Question 1

Monetary and fiscal policies have the potential to improve unemployment and GDP during a recession.

Accepted Answer

A) True 
 B)False

Question 2

Institutions that support economic growth are the ones that:

Accepted Answer

A)  encourage consumption and discourage savings. 
B)  give the government more control over what is produced and how it is produced. 
C)  require companies to act in the social interest. 
D)  provide incentives for entrepreneurs to take risks and innovate. 
A)  encourage consumption and discourage savings. 
B)  give the government more control over what is produced and how it is produced. 
C)  require companies to act in the social interest. 
D)  provide incentives for entrepreneurs to take risks and innovate.

Question 3

The average tax on a professor's income of $100,000 is 18 percent, and the marginal tax rate above $100,000 is 45 percent. If the professor teaches during the summer and earns an additional $10,000 (bringing her total earnings for the year to $110,000), how much of the summer income does she keep after paying taxes?

Accepted Answer

A)  $4,500 
B)  $1,800 
C)  $6,300 
D)  $5,500 
A)  $4,500 
B)  $1,800 
C)  $6,300 
D)  $5,500

Question 4

In his book The Wealth of Nations, Adam Smith claimed that individuals:

Accepted Answer

A)  always act in an altruistic way. 
B)  always consider the effect of their actions on others. 
C)  are motivated by self-interest. 
D)  are not concerned with resources. 
A)  always act in an altruistic way. 
B)  always consider the effect of their actions on others. 
C)  are motivated by self-interest. 
D)  are not concerned with resources.

Question 5

The better Martha Stewart is at running her business:

Accepted Answer

A)  the higher her opportunity cost of ironing her own shirts. 
B)  the lower her opportunity cost of ironing her own shirts. 
C)  the more it makes sense for her to iron her own shirts, because she will have more time. 
D)  the more it makes sense for her to spend her time away from her business. 
A)  the higher her opportunity cost of ironing her own shirts. 
B)  the lower her opportunity cost of ironing her own shirts. 
C)  the more it makes sense for her to iron her own shirts, because she will have more time. 
D)  the more it makes sense for her to spend her time away from her business.

Question 6

What are the institutions that help foster the appropriate incentives for economic growth?

Accepted Answer

A)  regulated labor and credit markets; and unions 
B)  communal property rights and absence of a profit-loss system 
C)  a dependable legal system, property rights, and competitive and open markets 
D)  production and export quotas; and supply and demand 
A)  regulated labor and credit markets; and unions 
B)  communal property rights and absence of a profit-loss system 
C)  a dependable legal system, property rights, and competitive and open markets 
D)  production and export quotas; and supply and demand

Question 7

When deciding whether to eat a second piece of pizza, you should compare the total benefit of the two pieces of pizza with the total cost.

Accepted Answer

A) True 
 B)False

Question 8

When it comes to getting the flu shot, most people consider _______, not _________.

Accepted Answer

A)  the social interest; their self-interest 
B)  their public interest; their social interest 
C)  their costs; their benefits 
D)  their self-interest; the social interest 
A)  the social interest; their self-interest 
B)  their public interest; their social interest 
C)  their costs; their benefits 
D)  their self-interest; the social interest

Question 9

Two people can benefit from trade if they both live in the same country, but not if they live in different countries.

Accepted Answer

A) True 
 B)False

Question 10

The opportunity cost of a choice is:

Accepted Answer

A)  the opportunity of using the money to buy something else cheaper. 
B)  the money cost that a person does not have to pay when doing something. 
C)  the money that a buyer has to pay for an item. 
D)  the value of the next best opportunity foregone. 
A)  the opportunity of using the money to buy something else cheaper. 
B)  the money cost that a person does not have to pay when doing something. 
C)  the money that a buyer has to pay for an item. 
D)  the value of the next best opportunity foregone.

Question 11

Many companies pay their sales employees based on commissions-the more they sell, the more they get paid. This practice highlights the role of:

Accepted Answer

A)  marginal thinking. 
B)  incentives. 
C)  trade-offs. 
D)  sunk costs. 
A)  marginal thinking. 
B)  incentives. 
C)  trade-offs. 
D)  sunk costs.

Question 12

Today GDP per capita in South Korea is ______ than in North Korea.

Accepted Answer

A)  10 times less 
B)  two times less 
C)  two times greater 
D)  10 times greater 
A)  10 times less 
B)  two times less 
C)  two times greater 
D)  10 times greater

Question 13

Adam Smith's metaphor of the "invisible hand" refers to the notion that:

Accepted Answer

A)  greed is always good when externally motivated. 
B)  behavior based on self-interest can lead to an overall benefit to society. 
C)  market incentive can lead to negative side effects. 
D)  markets always align self-interest with social interest. 
A)  greed is always good when externally motivated. 
B)  behavior based on self-interest can lead to an overall benefit to society. 
C)  market incentive can lead to negative side effects. 
D)  markets always align self-interest with social interest.

Question 14

Why do you think economists generally support increased trade?

Accepted Answer

People will be better off if t

Question 15

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs?

Accepted Answer

A)  An ant suffers a large initial cost to find food. 
B)  Because an ant starves if it does not find food, it has a strong incentive to search. 
C)  Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill. 
D)  Searching for food in one direction means an ant cannot search in another direction. 
A)  An ant suffers a large initial cost to find food. 
B)  Because an ant starves if it does not find food, it has a strong incentive to search. 
C)  Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill. 
D)  Searching for food in one direction means an ant cannot search in another direction.

Question 16

Which of these quotes from the text captures what makes central banking difficult?

Accepted Answer

A)  "No one can foresee the future." 
B)  "We cannot avoid all recessions." 
C)  "Markets, however, do not always align self-interest with social interest." 
D)  "In some situations the Fed must accept a certain amount of either inflation or unemployment." 
A)  "No one can foresee the future." 
B)  "We cannot avoid all recessions." 
C)  "Markets, however, do not always align self-interest with social interest." 
D)  "In some situations the Fed must accept a certain amount of either inflation or unemployment."

Question 17

When the unemployment rate rises, college enrollment tends to:

Accepted Answer

A)  rise. 
B)  remain the same. 
C)  fall. 
D)  defy prediction. 
A)  rise. 
B)  remain the same. 
C)  fall. 
D)  defy prediction.

Question 18

During the Great Depression the national unemployment rate rose above 20 percent.

Accepted Answer

A) True 
 B)False

Question 19

South Korea is an example of a country that has adopted good institutions for promoting economic growth.

Accepted Answer

A) True 
 B)False

Question 20

A National Geographic Channel special, Inside North Korea, reported on Dr. Sanduk Ruit's humanitarian mission to North Korea, one of the poorest countries in the world. Over a 10-day period he performed 1,000 relatively straightforward eye surgeries to remove blindness due to cataracts. Why is it not surprising that North Korea doesn't have doctors to perform the surgery?

Accepted Answer

A)  North Korea specializes in other things and trades for medical services. 
B)  North Korea is too poor to afford qualified eye doctors. 
C)  The invisible hand allocates resources to other areas. 
D)  North Korea suffers from too many economic booms and busts to afford such surgeries. 
A)  North Korea specializes in other things and trades for medical services. 
B)  North Korea is too poor to afford qualified eye doctors. 
C)  The invisible hand allocates resources to other areas. 
D)  North Korea suffers from too many economic booms and busts to afford such surgeries.

Exam 1: The Big Ideas

Monetary and fiscal policies have the potential to improve unemployment and GDP during a recession.

Institutions that support economic growth are the ones that:

In his book The Wealth of Nations, Adam Smith claimed that individuals:

The better Martha Stewart is at running her business:

What are the institutions that help foster the appropriate incentives for economic growth?

When deciding whether to eat a second piece of pizza, you should compare the total benefit of the two pieces of pizza with the total cost.

When it comes to getting the flu shot, most people consider _______, not _________.

Two people can benefit from trade if they both live in the same country, but not if they live in different countries.

The opportunity cost of a choice is:

Many companies pay their sales employees based on commissions-the more they sell, the more they get paid. This practice highlights the role of:

Today GDP per capita in South Korea is ______ than in North Korea.

Adam Smith's metaphor of the "invisible hand" refers to the notion that:

Why do you think economists generally support increased trade?

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs?

Which of these quotes from the text captures what makes central banking difficult?

When the unemployment rate rises, college enrollment tends to:

During the Great Depression the national unemployment rate rose above 20 percent.

South Korea is an example of a country that has adopted good institutions for promoting economic growth.

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

When it comes to getting the flu shot, most people consider _, not ___.