Exam 1: Ten Principles of Economics

Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?

Inflation measures the increase in 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?

An increase in the overall level of prices in an economy is referred to as

As a result of a successful attempt by government to cut the economic pie into more equal slices,

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Which of these activities will most likely result in an external benefit?

One of the 20th century's worst episodes of inflation occurred in

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

When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included?

Caroline eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

Which of the following is the most correct statement about the relationship between inflation and unemployment?

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

The term market failure refers to

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.

Which of the following is an important cause of inflation in an economy?

The term "productivity"

Economics deals primarily with the concept of

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