 
D) All of the above are correct.

Question 14

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

Accepted Answer

A) the invisible hand. 
B) market power. 
C) government intervention. 
D) oikonomos. 
A) the invisible hand. 
B) market power. 
C) government intervention. 
D) oikonomos.

Question 15

Rational people make decisions at the margin by

Accepted Answer

A) following marginal traditions. 
B) behaving in a random fashion. 
C) thinking in black-and-white terms. 
D) comparing marginal costs and marginal benefits. 
A) following marginal traditions. 
B) behaving in a random fashion. 
C) thinking in black-and-white terms. 
D) comparing marginal costs and marginal benefits.

Question 16

Efficiency means that

Accepted Answer

A) society is conserving resources in order to save them for the future. 
B) society's goods and services are distributed equally among society's members. 
C) society's goods and services are distributed fairly, though not necessarily equally, among society's members. 
D) society is getting the maximum benefits from its scarce resources. 
A) society is conserving resources in order to save them for the future. 
B) society's goods and services are distributed equally among society's members. 
C) society's goods and services are distributed fairly, though not necessarily equally, among society's members. 
D) society is getting the maximum benefits from its scarce resources.

Question 17

For markets to work well,there must be

Accepted Answer

A) market power. 
B) a central planner. 
C) property rights. 
D) abundant, not scarce, resources. 
A) market power. 
B) a central planner. 
C) property rights. 
D) abundant, not scarce, resources.

Question 18

Taxes adversely affect the allocation of resources in society because

Accepted Answer

A) they do not always fall more heavily on the rich than on the poor. 
B) the taxes collected are not enough to finance government spending. 
C) not everyone pays taxes. 
D) they distort prices and thus distort the decisions of households and firms. 
A) they do not always fall more heavily on the rich than on the poor. 
B) the taxes collected are not enough to finance government spending. 
C) not everyone pays taxes. 
D) they distort prices and thus distort the decisions of households and firms.

Question 19

When government policies are enacted,

Accepted Answer

A) equity can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without an equity loss. 
B) efficiency can usually be enhanced without an equity loss, but equity can never be enhanced without an efficiency loss. 
C) it is always the case that either efficiency and fairness are both enhanced, or efficiency and equity are both diminished. 
D) None of the above are correct. 
A) equity can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without an equity loss. 
B) efficiency can usually be enhanced without an equity loss, but equity can never be enhanced without an efficiency loss. 
C) it is always the case that either efficiency and fairness are both enhanced, or efficiency and equity are both diminished. 
D) None of the above are correct.

Question 20

Guns and butter are used to represent the classic societal tradeoff between spending on

Accepted Answer

A) durable and nondurable goods. 
B) imports and exports. 
C) national defense and consumer goods. 
D) law enforcement and agriculture. 
A) durable and nondurable goods. 
B) imports and exports. 
C) national defense and consumer goods. 
D) law enforcement and agriculture.

Exam 1: Ten Principles of Economics

In economics,the cost of something is

Making rational decisions "at the margin" means that people

Which of these consumption activities will most likely impose an external cost?

Maurice receives $100 as a birthday gift.In deciding how to spend the money,he narrows his options down to four choices: Option A,Option B,Option C,and Option D.Each option costs $100.Finally he decides on Option B.The opportunity cost of this decision is

Large or persistent inflation is almost always caused by

The business cycle is the

Stan buys a 1966 Mustang for $2,000,planning to restore and sell the car.He goes on to spend $8,000 restoring the car.At this point he can sell the car for $9,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $12,000.Stan should

Which is the most correct statement about the invisible hand?

Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.

In the former Soviet Union,producers were paid for meeting output targets,not for selling products.Under those circumstances,what were the economic incentives for producers?

Adam Smith's book The Wealth of Nations was published in

A friend of yours asks you why market prices are better than government-determined prices.Because you understand economic principles,you say that market-determined prices are better because they generally reflect

In the early 1920s,

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

Rational people make decisions at the margin by

Efficiency means that

For markets to work well,there must be

Taxes adversely affect the allocation of resources in society because

When government policies are enacted,

Guns and butter are used to represent the classic societal tradeoff between spending on

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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