Question 1

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

Accepted Answer

A)  A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer. 
B)  A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge. 
C)  A government regulates a firm to clean up the pollutants the firm has released as part of its production process. 
D)  An apartment building that provides much-needed housing is built on the site of the only playground for children in that town. 
A)  A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer. 
B)  A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge. 
C)  A government regulates a firm to clean up the pollutants the firm has released as part of its production process. 
D)  An apartment building that provides much-needed housing is built on the site of the only playground for children in that town.

Question 2

An example of Adam Smith's "invisible hand" is self-interested businesspeople developing a better keyboard for the blind in hopes of making large profits.

Accepted Answer

A) True 
 B)False

Question 3

The opportunity cost of playing two hours of Super Mario Galaxy 2 is the value of the opportunities lost from the two hours of play.

Accepted Answer

A) True 
 B)False

Question 4

It makes sense that Martha Stewart hires another person to do her ironing because:

Accepted Answer

A)  she never learned how to iron. 
B)  her opportunity cost of ironing is the same as the opportunity cost for the person she hires. 
C)  her opportunity cost of ironing is lower than the opportunity cost for the person she hires. 
D)  her opportunity cost of ironing is higher than the opportunity cost for the person she hires. 
A)  she never learned how to iron. 
B)  her opportunity cost of ironing is the same as the opportunity cost for the person she hires. 
C)  her opportunity cost of ironing is lower than the opportunity cost for the person she hires. 
D)  her opportunity cost of ironing is higher than the opportunity cost for the person she hires.

Question 5

When deciding how much to study for an economics class, students should study until:

Accepted Answer

A)  the total benefits exceed the total costs. 
B)  the total costs equal the total benefits. 
C)  the marginal benefits exceed marginal costs. 
D)  the marginal costs exceed marginal benefits. 
A)  the total benefits exceed the total costs. 
B)  the total costs equal the total benefits. 
C)  the marginal benefits exceed marginal costs. 
D)  the marginal costs exceed marginal benefits.

Question 6

During the middle ages, expensive castle-based warfare was the dominant method of conflict. Warfare was also the main function of government. Which reason best explains why few universities were built during this time?

Accepted Answer

A)  The lack of professors meant there was no incentive to create universities. 
B)  The opportunity cost of building universities was fewer castles. 
C)  There were no benefits to attending college at the time. 
D)  Local rulers did not care about long-term growth. 
A)  The lack of professors meant there was no incentive to create universities. 
B)  The opportunity cost of building universities was fewer castles. 
C)  There were no benefits to attending college at the time. 
D)  Local rulers did not care about long-term growth.

Question 7

One of the effects of economic growth is:

Accepted Answer

A)  a higher rate of infant mortality. 
B)  less leisure time. 
C)  a lower level of reported happiness. 
D)  better sanitation and health outcomes. 
A)  a higher rate of infant mortality. 
B)  less leisure time. 
C)  a lower level of reported happiness. 
D)  better sanitation and health outcomes.

Question 8

The study of economics increases your understanding of the distant past, present events, and future possibilities.

Accepted Answer

A) True 
 B)False

Question 9

A period marked by falling wages, falling national output, and rising unemployment is called a recession.

Accepted Answer

A) True 
 B)False

Question 10

In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of:

Accepted Answer

A)  pedagogical economics-the continuous assessment of student performance in an effort to maximize student efficiency. 
B)  hidden costs-the costs borne by taxpayers in the form of wasteful school spending. 
C)  incentives-the rewards and penalties that motivate behavior. 
D)  screening theory-the identification of individuals or groups based on various performance measures. 
A)  pedagogical economics-the continuous assessment of student performance in an effort to maximize student efficiency. 
B)  hidden costs-the costs borne by taxpayers in the form of wasteful school spending. 
C)  incentives-the rewards and penalties that motivate behavior. 
D)  screening theory-the identification of individuals or groups based on various performance measures.

Question 11

Adam Smith coined the term "invisible hand" to mean:

Accepted Answer

A)  a physical hand that leads individuals to promote social interest by pursuing self-interest. 
B)  a metaphorical hand that leads individuals to promote social interest by pursuing self-interest. 
C)  a physical hand that leads individuals to promote self-interest by pursuing social interest. 
D)  a metaphorical hand that leads individuals to promote self-interest by pursuing social interest. 
A)  a physical hand that leads individuals to promote social interest by pursuing self-interest. 
B)  a metaphorical hand that leads individuals to promote social interest by pursuing self-interest. 
C)  a physical hand that leads individuals to promote self-interest by pursuing social interest. 
D)  a metaphorical hand that leads individuals to promote self-interest by pursuing social interest.

Question 12

When private interests in markets are not aligned with the social interest:

Accepted Answer

A)  the free market functions in the best interest of society. 
B)  regulatory action may improve upon the free market outcome. 
C)  the relevant market should be banned. 
D)  the relevant production process should be outsourced. 
A)  the free market functions in the best interest of society. 
B)  regulatory action may improve upon the free market outcome. 
C)  the relevant market should be banned. 
D)  the relevant production process should be outsourced.

Question 13

Among the most powerful institutions for supporting good incentives are:

Accepted Answer

A)  government price controls. 
B)  monopolies. 
C)  legal limits on excessive profits. 
D)  property rights. 
A)  government price controls. 
B)  monopolies. 
C)  legal limits on excessive profits. 
D)  property rights.

Question 14

Why might the FDA err on the side of "overtesting" pharmaceutical drugs compared with the level of testing that is economically efficient?

Accepted Answer

A)  Dangerous side effects are more important than drug loss and drug lag. 
B)  Dangerous side effects are less important than drug loss and drug lag. 
C)  Drug lag and drug loss are not significant concerns in the case of most pharmaceutical drugs. 
D)  Dangerous side effects are not relevant in most pharmaceutical drug cases. 
A)  Dangerous side effects are more important than drug loss and drug lag. 
B)  Dangerous side effects are less important than drug loss and drug lag. 
C)  Drug lag and drug loss are not significant concerns in the case of most pharmaceutical drugs. 
D)  Dangerous side effects are not relevant in most pharmaceutical drug cases.

Question 15

The idea that markets work efficiently:

Accepted Answer

A)  refers to the fact that self-interest can be aligned with social interest. 
B)  means that trade-offs can be reduced by channeling greed toward good ends. 
C)  suggests that there is never any need for government regulation, taxes, or subsidies. 
D)  has been known for many centuries. 
A)  refers to the fact that self-interest can be aligned with social interest. 
B)  means that trade-offs can be reduced by channeling greed toward good ends. 
C)  suggests that there is never any need for government regulation, taxes, or subsidies. 
D)  has been known for many centuries.

Question 16

Economists think that noone is ever self-interested.

Accepted Answer

A) True 
 B)False

Question 17

If there is high inflation, individual households will be hurt but economic disruptions on the national level will not result..

Accepted Answer

A) True 
 B)False

Question 18

An increase in the general price level is:

Accepted Answer

A)  depreciation. 
B)  appreciation. 
C)  deflation. 
D)  inflation. 
A)  depreciation. 
B)  appreciation. 
C)  deflation. 
D)  inflation.

Question 19

During the period of dramatic inflation in Zimbabwe, if you had one trillion Zimbabwean dollars, you still were not very rich.

Accepted Answer

A) True 
 B)False

Question 20

A customer at a fast-food restaurant may choose to order a burger for $4.00 and fries for $1.50, or order a value meal (that includes the burger, fries, and a drink) for $6.00. What is the marginal cost of the drink if the customer orders the value meal?

Accepted Answer

A)  $6.00 
B)  $1.50 
C)  $0.00 
D)  $0.50 
A)  $6.00 
B)  $1.50 
C)  $0.00 
D)  $0.50

Exam 1: The Big Ideas

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

An example of Adam Smith's "invisible hand" is self-interested businesspeople developing a better keyboard for the blind in hopes of making large profits.

The opportunity cost of playing two hours of Super Mario Galaxy 2 is the value of the opportunities lost from the two hours of play.

It makes sense that Martha Stewart hires another person to do her ironing because:

When deciding how much to study for an economics class, students should study until:

During the middle ages, expensive castle-based warfare was the dominant method of conflict. Warfare was also the main function of government. Which reason best explains why few universities were built during this time?

One of the effects of economic growth is:

The study of economics increases your understanding of the distant past, present events, and future possibilities.

A period marked by falling wages, falling national output, and rising unemployment is called a recession.

In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of:

Adam Smith coined the term "invisible hand" to mean:

When private interests in markets are not aligned with the social interest:

Among the most powerful institutions for supporting good incentives are:

Why might the FDA err on the side of "overtesting" pharmaceutical drugs compared with the level of testing that is economically efficient?

The idea that markets work efficiently:

Economists think that noone is ever self-interested.

If there is high inflation, individual households will be hurt but economic disruptions on the national level will not result..

An increase in the general price level is:

During the period of dramatic inflation in Zimbabwe, if you had one trillion Zimbabwean dollars, you still were not very rich.

A customer at a fast-food restaurant may choose to order a burger for $4.00 and fries for $1.50, or order a value meal (that includes the burger, fries, and a drink) for $6.00. What is the marginal cost of the drink if the customer orders the value meal?

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