Question 1

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 2

Government policies can change the costs and benefits that people face. Those policies have the potential to

Accepted Answer

A)  alter people's behavior. 
B)  alter people's decisions at the margin. 
C)  produce results that policymakers did not intend. 
D)  All of the above are correct. 
A)  alter people's behavior. 
B)  alter people's decisions at the margin. 
C)  produce results that policymakers did not intend. 
D)  All of the above are correct.

Question 3

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?

Accepted Answer

A)  to produce good quality products so that society would benefit from the resources used 
B)  to conserve on costs, so as to maintain efficiency in the economy 
C)  to produce enough to meet the output target, without regard for quality or cost 
D)  to produce those products that society desires most 
A)  to produce good quality products so that society would benefit from the resources used 
B)  to conserve on costs, so as to maintain efficiency in the economy 
C)  to produce enough to meet the output target, without regard for quality or cost 
D)  to produce those products that society desires most

Question 4

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 5

The opportunity cost of an item is

Accepted Answer

A)  the number of hours needed to earn money to buy the item. 
B)  what you give up to get that item. 
C)  usually less than the dollar value of the item. 
D)  the dollar value of the item. 
A)  the number of hours needed to earn money to buy the item. 
B)  what you give up to get that item. 
C)  usually less than the dollar value of the item. 
D)  the dollar value of the item.

Question 6

Making rational decisions "at the margin" means that people

Accepted Answer

A)  make those decisions that do not impose a marginal cost. 
B)  evaluate how easily a decision can be reversed if problems arise. 
C)  compare the marginal costs and marginal benefits of each decision. 
D)  always calculate the dollar costs for each decision. 
A)  make those decisions that do not impose a marginal cost. 
B)  evaluate how easily a decision can be reversed if problems arise. 
C)  compare the marginal costs and marginal benefits of each decision. 
D)  always calculate the dollar costs for each decision.

Question 7

Give an example of a trade-off faced by society.

Accepted Answer

Efficiency and equality; a cle

Question 8

Which of the following statements about trade is false?

Accepted Answer

A)  Trade increases competition. 
B)  With trade, one country wins and one country loses. 
C)  Bulgaria can benefit, potentially, from trade with any other country. 
D)  Trade allows people to buy a greater variety of goods and services at lower cost. 
A)  Trade increases competition. 
B)  With trade, one country wins and one country loses. 
C)  Bulgaria can benefit, potentially, from trade with any other country. 
D)  Trade allows people to buy a greater variety of goods and services at lower cost.

Question 9

When the "invisible hand" guides economic activity, prices of products reflect

Accepted Answer

A)  only the values that society places on those products. 
B)  only the costs to society of producing those products. 
C)  both the values that society places on those products and the costs to society of producing those products. 
D)  none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair." 
A)  only the values that society places on those products. 
B)  only the costs to society of producing those products. 
C)  both the values that society places on those products and the costs to society of producing those products. 
D)  none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair."

Question 10

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

Accepted Answer

A)  compare the total cost of your education to the total benefits of your education. 
B)  compare the total cost of your education to the benefits of staying one more semester. 
C)  compare the cost of staying one more semester to the benefits of staying one more semester. 
D)  compare the total benefits of your education to the cost of staying one more semester. 
A)  compare the total cost of your education to the total benefits of your education. 
B)  compare the total cost of your education to the benefits of staying one more semester. 
C)  compare the cost of staying one more semester to the benefits of staying one more semester. 
D)  compare the total benefits of your education to the cost of staying one more semester.

Question 11

The property of society getting the most it can from its scarce resources is called

Accepted Answer

A)  efficiency. 
B)  equality. 
C)  externality. 
D)  productivity. 
A)  efficiency. 
B)  equality. 
C)  externality. 
D)  productivity.

Question 12

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 13

Tuition is the single-largest cost of attending college for most students.

Accepted Answer

A) True 
 B)False

Question 14

In considering how to allocate its scarce resources among its various members, a household considers

Accepted Answer

A)  each member's abilities. 
B)  each member's efforts. 
C)  each member's desires. 
D)  All of the above are correct. 
A)  each member's abilities. 
B)  each member's efforts. 
C)  each member's desires. 
D)  All of the above are correct.

Question 15

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?

Accepted Answer

A)  3 percent per year 
B)  5 percent per year 
C)  7 percent per year 
D)  9 percent per year 
A)  3 percent per year 
B)  5 percent per year 
C)  7 percent per year 
D)  9 percent per year

Question 16

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 17

In a market economy, who makes the decisions that guide most economic activity?

Accepted Answer

A)  firms only 
B)  households only 
C)  firms and households 
D)  government 
A)  firms only 
B)  households only 
C)  firms and households 
D)  government

Question 18

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

Accepted Answer

A)  $99,000. 
B)  $103,000. 
C)  $108,000. 
D)  $121,000. 
A)  $99,000. 
B)  $103,000. 
C)  $108,000. 
D)  $121,000.

Question 19

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

Accepted Answer

A)  to promote efficiency 
B)  to promote equality 
C)  to enforce property rights 
D)  to protect an industry from foreign competition 
A)  to promote efficiency 
B)  to promote equality 
C)  to enforce property rights 
D)  to protect an industry from foreign competition

Question 20

The "broken window fallacy"

Accepted Answer

A)  explains why inflation is so high. 
B)  is a justification for the government to print more money. 
C)  is illustrated when a government program is justified not on its merits but on the number of jobs it will create. 
D)  has nothing to do with public policy. 
A)  explains why inflation is so high. 
B)  is a justification for the government to print more money. 
C)  is illustrated when a government program is justified not on its merits but on the number of jobs it will create. 
D)  has nothing to do with public policy.

Exam 1: Ten Principles of Economics

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

Government policies can change the costs and benefits that people face. Those policies have the potential to

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?

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

The opportunity cost of an item is

Making rational decisions "at the margin" means that people

Give an example of a trade-off faced by society.

Which of the following statements about trade is false?

When the "invisible hand" guides economic activity, prices of products reflect

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 property of society getting the most it can from its scarce resources is called

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

Tuition is the single-largest cost of attending college for most students.

In considering how to allocate its scarce resources among its various members, a household considers

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?

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 a market economy, who makes the decisions that guide most economic activity?

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

The "broken window fallacy"

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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