Question 1

The invisible hand refers to

Accepted Answer

A)  how central planners made economic decisions. 
B)  how the decisions of households and firms lead to desirable market outcomes. 
C)  the control that large firms have over the economy. 
D)  government regulations without which the economy would be less efficient. 
A)  how central planners made economic decisions. 
B)  how the decisions of households and firms lead to desirable market outcomes. 
C)  the control that large firms have over the economy. 
D)  government regulations without which the economy would be less efficient.

Question 2

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 3

A bagel shop sells fresh baked bagels from 5a.m.until 7 p.m.every day.The shop does not sell day-old bagels,so all unsold bagels are thrown away at 7 p.m.each day.The cost of making and selling a dozen bagels is $1.00;there are no costs associated with throwing bagels away.If the manager has 8 dozen bagels left at 6:30 p.m.on a particular day,which of the following alternatives is most attractive?

Accepted Answer

A)  Lower the price of the remaining bagels,even if the price falls below $1.00 per dozen. 
B)  Lower the price of the remaining bagels,but under no circumstances should the price fall below $1.00 per dozen. 
C)  Throw the bagels away and produce 8 fewer dozen bagels tomorrow. 
D)  Starting tomorrow,lower the price on all bagels so they will all be sold earlier in the day. 
A)  Lower the price of the remaining bagels,even if the price falls below $1.00 per dozen. 
B)  Lower the price of the remaining bagels,but under no circumstances should the price fall below $1.00 per dozen. 
C)  Throw the bagels away and produce 8 fewer dozen bagels tomorrow. 
D)  Starting tomorrow,lower the price on all bagels so they will all be sold earlier in the day.

Question 4

The word "economy" comes from the Greek word oikonomos,which means

Accepted Answer

A)  "environment." 
B)  "production." 
C)  "one who manages a household." 
D)  "one who makes decisions." 
A)  "environment." 
B)  "production." 
C)  "one who manages a household." 
D)  "one who makes decisions."

Question 5

Mallory decides to spend three hours working overtime rather than watching a video with her friends.She earns $8 an hour.Her opportunity cost of working is

Accepted Answer

A)  the $24 she earns working. 
B)  the $24 minus the enjoyment she would have received from watching the video. 
C)  the enjoyment she would have received had she watched the video. 
D)  nothing,since she would have received less than $24 of enjoyment from the video. 
A)  the $24 she earns working. 
B)  the $24 minus the enjoyment she would have received from watching the video. 
C)  the enjoyment she would have received had she watched the video. 
D)  nothing,since she would have received less than $24 of enjoyment from the video.

Question 6

What is the most important factor that explains differences in living standards across countries?

Accepted Answer

A)  the quantity of money 
B)  the level of unemployment 
C)  productivity 
D)  equality 
A)  the quantity of money 
B)  the level of unemployment 
C)  productivity 
D)  equality

Question 7

Market economies are distinguished from other types of economies largely on the basis of

Accepted Answer

A)  the political affiliations of government officials. 
B)  the process by which government officials are elected or appointed. 
C)  the ways in which scarce resources are allocated. 
D)  the number of retail outlets available to consumers. 
A)  the political affiliations of government officials. 
B)  the process by which government officials are elected or appointed. 
C)  the ways in which scarce resources are allocated. 
D)  the number of retail outlets available to consumers.

Question 8

Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person.Which country can benefit?

Accepted Answer

A)  only the one with a low level of output per person. 
B)  only the one with a high level of output per person. 
C)  both 
D)  neither 
A)  only the one with a low level of output per person. 
B)  only the one with a high level of output per person. 
C)  both 
D)  neither

Question 9

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 10

Under what conditions might government intervention in a market economy improve the economy's performance?

Accepted Answer

If there is a market failure,such as an

Question 11

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Accepted Answer

A)  government actions that distort prices. 
B)  increased competition in markets. 
C)  enforcement of property rights. 
D)  too much attention paid to efficiency. 
A)  government actions that distort prices. 
B)  increased competition in markets. 
C)  enforcement of property rights. 
D)  too much attention paid to efficiency.

Question 12

In the short run,which of the following is not correct?

Accepted Answer

A)  Increasing the money supply increases the demand for goods and services. 
B)  Increasing the money supply encourages firms to hire more workers. 
C)  Lowering the money supply leads to a higher level of unemployment. 
D)  Policies that encourage higher employment will also induce a lower rate of inflation. 
A)  Increasing the money supply increases the demand for goods and services. 
B)  Increasing the money supply encourages firms to hire more workers. 
C)  Lowering the money supply leads to a higher level of unemployment. 
D)  Policies that encourage higher employment will also induce a lower rate of inflation.

Question 13

Trade between the United States and India

Accepted Answer

A)  benefits both the United States and India. 
B)  is a losing proposition for the United States because India has cheaper labor. 
C)  is a losing proposition for India because capital is much more abundant in the U.S.than in India. 
D)  is a losing proposition for India because U.S.workers are more productive. 
A)  benefits both the United States and India. 
B)  is a losing proposition for the United States because India has cheaper labor. 
C)  is a losing proposition for India because capital is much more abundant in the U.S.than in India. 
D)  is a losing proposition for India because U.S.workers are more productive.

Question 14

The invisible hand ensures that economic prosperity is distributed equally.

Accepted Answer

A) True 
 B)False

Question 15

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

Accepted Answer

A)  enhance equality. 
B)  reduce efficiency. 
C)  reduce the reward for working hard. 
D)  All of the above are correct. 
A)  enhance equality. 
B)  reduce efficiency. 
C)  reduce the reward for working hard. 
D)  All of the above are correct.

Question 16

Inflation measures the increase in the quantity of goods and services produced from each hour of a worker's time.

Accepted Answer

A) True 
 B)False

Question 17

When the government prevents prices from adjusting naturally to supply and demand,

Accepted Answer

A)  it equates the amount buyers want to buy with the amount sellers want to sell. 
B)  it adversely affects the allocation of resources. 
C)  it improves equality and efficiency. 
D)  it improves efficiency but reduces equality. 
A)  it equates the amount buyers want to buy with the amount sellers want to sell. 
B)  it adversely affects the allocation of resources. 
C)  it improves equality and efficiency. 
D)  it improves efficiency but reduces equality.

Question 18

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 19

Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?

Accepted Answer

A)  Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based. 
B)  The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy. 
C)  Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally-planned economy. 
D)  None of the above are correct. 
A)  Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based. 
B)  The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy. 
C)  Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally-planned economy. 
D)  None of the above are correct.

Question 20

Economics deals primarily with the concept of

Accepted Answer

A)  scarcity. 
B)  money. 
C)  poverty. 
D)  banking. 
A)  scarcity. 
B)  money. 
C)  poverty. 
D)  banking.

Exam 1: Ten Principles of Economics

The invisible hand refers to

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

The word "economy" comes from the Greek word oikonomos,which means

Mallory decides to spend three hours working overtime rather than watching a video with her friends.She earns $8 an hour.Her opportunity cost of working is

What is the most important factor that explains differences in living standards across countries?

Market economies are distinguished from other types of economies largely on the basis of

Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person.Which country can benefit?

In the early 1920s,

Under what conditions might government intervention in a market economy improve the economy's performance?

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

In the short run,which of the following is not correct?

Trade between the United States and India

The invisible hand ensures that economic prosperity is distributed equally.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

Inflation measures the increase in the quantity of goods and services produced from each hour of a worker's time.

When the government prevents prices from adjusting naturally to supply and demand,

Rational people make decisions at the margin by

Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?

Economics deals primarily with the concept of

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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