Question 1

The opportunity cost of going to college is

Accepted Answer

A)  the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. 
B)  the value of the best opportunity a student gives up to attend college. 
C)  zero for students who are fortunate enough to have all of their college expenses paid by someone else. 
D)  zero, since a college education will allow a student to earn a larger income after graduation. 
A)  the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. 
B)  the value of the best opportunity a student gives up to attend college. 
C)  zero for students who are fortunate enough to have all of their college expenses paid by someone else. 
D)  zero, since a college education will allow a student to earn a larger income after graduation.

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

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 4

The combination of President Obama's strategies and the Federal Reserve's reaction to the deep economic downturn in the US in 2008 and 2009

Accepted Answer

A)  intended to reduce unemployment. 
B)  may lead to excessive inflation over time. 
C)  resulted in higher taxes and an increased supply of money. 
D)  Both a and b are correct. 
A)  intended to reduce unemployment. 
B)  may lead to excessive inflation over time. 
C)  resulted in higher taxes and an increased supply of money. 
D)  Both a and b are correct.

Question 5

In most societies, resources are allocated by

Accepted Answer

A)  a single central planner. 
B)  a small number of central planners. 
C)  those firms that use resources to provide goods and services. 
D)  the combined actions of millions of households and firms. 
A)  a single central planner. 
B)  a small number of central planners. 
C)  those firms that use resources to provide goods and services. 
D)  the combined actions of millions of households and firms.

Question 6

Causes of market failure include

Accepted Answer

A)  externalities and market power. 
B)  market power and incorrect forecasts of consumer demand. 
C)  externalities and foreign competition. 
D)  incorrect forecasts of consumer demand and foreign competition. 
A)  externalities and market power. 
B)  market power and incorrect forecasts of consumer demand. 
C)  externalities and foreign competition. 
D)  incorrect forecasts of consumer demand and foreign competition.

Question 7

Suppose that in Brazil total annual output is worth $600 million and people work 30 million hours. In Peru total annual output is worth $800 million and people work 50 million hours. Productivity is higher

Accepted Answer

A)  in Brazil. Most variation in the standard of living across countries is due to differences in productivity. 
B)  in Brazil. Differences in productivity explain very little of the variation in the standard of living across countries. 
C)  in Peru. Most variation in the standard of living across countries is due to differences in productivity. 
D)  in Peru. Differences in productivity explain very little of the variation in the standard of living across countries. 
A)  in Brazil. Most variation in the standard of living across countries is due to differences in productivity. 
B)  in Brazil. Differences in productivity explain very little of the variation in the standard of living across countries. 
C)  in Peru. Most variation in the standard of living across countries is due to differences in productivity. 
D)  in Peru. Differences in productivity explain very little of the variation in the standard of living across countries.

Question 8

The income of a typical worker in a country is most closely linked to which of the following?

Accepted Answer

A)  population 
B)  productivity 
C)  market power 
D)  government policies 
A)  population 
B)  productivity 
C)  market power 
D)  government policies

Question 9

An increase in the overall level of prices in an economy is referred to as

Accepted Answer

A)  the income effect. 
B)  inflation. 
C)  deflation. 
D)  the substitution effect. 
A)  the income effect. 
B)  inflation. 
C)  deflation. 
D)  the substitution effect.

Question 10

The term market failure refers to

Accepted Answer

A)  a situation in which the market on its own fails to allocate resources efficiently. 
B)  an unsuccessful advertising campaign which reduces demand for a product. 
C)  a situation in which competition among firms becomes ruthless. 
D)  a firm which is forced out of business because of losses. 
A)  a situation in which the market on its own fails to allocate resources efficiently. 
B)  an unsuccessful advertising campaign which reduces demand for a product. 
C)  a situation in which competition among firms becomes ruthless. 
D)  a firm which is forced out of business because of losses.

Question 11

Which of the following is a decision that economists study?

Accepted Answer

A)  how much people work 
B)  what people buy 
C)  how much money people save 
D)  All of the above are correct. 
A)  how much people work 
B)  what people buy 
C)  how much money people save 
D)  All of the above are correct.

Question 12

Productivity is defined as the

Accepted Answer

A)  amount of goods and services produced from each unit of labor input. 
B)  number of workers required to produce a given amount of goods and services. 
C)  amount of labor that can be saved by replacing workers with machines. 
D)  actual amount of effort workers put into an hour of working time. 
A)  amount of goods and services produced from each unit of labor input. 
B)  number of workers required to produce a given amount of goods and services. 
C)  amount of labor that can be saved by replacing workers with machines. 
D)  actual amount of effort workers put into an hour of working time.

Question 13

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 14

For a number of years country A had inflation of 3% but for the last five years has had inflation of 6%. Country B had inflation of 4% for many years, but very recently inflation unexpectedly rose to 9%. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment?

Accepted Answer

A)  both country A and country B 
B)  neither country A nor country B 
C)  country A but not country B 
D)  country B but not country A 
A)  both country A and country B 
B)  neither country A nor country B 
C)  country A but not country B 
D)  country B but not country A

Question 15

Consider two countries, Muria and Zenya. In Muria total annual output is worth $800 million and people work 40 million hours. In Zenya total annual output is worth $900 million and people work 50 million hours. In which country is productivity higher?

Accepted Answer

The answer of Consider two countries, Muria and Zenya. In...

Question 16

Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents. As a student of economics, you know that

Accepted Answer

A)  this is a case of the "broken window fallacy." 
B)  this is a great use of taxpayer dollars. 
C)  this policy diverts money from spending somewhere else in the economy. 
D)  Both a and c are correct. 
A)  this is a case of the "broken window fallacy." 
B)  this is a great use of taxpayer dollars. 
C)  this policy diverts money from spending somewhere else in the economy. 
D)  Both a and c are correct.

Question 17

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
-Refer to Scenario 1-6. What is the minimum price that would induce this company to produce the 601st heart rate monitor?

Accepted Answer

The answer of Scenario 1-6
It costs a company $30,000 to...

Question 18

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
-Refer to Scenario 1-6. What is the company's average cost?

Accepted Answer

The answer of Scenario 1-6
It costs a company $30,000 to...

Question 19

One reason we need government, even in a market economy, is that

Accepted Answer

A)  there is insufficient market power in the absence of government. 
B)  property rights are too strong in the absence of government. 
C)  the invisible hand is not perfect. 
D)  Both a and b are correct. 
A)  there is insufficient market power in the absence of government. 
B)  property rights are too strong in the absence of government. 
C)  the invisible hand is not perfect. 
D)  Both a and b are correct.

Question 20

John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that

Accepted Answer

A)  trade can make everyone better off. 
B)  people face trade-offs. 
C)  rational people think at the margin. 
D)  people respond to incentives. 
A)  trade can make everyone better off. 
B)  people face trade-offs. 
C)  rational people think at the margin. 
D)  people respond to incentives.

Exam 1: Ten Principles of Economics

The opportunity cost of going to college is

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

A rational decision maker takes an action if and only if

The combination of President Obama's strategies and the Federal Reserve's reaction to the deep economic downturn in the US in 2008 and 2009

In most societies, resources are allocated by

Causes of market failure include

Suppose that in Brazil total annual output is worth $600 million and people work 30 million hours. In Peru total annual output is worth $800 million and people work 50 million hours. Productivity is higher

The income of a typical worker in a country is most closely linked to which of the following?

An increase in the overall level of prices in an economy is referred to as

The term market failure refers to

Which of the following is a decision that economists study?

Productivity is defined as the

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

Consider two countries, Muria and Zenya. In Muria total annual output is worth $800 million and people work 40 million hours. In Zenya total annual output is worth $900 million and people work 50 million hours. In which country is productivity higher?

Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents. As a student of economics, you know that

Scenario 1-6 It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors. -Refer to Scenario 1-6. What is the company's average cost?

One reason we need government, even in a market economy, is that

John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that

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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