Question 1

A marginal change is a

Accepted Answer

A) change that involves little,if anything,that is important. 
B) large,significant adjustment. 
C) change for the worse,and so it is usually a short-term change. 
D) small,incremental adjustment. 
A) change that involves little,if anything,that is important. 
B) large,significant adjustment. 
C) change for the worse,and so it is usually a short-term change. 
D) small,incremental adjustment.

Question 2

A rational decision maker takes an action if and only if

Accepted Answer

A) the average benefit of the action exceeds the average cost. 
B) the average cost of the action exceeds the average benefit. 
C) the marginal benefit of the action exceeds the marginal cost. 
D) the marginal cost of the action exceeds the marginal benefit. 
A) the average benefit of the action exceeds the average cost. 
B) the average cost of the action exceeds the average benefit. 
C) the marginal benefit of the action exceeds the marginal cost. 
D) the marginal cost of the action exceeds the marginal benefit.

Question 3

Economists use the word equality to describe a situation in which

Accepted Answer

A) each member of society has the same income. 
B) each member of society has access to abundant quantities of goods and services,regardless of his or her income. 
C) society is getting the maximum benefits from its scarce resources. 
D) society's resources are used efficiently. 
A) each member of society has the same income. 
B) each member of society has access to abundant quantities of goods and services,regardless of his or her income. 
C) society is getting the maximum benefits from its scarce resources. 
D) society's resources are used efficiently.

Question 4

What you give up to obtain an item is called your

Accepted Answer

A) opportunity cost. 
B) explicit cost. 
C) monetary cost. 
D) direct cost. 
A) opportunity cost. 
B) explicit cost. 
C) monetary cost. 
D) direct cost.

Question 5

Which of the following examples does not illustrate the principle represented by the adage,"There is no such thing as a free lunch"?

Accepted Answer

A) Melissa needs to pay her rent and her electric bill. 
B) Kevin must choose between buying a new flat screen television and buying his textbooks for this semester. 
C) Robert must decide between studying for his psychology exam and working at his part-time job. 
D) Lisa can spend her money on a new smart phone or on a weekend trip. 
A) Melissa needs to pay her rent and her electric bill. 
B) Kevin must choose between buying a new flat screen television and buying his textbooks for this semester. 
C) Robert must decide between studying for his psychology exam and working at his part-time job. 
D) Lisa can spend her money on a new smart phone or on a weekend trip.

Question 6

When society requires that firms reduce pollution,there is

Accepted Answer

A) a tradeoff because of reduced incomes to the firms' owners and workers. 
B) a tradeoff only if some firms are forced to close. 
C) no tradeoff,since the cost of reducing pollution falls only on the firms affected by the requirements. 
D) no tradeoff,since everyone benefits from reduced pollution. 
A) a tradeoff because of reduced incomes to the firms' owners and workers. 
B) a tradeoff only if some firms are forced to close. 
C) no tradeoff,since the cost of reducing pollution falls only on the firms affected by the requirements. 
D) no tradeoff,since everyone benefits from reduced pollution.

Question 7

When government policies are enacted,

Accepted Answer

A) equality can usually be enhanced without an efficiency loss,but efficiency can never be enhanced without a reduction in equality. 
B) efficiency can usually be enhanced without a reduction in equality,but equality can never be enhanced without an efficiency loss. 
C) it is always the case that either efficiency and equality are both enhanced,or efficiency and equality are both diminished. 
D) None of the above are correct. 
A) equality can usually be enhanced without an efficiency loss,but efficiency can never be enhanced without a reduction in equality. 
B) efficiency can usually be enhanced without a reduction in equality,but equality can never be enhanced without an efficiency loss. 
C) it is always the case that either efficiency and equality are both enhanced,or efficiency and equality are both diminished. 
D) None of the above are correct.

Question 8

Efficiency means that

Accepted Answer

A) society is conserving resources in order to save them for the future. 
B) society's goods and services are distributed equally among society's members. 
C) society's goods and services are distributed fairly,though not necessarily equally,among society's members. 
D) society is getting the maximum benefits from its scarce resources. 
A) society is conserving resources in order to save them for the future. 
B) society's goods and services are distributed equally among society's members. 
C) society's goods and services are distributed fairly,though not necessarily equally,among society's members. 
D) society is getting the maximum benefits from its scarce resources.

Question 9

When computing the opportunity cost of attending a basketball game you should include

Accepted Answer

A) the price you pay for the ticket and the value of your time. 
B) the price you pay for the ticket,but not the value of your time. 
C) the value of your time,but not the price you pay for the ticket. 
D) neither the price of the ticket nor the value of your time. 
A) the price you pay for the ticket and the value of your time. 
B) the price you pay for the ticket,but not the value of your time. 
C) the value of your time,but not the price you pay for the ticket. 
D) neither the price of the ticket nor the value of your time.

Question 10

People are willing to pay more for a diamond than for a bottle of water because

Accepted Answer

A) the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 
B) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 
C) producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 
D) water prices are held artificially low by governments,since water is necessary for life. 
A) the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 
B) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 
C) producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 
D) water prices are held artificially low by governments,since water is necessary for life.

Question 11

In economics,the cost of something is

Accepted Answer

A) the dollar amount of obtaining it. 
B) always measured in units of time given up to get it. 
C) what you give up to get it. 
D) often impossible to quantify,even in principle. 
A) the dollar amount of obtaining it. 
B) always measured in units of time given up to get it. 
C) what you give up to get it. 
D) often impossible to quantify,even in principle.

Question 12

Which of the following industries has a marginal cost that is close to zero?

Accepted Answer

A) ​automobile 
B) ​aircraft 
C) ​software 
D) ​furniture 
A) ​automobile 
B) ​aircraft 
C) ​software 
D) ​furniture

Question 13

Consider Frank's decision to go to college.If he goes to college,he will spend $21,000 on tuition,$11,000 on room and board,and $1,800 on books.If he does not go to college,he will earn $16,000 working in a store and spend $7,200 on room and board.Frank's cost of going to college is

Accepted Answer

A) $33,800. 
B) $42,600. 
C) $49,800. 
D) $57,000. 
A) $33,800. 
B) $42,600. 
C) $49,800. 
D) $57,000.

Question 14

Suppose that you have received $300 as a birthday gift.You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest.The opportunity cost of spending the money today,in terms of what you could have after one year,is

Accepted Answer

A) $0. 
B) $15. 
C) $305. 
D) $315. 
A) $0. 
B) $15. 
C) $305. 
D) $315.

Question 15

Yvette buys and sells real estate.Two weeks ago,she paid $300,000 for a house on Pine Street,intending to spend $50,000 on repairs and then sell the house for $400,000.Last week,the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased.As a result of the city's announced plan,Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000,or she can forgo the repairs and sell the house as it is for $250,000.She should

Accepted Answer

A) keep the house and live in it. 
B) go ahead with the $50,000 in repairs and sell the house for $290,000. 
C) forgo the repairs and sell the house as it is for $250,000. 
D) move the house from Pine Street to a more desirable location,regardless of the cost of doing so. 
A) keep the house and live in it. 
B) go ahead with the $50,000 in repairs and sell the house for $290,000. 
C) forgo the repairs and sell the house as it is for $250,000. 
D) move the house from Pine Street to a more desirable location,regardless of the cost of doing so.

Question 16

One effect of the government-imposed seat belt law in the U.S.has been

Accepted Answer

A) a dramatic decrease in the number of pedestrian deaths. 
B) safer driving. 
C) an increase in the number of accidents. 
D) a dramatic decrease in the number of driver deaths. 
A) a dramatic decrease in the number of pedestrian deaths. 
B) safer driving. 
C) an increase in the number of accidents. 
D) a dramatic decrease in the number of driver deaths.

Question 17

Rick buys a 1966 Mustang for $3,000,planning to restore and sell the car.He goes on to spend $9,000 restoring the car.At this point he can sell the car for $10,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $13,000.Rick should

Accepted Answer

A) complete the repairs and sell the car for $13,000. 
B) sell the car now for $10,000. 
C) never try such an expensive project again. 
D) be indifferent between (i)selling the car now and (ii)replacing the engine and then selling it. 
A) complete the repairs and sell the car for $13,000. 
B) sell the car now for $10,000. 
C) never try such an expensive project again. 
D) be indifferent between (i)selling the car now and (ii)replacing the engine and then selling it.

Question 18

Cole is refinishing an antique china cabinet and has already spent $180 on the restoration.He expects to be able to sell the cabinet for $360.Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers.He could also sell the cabinet now,without completing the additional work,for $100.What should Cole do?

Accepted Answer

A) He should sell the cabinet now for $100. 
B) He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. 
C) He should complete the additional work and sell the cabinet for $360. 
D) It does not matter which action he takes since the outcome will be the same either way. 
A) He should sell the cabinet now for $100. 
B) He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. 
C) He should complete the additional work and sell the cabinet for $360. 
D) It does not matter which action he takes since the outcome will be the same either way.

Question 19

The marginal benefit Susie gets from purchasing a third pair of gloves is

Accepted Answer

A) the same as the total benefit she gets from purchasing three pairs of gloves. 
B) more than the marginal cost of purchasing the third pair of gloves. 
C) the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves. 
D) the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing three pairs of gloves. 
A) the same as the total benefit she gets from purchasing three pairs of gloves. 
B) more than the marginal cost of purchasing the third pair of gloves. 
C) the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves. 
D) the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing three pairs of gloves.

Question 20

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.

Exam 1: Ten Principles of Economics: How People Make Decisions

A marginal change is a

A rational decision maker takes an action if and only if

Economists use the word equality to describe a situation in which

What you give up to obtain an item is called your

Which of the following examples does not illustrate the principle represented by the adage,"There is no such thing as a free lunch"?

When society requires that firms reduce pollution,there is

When government policies are enacted,

Efficiency means that

When computing the opportunity cost of attending a basketball game you should include

People are willing to pay more for a diamond than for a bottle of water because

In economics,the cost of something is

Which of the following industries has a marginal cost that is close to zero?

Consider Frank's decision to go to college.If he goes to college,he will spend $21,000 on tuition,$11,000 on room and board,and $1,800 on books.If he does not go to college,he will earn $16,000 working in a store and spend $7,200 on room and board.Frank's cost of going to college is

Suppose that you have received $300 as a birthday gift.You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest.The opportunity cost of spending the money today,in terms of what you could have after one year,is

One effect of the government-imposed seat belt law in the U.S.has been

Rick buys a 1966 Mustang for $3,000,planning to restore and sell the car.He goes on to spend $9,000 restoring the car.At this point he can sell the car for $10,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $13,000.Rick should

The marginal benefit Susie gets from purchasing a third pair of gloves is

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

Ten Principles of Economics

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B

Measuring a Nations Income