Question 1

Which of the following is an example of an externality?

Accepted Answer

A)  A paper mill dumps waste into the river. 
B)  A neighbor's loud music disrupts sleep. 
C)  A drunk driver causes an accident that injures another person. 
D)  All of the above are correct. 
A)  A paper mill dumps waste into the river. 
B)  A neighbor's loud music disrupts sleep. 
C)  A drunk driver causes an accident that injures another person. 
D)  All of the above are correct. D

Question 2

In the context of decisionmaking, the word "marginal" is most closely associated with the word

Accepted Answer

A)  "unimportant." 
B)  "slow." 
C)  "edge." 
D)  "irrational." 
A)  "unimportant." 
B)  "slow." 
C)  "edge." 
D)  "irrational." C

Question 3

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

Accepted Answer

Efficiency and equality; a clean environment and a high level of income; guns and butter national defense and consumer goods)

Question 4

Scenario 1-5
Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If you choose to work, you will earn $10 an hour.
-Refer to Scenario 1-5. What is your opportunity cost of going to the movies?

Accepted Answer

The answer of Scenario 1-5
Suppose that you have a choice...

Question 5

Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.

Accepted Answer

A) True 
 B)False

Question 6

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5,800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?

Accepted Answer

A)  He should sell the car now for $3,800. 
B)  He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800. 
C)  He should complete the additional work and sell the car for $5,800. 
D)  It does not matter which action he takes since the outcome will be the same either way. 
A)  He should sell the car now for $3,800. 
B)  He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800. 
C)  He should complete the additional work and sell the car for $5,800. 
D)  It does not matter which action he takes since the outcome will be the same either way.

Question 7

When calculating the cost of college, which of the following should you probably include?

Accepted Answer

A)  The cost of your meal plan for the cafeteria. 
B)  The cost of books required for college classes 
C)  The income you earn at your part-time job. 
D)  The cost of living in the dormitory. 
A)  The cost of your meal plan for the cafeteria. 
B)  The cost of books required for college classes 
C)  The income you earn at your part-time job. 
D)  The cost of living in the dormitory.

Question 8

Which of the following is a principle concerning how people interact?

Accepted Answer

A)  Markets are usually a good way to organize economic activity. 
B)  Rational people think at the margin. 
C)  People respond to incentives. 
D)  All of the above are correct. 
A)  Markets are usually a good way to organize economic activity. 
B)  Rational people think at the margin. 
C)  People respond to incentives. 
D)  All of the above are correct.

Question 9

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

Accepted Answer

A) True 
 B)False

Question 10

Market failure refers to a situation in which the market does not allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 11

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 12

The "invisible hand" directs economic activity through

Accepted Answer

A)  advertising. 
B)  prices. 
C)  central planning. 
D)  government regulations. 
A)  advertising. 
B)  prices. 
C)  central planning. 
D)  government regulations.

Question 13

Which of the following statements does not apply to a market economy?

Accepted Answer

A)  Firms decide whom to hire and what to produce. 
B)  The "invisible hand" usually maximizes the well­being of society as a whole. 
C)  Households decide which firms to work for and what to buy with their incomes. 
D)  Government policies are the primary forces that guide the decisions of firms and households. 
A)  Firms decide whom to hire and what to produce. 
B)  The "invisible hand" usually maximizes the well­being of society as a whole. 
C)  Households decide which firms to work for and what to buy with their incomes. 
D)  Government policies are the primary forces that guide the decisions of firms and households.

Question 14

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

Accepted Answer

A)  People respond to incentives. 
B)  Rational people think at the margin. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity. 
A)  People respond to incentives. 
B)  Rational people think at the margin. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity.

Question 15

The government enforces property rights by

Accepted Answer

A)  requiring property owners to pay property taxes. 
B)  providing police and courts. 
C)  forcing people to own property. 
D)  providing public parks and recreation facilities. 
A)  requiring property owners to pay property taxes. 
B)  providing police and courts. 
C)  forcing people to own property. 
D)  providing public parks and recreation facilities.

Question 16

Approximately what percentage of the world's economies experience scarcity?

Accepted Answer

A)  10% 
B)  40% 
C)  85% 
D)  100% 
A)  10% 
B)  40% 
C)  85% 
D)  100%

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

Economists use the term to refer to fluctuations in economic activity, such as employment and production.

Accepted Answer

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

Question 19

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

Accepted Answer

To lower inflation, the government may c

Question 20

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.

Exam 1: Ten Principles of Economics

Which of the following is an example of an externality?

In the context of decisionmaking, the word "marginal" is most closely associated with the word

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

Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.

When calculating the cost of college, which of the following should you probably include?

Which of the following is a principle concerning how people interact?

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

Market failure refers to a situation in which the market does not allocate resources efficiently.

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

The "invisible hand" directs economic activity through

Which of the following statements does not apply to a market economy?

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

The government enforces property rights by

Approximately what percentage of the world's economies experience scarcity?

Economists use the term to refer to fluctuations in economic activity, such as employment and production.

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

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

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 Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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