Question 1

Which of the following is a guidepost to economic thinking?

Accepted Answer

A) The value of a good can be objectively measured. 
B) Individuals should never make a decision without having complete information. 
C) Incentives matter. 
D) Goods are scarce for the poor but not for the rich. 
A) The value of a good can be objectively measured. 
B) Individuals should never make a decision without having complete information. 
C) Incentives matter. 
D) Goods are scarce for the poor but not for the rich.

Question 2

The expression, "There's no such thing as a free lunch," implies that

Accepted Answer

A) everyone has to pay for his own lunch. 
B) the person consuming a good must always pay for it. 
C) opportunity costs are incurred when resources are used to produce goods and services. 
D) no one has time for a good lunch anymore. 
A) everyone has to pay for his own lunch. 
B) the person consuming a good must always pay for it. 
C) opportunity costs are incurred when resources are used to produce goods and services. 
D) no one has time for a good lunch anymore.

Question 3

Which of the following is true?

Accepted Answer

A) Changes in personal costs and benefits will exert a predictable influence on the choices of people. 
B) If one individual gains from an economic activity, then someone else must lose. 
C) If a good is provided free to an individual by government, its production will not consume valuable scarce resources. 
D) If the intentions behind a policy are good, you can be assured that the outcome will be desirable. 
A) Changes in personal costs and benefits will exert a predictable influence on the choices of people. 
B) If one individual gains from an economic activity, then someone else must lose. 
C) If a good is provided free to an individual by government, its production will not consume valuable scarce resources. 
D) If the intentions behind a policy are good, you can be assured that the outcome will be desirable.

Question 4

Adam Smith believed that if people were free to pursue their own interests,

Accepted Answer

A) public interest would be served quite well. 
B) less would be produced than if altruism were the guiding principle. 
C) they would generally apply their talents to unproductive activities that would generate little value to society. 
D) they would have little incentive to undertake productive activities. 
A) public interest would be served quite well. 
B) less would be produced than if altruism were the guiding principle. 
C) they would generally apply their talents to unproductive activities that would generate little value to society. 
D) they would have little incentive to undertake productive activities.

Question 5

The basic difference between macroeconomics and microeconomics is that

Accepted Answer

A) macroeconomics looks at how people make choices, and microeconomics looks at why they make those choices. 
B) macroeconomics is concerned with economic policy, and microeconomics is concerned with economic theory. 
C) macroeconomics focuses on the aggregate economy, and microeconomics focuses on small components of that economy. 
D) macroeconomics is associated with the fallacy of composition, and microeconomics has little to do with the fallacy of composition. 
A) macroeconomics looks at how people make choices, and microeconomics looks at why they make those choices. 
B) macroeconomics is concerned with economic policy, and microeconomics is concerned with economic theory. 
C) macroeconomics focuses on the aggregate economy, and microeconomics focuses on small components of that economy. 
D) macroeconomics is associated with the fallacy of composition, and microeconomics has little to do with the fallacy of composition.

Question 6

Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry. Which of the following could be considered a secondary effect of these trade restrictions?

Accepted Answer

A) The price to consumers of the good in question will be higher as a result of the restriction, meaning consumers will be worse off. 
B) As consumers must spend more money to purchase the good, there will be employment losses in other domestic industries as consumers cut back on their spending on other things. 
C) Because there is a link between a country's imports and its exports, less imports from other countries will result in lower domestic employment in export industries. 
D) All of the above. 
A) The price to consumers of the good in question will be higher as a result of the restriction, meaning consumers will be worse off. 
B) As consumers must spend more money to purchase the good, there will be employment losses in other domestic industries as consumers cut back on their spending on other things. 
C) Because there is a link between a country's imports and its exports, less imports from other countries will result in lower domestic employment in export industries. 
D) All of the above.

Question 7

The basic postulate of economics indicates that changes in incentives influence

Accepted Answer

A) the actions of producers but not consumers. 
B) the actions of consumers but not producers. 
C) the choices of individuals only when they buy and sell goods in the marketplace. 
D) the choices of individuals with regard to a wide range of activities, including those generally perceived as social or political. 
A) the actions of producers but not consumers. 
B) the actions of consumers but not producers. 
C) the choices of individuals only when they buy and sell goods in the marketplace. 
D) the choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.

Question 8

If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is

Accepted Answer

A) zero. 
B) $.50. 
C) $1.00. 
D) $1.50. 
A) zero. 
B) $.50. 
C) $1.00. 
D) $1.50.

Question 9

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare

Accepted Answer

A) the benefits expected from two cars with the cost of both. 
B) the additional benefits expected from a second car with the cost of the two cars. 
C) the dollar cost of the two cars with the potential income that the cars will generate. 
D) the additional benefits of the second car with the additional cost of the second car. 
A) the benefits expected from two cars with the cost of both. 
B) the additional benefits expected from a second car with the cost of the two cars. 
C) the dollar cost of the two cars with the potential income that the cars will generate. 
D) the additional benefits of the second car with the additional cost of the second car.

Question 10

When Mother Theresa won the Nobel Peace Prize, the monetary award was well in excess of $100,000. Did she accept the money? If so, what did she do with it?

Accepted Answer

Mother Theresa used the money to help th

Question 11

Which of the following is most consistent with economizing behavior?

Accepted Answer

A) If you derive the same satisfaction from eating pizza and eating ice cream, it makes no difference which one of the two you choose. 
B) Before voting, you should invest the time and energy to become fully informed on all of the issues and candidates. 
C) It never makes sense to hire someone to do something for you that you could do yourself. 
D) If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least. 
A) If you derive the same satisfaction from eating pizza and eating ice cream, it makes no difference which one of the two you choose. 
B) Before voting, you should invest the time and energy to become fully informed on all of the issues and candidates. 
C) It never makes sense to hire someone to do something for you that you could do yourself. 
D) If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least.

Question 12

If people willingly give up something (such as money) for a good, then the good is

Accepted Answer

A) not an economic good. 
B) scarce. 
C) available in an unlimited supply. 
D) a luxury good. 
A) not an economic good. 
B) scarce. 
C) available in an unlimited supply. 
D) a luxury good.

Question 13

"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is

Accepted Answer

A) essentially correct. 
B) incorrect because scarcity has already been eliminated among the poor in wealthy countries such as the United States. 
C) incorrect; it fails to recognize that poverty will be present as long as resources are scarce. 
D) incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity. 
A) essentially correct. 
B) incorrect because scarcity has already been eliminated among the poor in wealthy countries such as the United States. 
C) incorrect; it fails to recognize that poverty will be present as long as resources are scarce. 
D) incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity.

Question 14

When a good is scarce,

Accepted Answer

A) this indicates that producers are withholding output so they can raise the price of the good. 
B) some method must be used to allocate the good among users. 
C) price is one way to ration the good. 
D) both b and c are correct. 
E) all of the above are correct. 
A) this indicates that producers are withholding output so they can raise the price of the good. 
B) some method must be used to allocate the good among users. 
C) price is one way to ration the good. 
D) both b and c are correct. 
E) all of the above are correct.

Question 15

When economists say an individual displays economizing behavior, they simply mean that the individual is

Accepted Answer

A) making a lot of money. 
B) purchasing only those products that are cheap and of low quality. 
C) learning how to run a business more effectively. 
D) making choices to gain the maximum benefit at the least possible cost. 
A) making a lot of money. 
B) purchasing only those products that are cheap and of low quality. 
C) learning how to run a business more effectively. 
D) making choices to gain the maximum benefit at the least possible cost.

Question 16

Which of the following are NOT scarce?

Accepted Answer

A) time for leisure activities 
B) computers 
C) compact discs 
D) the air we breathe 
A) time for leisure activities 
B) computers 
C) compact discs 
D) the air we breathe

Question 17

The value of a good

Accepted Answer

A) depends on many factors, including who uses it and under what circumstances. 
B) is determined by the cost of producing it. 
C) depends on the labor necessary to supply the good. 
D) can be measured objectively by a survey of manufacturers of the good. 
A) depends on many factors, including who uses it and under what circumstances. 
B) is determined by the cost of producing it. 
C) depends on the labor necessary to supply the good. 
D) can be measured objectively by a survey of manufacturers of the good.

Question 18

The economic way of thinking stresses that

Accepted Answer

A) greed is the primary motivation for human action. 
B) only material goods lead to happiness. 
C) an objective value can be attached to physical goods. 
D) as the cost of an option increases, people will be less likely to choose that option. 
A) greed is the primary motivation for human action. 
B) only material goods lead to happiness. 
C) an objective value can be attached to physical goods. 
D) as the cost of an option increases, people will be less likely to choose that option.

Question 19

Which of the following best illustrates the fallacy of composition?

Accepted Answer

A) If Mr. Johnson had more money, he could afford to buy more goods. 
B) If Ms. Dawes stood up at a basketball game, she could get a better view of the game; if everyone stood up at a basketball game, everyone could have a better view of the game. 
C) If the price of bread rose, consumers would buy less; if consumers bought less bread, the price of bread would rise. 
D) High housing prices cause people to buy less housing, but an increase in income might cause them to buy more housing. 
A) If Mr. Johnson had more money, he could afford to buy more goods. 
B) If Ms. Dawes stood up at a basketball game, she could get a better view of the game; if everyone stood up at a basketball game, everyone could have a better view of the game. 
C) If the price of bread rose, consumers would buy less; if consumers bought less bread, the price of bread would rise. 
D) High housing prices cause people to buy less housing, but an increase in income might cause them to buy more housing.

Question 20

Economics is primarily the study of

Accepted Answer

A) how to make money in the stock market. 
B) how to operate a business successfully. 
C) the allocation of scarce resources in an effort to satisfy wants that are virtually unlimited. 
D) the methods business firms use to reduce their costs of production. 
A) how to make money in the stock market. 
B) how to operate a business successfully. 
C) the allocation of scarce resources in an effort to satisfy wants that are virtually unlimited. 
D) the methods business firms use to reduce their costs of production.

Exam 1: The Economic Approach

Which of the following is a guidepost to economic thinking?

The expression, "There's no such thing as a free lunch," implies that

Which of the following is true?

Adam Smith believed that if people were free to pursue their own interests,

The basic difference between macroeconomics and microeconomics is that

The basic postulate of economics indicates that changes in incentives influence

If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare

When Mother Theresa won the Nobel Peace Prize, the monetary award was well in excess of $100,000. Did she accept the money? If so, what did she do with it?

Which of the following is most consistent with economizing behavior?

If people willingly give up something (such as money) for a good, then the good is

"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is

When a good is scarce,

When economists say an individual displays economizing behavior, they simply mean that the individual is

Which of the following are NOT scarce?

The value of a good

The economic way of thinking stresses that

Which of the following best illustrates the fallacy of composition?

Economics is primarily the study of

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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