Question 1

According to Adam Smith, the success of decentralized market economies is primarily due to

Accepted Answer

A)  the basic benevolence of society. 
B)  society's legal system. 
C)  individuals' pursuit of self-interest. 
D)  partnerships that are forged between business and government. 
A)  the basic benevolence of society. 
B)  society's legal system. 
C)  individuals' pursuit of self-interest. 
D)  partnerships that are forged between business and government.

Question 2

Which of the following is true?

Accepted Answer

A)  Efficiency refers to the size of the economic pie; equality refers to how the pie is divided. 
B)  Government policies usually improve upon both equality and efficiency. 
C)  As long as the economic pie continually gets larger, no one will have to go hungry. 
D)  Efficiency and equality can both be achieved if the economic pie is cut into equal pieces. 
A)  Efficiency refers to the size of the economic pie; equality refers to how the pie is divided. 
B)  Government policies usually improve upon both equality and efficiency. 
C)  As long as the economic pie continually gets larger, no one will have to go hungry. 
D)  Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.

Question 3

The word "economy" comes from the Greek word oikonomos, which means

Accepted Answer

A)  "environment." 
B)  "production." 
C)  "one who manages a household." 
D)  "one who makes decisions." 
A)  "environment." 
B)  "production." 
C)  "one who manages a household." 
D)  "one who makes decisions."

Question 4

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between

Accepted Answer

A)  guns and butter. 
B)  efficiency and equality. 
C)  inflation and unemployment. 
D)  work and leisure. 
A)  guns and butter. 
B)  efficiency and equality. 
C)  inflation and unemployment. 
D)  work and leisure.

Question 5

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Accepted Answer

A)  David Ricardo 
B)  Thorstein Veblen 
C)  John Maynard Keynes 
D)  Adam Smith 
A)  David Ricardo 
B)  Thorstein Veblen 
C)  John Maynard Keynes 
D)  Adam Smith

Question 6

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. 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 7

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

Accepted Answer

A)  The average American purchases more televisions than the average Nigerian. 
B)  The average American has better nutrition and healthcare than the average Nigerian. 
C)  The average American has a longer life expectancy than the average Nigerian. 
D)  All of the above are correct. 
A)  The average American purchases more televisions than the average Nigerian. 
B)  The average American has better nutrition and healthcare than the average Nigerian. 
C)  The average American has a longer life expectancy than the average Nigerian. 
D)  All of the above are correct.

Question 8

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to decrease the money supply. This is likely because the Federal Reserve is

Accepted Answer

A)  worried about inflation. 
B)  worried about unemployment. 
C)  hoping to increase the demand for goods and services. 
D)  worried that the economy is growing too slowly. 
A)  worried about inflation. 
B)  worried about unemployment. 
C)  hoping to increase the demand for goods and services. 
D)  worried that the economy is growing too slowly.

Question 9

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of

Accepted Answer

A)  a market failure caused by an externality. 
B)  a market failure caused by market power. 
C)  a market failure caused by equality. 
D)  There is no market failure in this case. 
A)  a market failure caused by an externality. 
B)  a market failure caused by market power. 
C)  a market failure caused by equality. 
D)  There is no market failure in this case.

Question 10

Betty's Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is thrown away. A loaf of bread costs Betty $2.00 to produce, and she prices loaves of bread at $3.50 per loaf. Suppose near the end of one day Betty still has 12 loaves of bread on hand. Which of the following is correct?

Accepted Answer

A)  Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price. 
B)  Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the bread costs to make. 
C)  Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something. 
D)  Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she sells all of her bread each day. 
A)  Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price. 
B)  Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the bread costs to make. 
C)  Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something. 
D)  Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she sells all of her bread each day.

Question 11

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 12

Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial

Accepted Answer

A)  only if it allows us to obtain things that we couldn't make for ourselves. 
B)  because it allows specialization, which increases total output. 
C)  to us if we can gain and the others involved in the trade lose. 
D)  in only a limited number of circumstances because others are typically self-interested. 
A)  only if it allows us to obtain things that we couldn't make for ourselves. 
B)  because it allows specialization, which increases total output. 
C)  to us if we can gain and the others involved in the trade lose. 
D)  in only a limited number of circumstances because others are typically self-interested.

Question 13

The amount of goods and services produced from each unit of labor input is called

Accepted Answer

A)  opportunity cost. 
B)  productivity. 
C)  externality. 
D)  marginal benefit. 
A)  opportunity cost. 
B)  productivity. 
C)  externality. 
D)  marginal benefit.

Question 14

If wages for accountants rose, then accountants' leisure time would have a lower opportunity cost.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following could reduce economic efficiency?

Accepted Answer

A)  laws that encourage lawsuits 
B)  policies that redistribute income 
C)  policies that impose significant restrictions on international trade 
D)  All of the above are correct 
A)  laws that encourage lawsuits 
B)  policies that redistribute income 
C)  policies that impose significant restrictions on international trade 
D)  All of the above are correct

Question 16

Debbie quits her job, which pays $30,000 a year, to finish her college degree. Her annual college expenses are $10,000 for tuition, $2,000 for books, and $700 for food. What is her opportunity cost of attending college for the year?

Accepted Answer

The answer of Debbie quits her job, which pays $30,000...

Question 17

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

Accepted Answer

A)  trade can make everyone better off. 
B)  people face trade-offs. 
C)  rational people think at the margin. 
D)  decisions made at the margin are not particularly important. 
A)  trade can make everyone better off. 
B)  people face trade-offs. 
C)  rational people think at the margin. 
D)  decisions made at the margin are not particularly important.

Question 18

In the United States, incomes historically have grown about 2 percent per year. At this rate, average income doubles every

Accepted Answer

A)  15 years. 
B)  25 years. 
C)  35 years. 
D)  45 years. 
A)  15 years. 
B)  25 years. 
C)  35 years. 
D)  45 years.

Question 19

Which of the following would a permanent increase in the growth rate of the money supply change permanently?

Accepted Answer

A)  inflation 
B)  unemployment 
C)  both inflation and unemployment 
D)  neither inflation nor unemployment 
A)  inflation 
B)  unemployment 
C)  both inflation and unemployment 
D)  neither inflation nor unemployment

Question 20

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Accepted Answer

A)  For the first 30 houses, the average cost per house was $250,000. 
B)  The marginal cost of the 31st house, if it is built, will be $260,000. 
C)  If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it. 
D)  All of the above are correct. 
A)  For the first 30 houses, the average cost per house was $250,000. 
B)  The marginal cost of the 31st house, if it is built, will be $260,000. 
C)  If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it. 
D)  All of the above are correct.

Exam 1: Ten Principles of Economics

According to Adam Smith, the success of decentralized market economies is primarily due to

Which of the following is true?

The word "economy" comes from the Greek word oikonomos, which means

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to decrease the money supply. This is likely because the Federal Reserve is

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of

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

Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial

The amount of goods and services produced from each unit of labor input is called

If wages for accountants rose, then accountants' leisure time would have a lower opportunity cost.

Which of the following could reduce economic efficiency?

Debbie quits her job, which pays $30,000 a year, to finish her college degree. Her annual college expenses are $10,000 for tuition, $2,000 for books, and $700 for food. What is her opportunity cost of attending college for the year?

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

In the United States, incomes historically have grown about 2 percent per year. At this rate, average income doubles every

Which of the following would a permanent increase in the growth rate of the money supply change permanently?

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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