Question 1

Market failure can be caused by

Accepted Answer

A)  low consumer demand. 
B)  equilibrium prices. 
C)  externalities and market power. 
D)  high prices and foreign competition. 
A)  low consumer demand. 
B)  equilibrium prices. 
C)  externalities and market power. 
D)  high prices and foreign competition.

Question 2

In an economy in which decisions are guided by prices and individual self-interest, there is

Accepted Answer

A)  the potential to achieve efficiency in production. 
B)  a strong need for government intervention in the market. 
C)  less efficiency than would be observed in a centrally-planned economy. 
D)  more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy. 
A)  the potential to achieve efficiency in production. 
B)  a strong need for government intervention in the market. 
C)  less efficiency than would be observed in a centrally-planned economy. 
D)  more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.

Question 3

Which of the following can lead to market failure?

Accepted Answer

A)  externalities and market power 
B)  externalities but not market power 
C)  market power but not externalities 
D)  neither externalities nor market power 
A)  externalities and market power 
B)  externalities but not market power 
C)  market power but not externalities 
D)  neither externalities nor market power

Question 4

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

Accepted Answer

A)  labor unions 
B)  minimum wage laws 
C)  productivity 
D)  efficiency 
A)  labor unions 
B)  minimum wage laws 
C)  productivity 
D)  efficiency

Question 5

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is

Accepted Answer

A)  $50. 
B)  $500. 
C)  $50,000. 
D)  This cannot be determined from the information given. 
A)  $50. 
B)  $500. 
C)  $50,000. 
D)  This cannot be determined from the information given.

Question 6

One reason we need government, even in a market economy, is that

Accepted Answer

A)  there is insufficient market power in the absence of government. 
B)  property rights are too strong in the absence of government. 
C)  the invisible hand is not perfect. 
D)  Both a and b are correct. 
A)  there is insufficient market power in the absence of government. 
B)  property rights are too strong in the absence of government. 
C)  the invisible hand is not perfect. 
D)  Both a and b are correct.

Question 7

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost?

Accepted Answer

A)  the cost of tuition and books to attend the graduate program 
B)  the $30,000 salary that you could have earned if you retained your job at the bank 
C)  the $45,000 salary that you will be able to earn after having completed your graduate program 
D)  the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank 
A)  the cost of tuition and books to attend the graduate program 
B)  the $30,000 salary that you could have earned if you retained your job at the bank 
C)  the $45,000 salary that you will be able to earn after having completed your graduate program 
D)  the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

Question 8

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

Accepted Answer

A)  sell the ticket because the marginal benefit exceeds the marginal cost. 
B)  sell the ticket because the marginal benefit exceeds the average cost. 
C)  not sell the ticket because the marginal benefit is less than the marginal cost. 
D)  not sell the ticket because the marginal benefit is less than the average cost. 
A)  sell the ticket because the marginal benefit exceeds the marginal cost. 
B)  sell the ticket because the marginal benefit exceeds the average cost. 
C)  not sell the ticket because the marginal benefit is less than the marginal cost. 
D)  not sell the ticket because the marginal benefit is less than the average cost.

Question 10

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of

Accepted Answer

A)  market power caused by a change in the country's standard of living. 
B)  market power caused by a single firm controlling the newspaper production. 
C)  inflation caused by increased productivity in the economy. 
D)  inflation caused by an increase in the quantity of money in the economy. 
A)  market power caused by a change in the country's standard of living. 
B)  market power caused by a single firm controlling the newspaper production. 
C)  inflation caused by increased productivity in the economy. 
D)  inflation caused by an increase in the quantity of money in the economy.

Question 11

The government can potentially improve market outcomes if market inequalities or market failure exists.

Accepted Answer

A) True 
 B)False

Question 12

Trade between the United States and Guatemala

Accepted Answer

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

Question 13

High-school athletes who skip college to become professional athletes

Accepted Answer

A)  obviously do not understand the value of a college education. 
B)  usually do so because they cannot get into college. 
C)  understand that the opportunity cost of attending college is very high. 
D)  are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes. 
A)  obviously do not understand the value of a college education. 
B)  usually do so because they cannot get into college. 
C)  understand that the opportunity cost of attending college is very high. 
D)  are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.

Question 14

Economists use the term to refer to the ability of a single person (or a small group) to have a substantial influence on market prices.

Accepted Answer

The answer of Economists use the term to refer to...

Question 15

The basic principles of economics suggest that

Accepted Answer

A)  markets are seldom, if ever, a good way to organize economic activity. 
B)  government should become involved in markets when trade between countries is involved. 
C)  government should become involved in markets when those markets fail to produce efficient or fair outcomes. 
D)  All of the above are correct. 
A)  markets are seldom, if ever, a good way to organize economic activity. 
B)  government should become involved in markets when trade between countries is involved. 
C)  government should become involved in markets when those markets fail to produce efficient or fair outcomes. 
D)  All of the above are correct.

Question 16

The term used to describe a situation in which markets do not allocate resources efficiently is

Accepted Answer

A)  economic meltdown. 
B)  market failure. 
C)  equilibrium. 
D)  the effect of the invisible hand. 
A)  economic meltdown. 
B)  market failure. 
C)  equilibrium. 
D)  the effect of the invisible hand.

Question 17

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 18

Germany could have avoided the high inflation that it experienced in the 1920s by

Accepted Answer

A)  not directing so many of its resources toward preparation for World War II. 
B)  not increasing taxes so much on the German middle class. 
C)  not allowing the quantity of money to increase so rapidly. 
D)  using government policies to stimulate the economy more so than what was done. 
A)  not directing so many of its resources toward preparation for World War II. 
B)  not increasing taxes so much on the German middle class. 
C)  not allowing the quantity of money to increase so rapidly. 
D)  using government policies to stimulate the economy more so than what was done.

Question 19

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of

Accepted Answer

A)  a market failure caused by an externality. 
B)  a market failure caused by market power. 
C)  a market failure caused by equality. 
D)  There is no market failure in this case. 
A)  a market failure caused by an externality. 
B)  a market failure caused by market power. 
C)  a market failure caused by equality. 
D)  There is no market failure in this case.

Question 20

Tracy quits her job, which pays $25,000 a year, to finish her college degree. Her annual college expenses are $12,000 for tuition and fees and $1,000 for books. What is her opportunity cost of attending college for the year?

Accepted Answer

The answer of Tracy quits her job, which pays $25,000...

Exam 1: Ten Principles of Economics

Market failure can be caused by

In an economy in which decisions are guided by prices and individual self-interest, there is

Which of the following can lead to market failure?

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

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is

One reason we need government, even in a market economy, is that

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of

The government can potentially improve market outcomes if market inequalities or market failure exists.

Trade between the United States and Guatemala

High-school athletes who skip college to become professional athletes

Economists use the term to refer to the ability of a single person (or a small group) to have a substantial influence on market prices.

The basic principles of economics suggest that

The term used to describe a situation in which markets do not allocate resources efficiently is

Economists are particularly adept at understanding that people respond to

Germany could have avoided the high inflation that it experienced in the 1920s by

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of

Tracy quits her job, which pays $25,000 a year, to finish her college degree. Her annual college expenses are $12,000 for tuition and fees and $1,000 for books. What is her opportunity cost of attending college for the year?

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

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