Question 1

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

A)  There is no such thing as a free lunch. 
B)  People buy more when prices are low than when prices are high. 
C)  No matter how much people earn,they tend to spend more than they earn. 
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. 
A)  There is no such thing as a free lunch. 
B)  People buy more when prices are low than when prices are high. 
C)  No matter how much people earn,they tend to spend more than they earn. 
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Question 2

Which of the following statements best represents the principle represented by the adage,"There is no such thing as a free lunch"?

Accepted Answer

A)  Melissa can attend the concert only if she takes her sister with her. 
B)  Greg is hungry and homeless. 
C)  Brian must repair the tire on his bike before he can ride it to class. 
D)  Kendra must decide between going to Colorado or Cancun for spring break. 
A)  Melissa can attend the concert only if she takes her sister with her. 
B)  Greg is hungry and homeless. 
C)  Brian must repair the tire on his bike before he can ride it to class. 
D)  Kendra must decide between going to Colorado or Cancun for spring break.

Question 3

The adage,"There is no such thing as a free lunch," means

Accepted Answer

A)  even people on welfare have to pay for food. 
B)  the cost of living is always increasing. 
C)  people face tradeoffs. 
D)  all costs are included in the price of a product. 
A)  even people on welfare have to pay for food. 
B)  the cost of living is always increasing. 
C)  people face tradeoffs. 
D)  all costs are included in the price of a product.

Question 4

Low rates of inflation are generally associated with

Accepted Answer

A)  low rates of government spending. 
B)  small or nonexistent government budget deficits. 
C)  low rates of productivity growth. 
D)  low rates of growth of the quantity of money. 
A)  low rates of government spending. 
B)  small or nonexistent government budget deficits. 
C)  low rates of productivity growth. 
D)  low rates of growth of the quantity of money.

Question 5

Most economists believe that an increase in the quantity of money results in

Accepted Answer

A)  an increase in the demand for goods and services. 
B)  lower unemployment in the short run. 
C)  higher inflation in the long run. 
D)  All of the above are correct. 
A)  an increase in the demand for goods and services. 
B)  lower unemployment in the short run. 
C)  higher inflation in the long run. 
D)  All of the above are correct.

Question 6

People are willing to pay more for a diamond than for a bottle of water because

Accepted Answer

A)  the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 
B)  the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 
C)  producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 
D)  water prices are held artificially low by governments,since water is necessary for life. 
A)  the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 
B)  the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 
C)  producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 
D)  water prices are held artificially low by governments,since water is necessary for life.

Question 7

Moira decides to spend two hours taking a nap rather than attending her classes.Her opportunity cost of napping is

Accepted Answer

A)  the value of the knowledge she would have received had she attended class. 
B)  the $30 she could have earned if she had worked at her job for those two hours. 
C)  the value of her nap less the value of attending class. 
D)  nothing,since she would valued sleep more than attendance at class. 
A)  the value of the knowledge she would have received had she attended class. 
B)  the $30 she could have earned if she had worked at her job for those two hours. 
C)  the value of her nap less the value of attending class. 
D)  nothing,since she would valued sleep more than attendance at class.

Question 8

When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

Accepted Answer

A)  equality is increased and efficiency is increased. 
B)  equality is increased and efficiency is decreased. 
C)  equality is decreased and efficiency is increased. 
D)  equality is decreased and efficiency is decreased. 
A)  equality is increased and efficiency is increased. 
B)  equality is increased and efficiency is decreased. 
C)  equality is decreased and efficiency is increased. 
D)  equality is decreased and efficiency is decreased.

Question 9

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 10

Almost all variation in living standards is attributable to differences in countries'

Accepted Answer

A)  population growth rates. 
B)  productivity. 
C)  systems of public education. 
D)  taxes. 
A)  population growth rates. 
B)  productivity. 
C)  systems of public education. 
D)  taxes.

Question 11

Market power refers to the

Accepted Answer

A)  power of a single person or small group to influence market prices. 
B)  ability of a person or small group to successfully market new products. 
C)  power of the government to regulate a market. 
D)  importance of a certain market in relation to the overall economy. 
A)  power of a single person or small group to influence market prices. 
B)  ability of a person or small group to successfully market new products. 
C)  power of the government to regulate a market. 
D)  importance of a certain market in relation to the overall economy.

Question 12

To raise productivity,policymakers could

Accepted Answer

A)  increase spending on education. 
B)  provide tax credits to firms for capital improvements. 
C)  fund research and development. 
D)  All of the above are correct. 
A)  increase spending on education. 
B)  provide tax credits to firms for capital improvements. 
C)  fund research and development. 
D)  All of the above are correct.

Question 13

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 14

Economists are particularly adept at understanding that people respond to

Accepted Answer

A)  laws. 
B)  incentives. 
C)  punishments more than rewards. 
D)  rewards more than punishments. 
A)  laws. 
B)  incentives. 
C)  punishments more than rewards. 
D)  rewards more than punishments.

Question 15

The fact that people are willing to pay much more for a diamond,which is not needed for survival,than they are willing to pay for a cup of water,which is needed for survival,is an example of irrational behavior.

Accepted Answer

A) True 
 B)False

Question 16

In the long run the primary effect of increasing the quantity of money is higher prices.

Accepted Answer

A) True 
 B)False

Question 17

You have driven 1,000 miles on a vacation and then you notice that you are only 50 miles from an attraction you hadn't known about,but would really like to see.In computing the opportunity cost of visiting this attraction you had not planned to visit,you should include

Accepted Answer

A)  both the cost of driving the first 1,000 and the next 50 miles. 
B)  the cost of driving the first 1,000 miles,but not the cost of driving the next 50. 
C)  the cost of driving the next 50 miles,but not the cost of driving the first 1,000. 
D)  neither the cost of driving the first 1,000 miles nor the cost of driving the next 50 miles. 
A)  both the cost of driving the first 1,000 and the next 50 miles. 
B)  the cost of driving the first 1,000 miles,but not the cost of driving the next 50. 
C)  the cost of driving the next 50 miles,but not the cost of driving the first 1,000. 
D)  neither the cost of driving the first 1,000 miles nor the cost of driving the next 50 miles.

Question 18

According to Adam Smith,the success of decentralized market economies is primarily due to

Accepted Answer

A)  the basic benevolence of society. 
B)  society's legal system. 
C)  individuals' pursuit of self-interest. 
D)  partnerships that are forged between business and government. 
A)  the basic benevolence of society. 
B)  society's legal system. 
C)  individuals' pursuit of self-interest. 
D)  partnerships that are forged between business and government.

Question 19

If the price of visiting a doctor were fixed below the current price,then we would expect

Accepted Answer

A)  an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide. 
B)  an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. 
C)  a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide. 
D)  a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. 
A)  an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide. 
B)  an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. 
C)  a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide. 
D)  a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

Question 20

If Japan chooses to engage in trade,it

Accepted Answer

A)  will only benefit if it trades with countries that produce goods Japan cannot produce. 
B)  cannot benefit if it trades with less developed countries. 
C)  should first attempt to produce the good itself. 
D)  can benefit by trading with any other country. 
A)  will only benefit if it trades with countries that produce goods Japan cannot produce. 
B)  cannot benefit if it trades with less developed countries. 
C)  should first attempt to produce the good itself. 
D)  can benefit by trading with any other country.

Exam 1: Ten Principles of Economics

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Which of the following statements best represents the principle represented by the adage,"There is no such thing as a free lunch"?

The adage,"There is no such thing as a free lunch," means

Low rates of inflation are generally associated with

Most economists believe that an increase in the quantity of money results in

People are willing to pay more for a diamond than for a bottle of water because

Moira decides to spend two hours taking a nap rather than attending her classes.Her opportunity cost of napping is

When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

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

Almost all variation in living standards is attributable to differences in countries'

Market power refers to the

To raise productivity,policymakers could

Public policies

Economists are particularly adept at understanding that people respond to

The fact that people are willing to pay much more for a diamond,which is not needed for survival,than they are willing to pay for a cup of water,which is needed for survival,is an example of irrational behavior.

In the long run the primary effect of increasing the quantity of money is higher prices.

You have driven 1,000 miles on a vacation and then you notice that you are only 50 miles from an attraction you hadn't known about,but would really like to see.In computing the opportunity cost of visiting this attraction you had not planned to visit,you should include

According to Adam Smith,the success of decentralized market economies is primarily due to

If the price of visiting a doctor were fixed below the current price,then we would expect

If Japan chooses to engage in trade,it

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 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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