Question 1

An example of an externality is the impact of

Accepted Answer

A)  bad weather on the income of farmers. 
B)  the personal income tax on a person's ability to purchase goods and services. 
C)  pollution from a factory on the health of people in the vicinity of the factory. 
D)  increases in health care costs on the health of individuals in society. 
A)  bad weather on the income of farmers. 
B)  the personal income tax on a person's ability to purchase goods and services. 
C)  pollution from a factory on the health of people in the vicinity of the factory. 
D)  increases in health care costs on the health of individuals in society.

Question 2

Which is the most accurate statement about trade?

Accepted Answer

A)  Trade can make every nation better off. 
B)  Trade makes some nations better off and others worse off. 
C)  Trading for a good can make a nation better off only if the nation cannot produce that good itself. 
D)  Trade helps rich nations and hurts poor nations. 
A)  Trade can make every nation better off. 
B)  Trade makes some nations better off and others worse off. 
C)  Trading for a good can make a nation better off only if the nation cannot produce that good itself. 
D)  Trade helps rich nations and hurts poor nations.

Question 3

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Accepted Answer

A)  efficiency. 
B)  equality. 
C)  externalities. 
D)  productivity. 
A)  efficiency. 
B)  equality. 
C)  externalities. 
D)  productivity.

Question 4

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

Accepted Answer

A)  sell the ticket because the marginal benefit exceeds the marginal cost. 
B)  sell the ticket because the marginal benefit exceeds the average cost. 
C)  not sell the ticket because the marginal benefit is less than the marginal cost. 
D)  not sell the ticket because the marginal benefit is less than the average cost. 
A)  sell the ticket because the marginal benefit exceeds the marginal cost. 
B)  sell the ticket because the marginal benefit exceeds the average cost. 
C)  not sell the ticket because the marginal benefit is less than the marginal cost. 
D)  not sell the ticket because the marginal benefit is less than the average cost.

Question 5

The "invisible hand" refers to

Accepted Answer

A)  the government. 
B)  the free market. 
C)  central planners. 
D)  large businesses. 
A)  the government. 
B)  the free market. 
C)  central planners. 
D)  large businesses.

Question 6

The relatively low inflation experienced in the United States in the 1990s is attributable to

Accepted Answer

A)  slow growth of U.S. productivity during the 1990s. 
B)  slow growth of the quantity of money in the U.S. in the 1990s. 
C)  low levels of government spending in the U.S. in the 1980s and 1990s. 
D)  the eight-year presidency of William Jefferson Clinton during the 1990s. 
A)  slow growth of U.S. productivity during the 1990s. 
B)  slow growth of the quantity of money in the U.S. in the 1990s. 
C)  low levels of government spending in the U.S. in the 1980s and 1990s. 
D)  the eight-year presidency of William Jefferson Clinton during the 1990s.

Question 7

Which of the following is an example of something economists study?

Accepted Answer

A)  Mitch chooses to work overtime to earn extra income for his family. 
B)  Megan sells her physics textbook from last semester to her roommate for half the price of a new textbook. 
C)  The unemployment rate in the United States has fallen by two percentage points in the last few years. 
D)  All of the above are correct. 
A)  Mitch chooses to work overtime to earn extra income for his family. 
B)  Megan sells her physics textbook from last semester to her roommate for half the price of a new textbook. 
C)  The unemployment rate in the United States has fallen by two percentage points in the last few years. 
D)  All of the above are correct.

Question 8

In an economy in which decisions are guided by prices and individual self-interest, there is

Accepted Answer

A)  the potential to achieve efficiency in production. 
B)  a strong need for government intervention in the market. 
C)  less efficiency than would be observed in a centrally-planned economy. 
D)  more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy. 
A)  the potential to achieve efficiency in production. 
B)  a strong need for government intervention in the market. 
C)  less efficiency than would be observed in a centrally-planned economy. 
D)  more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.

Question 9

Large or persistent inflation is almost always caused by

Accepted Answer

A)  excessive government spending. 
B)  excessive growth in the quantity of money. 
C)  foreign competition. 
D)  higher-than-normal levels of productivity. 
A)  excessive government spending. 
B)  excessive growth in the quantity of money. 
C)  foreign competition. 
D)  higher-than-normal levels of productivity.

Question 10

The term "market failure"

Accepted Answer

A)  means the same thing as "market power." 
B)  refers to the dissolution of a market when firms decide to quit producing a certain product. 
C)  refers to the failure of a market to produce an efficient allocation of resources. 
D)  refers to government's failure to enforce the property rights of households or firms that participate in a certain market. 
A)  means the same thing as "market power." 
B)  refers to the dissolution of a market when firms decide to quit producing a certain product. 
C)  refers to the failure of a market to produce an efficient allocation of resources. 
D)  refers to government's failure to enforce the property rights of households or firms that participate in a certain market.

Question 11

If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome,

Accepted Answer

A)  an increase in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell. 
B)  an increase in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell. 
C)  a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell. 
D)  a decrease in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell. 
A)  an increase in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell. 
B)  an increase in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell. 
C)  a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell. 
D)  a decrease in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell.

Question 12

The failure of communism in a large number of countries is at least partly explained by

Accepted Answer

A)  the fact that those countries relied absolutely on the invisible hand. 
B)  the fact that those countries did little or nothing to restrict trade with other countries. 
C)  the lack of information, on the part of central planners in those countries, about tastes and preferences in their economies. 
D)  the lack of information, on the part of central planners in those countries, about how much authority the government had in affecting economic outcomes. 
A)  the fact that those countries relied absolutely on the invisible hand. 
B)  the fact that those countries did little or nothing to restrict trade with other countries. 
C)  the lack of information, on the part of central planners in those countries, about tastes and preferences in their economies. 
D)  the lack of information, on the part of central planners in those countries, about how much authority the government had in affecting economic outcomes.

Question 13

Which of the following firms is most likely to have market power?

Accepted Answer

A)  a grocery store in a metropolitan area 
B)  a convenience store in a suburb 
C)  a pub in a college town 
D)  the only gasoline station in a rural area 
A)  a grocery store in a metropolitan area 
B)  a convenience store in a suburb 
C)  a pub in a college town 
D)  the only gasoline station in a rural area

Question 14

Which of the following is an important cause of inflation in an economy?

Accepted Answer

A)  increases in productivity in the economy 
B)  the influence of positive externalities on the economy 
C)  lack of property rights in the economy 
D)  growth in the quantity of money in the economy 
A)  increases in productivity in the economy 
B)  the influence of positive externalities on the economy 
C)  lack of property rights in the economy 
D)  growth in the quantity of money in the economy

Question 15

Economists are particularly adept at understanding that people respond to

Accepted Answer

A)  laws. 
B)  incentives. 
C)  punishments more than rewards. 
D)  rewards more than punishments. 
A)  laws. 
B)  incentives. 
C)  punishments more than rewards. 
D)  rewards more than punishments.

Question 16

Which of these activities will most likely impose an external cost?

Accepted Answer

A)  An athlete works out at a gym. 
B)  A secretary smokes a cigarette in a crowded break room. 
C)  A young mother pushes her baby in a stroller. 
D)  A construction worker eats a hotdog during his lunch break. 
A)  An athlete works out at a gym. 
B)  A secretary smokes a cigarette in a crowded break room. 
C)  A young mother pushes her baby in a stroller. 
D)  A construction worker eats a hotdog during his lunch break.

Question 17

Public policies

Accepted Answer

A)  may be able to improve either economic efficiency or equality. 
B)  may be able to improve economic efficiency but cannot improve equality. 
C)  may be able to improve equality but cannot improve economic efficiency. 
D)  cannot improve either equality or economic efficiency. 
A)  may be able to improve either economic efficiency or equality. 
B)  may be able to improve economic efficiency but cannot improve equality. 
C)  may be able to improve equality but cannot improve economic efficiency. 
D)  cannot improve either equality or economic efficiency.

Question 18

Which of the following firms is likely to have the greatest market power?

Accepted Answer

A)  an electric company 
B)  a farmer 
C)  a grocery store 
D)  a local electronics retailer 
A)  an electric company 
B)  a farmer 
C)  a grocery store 
D)  a local electronics retailer

Question 19

Which of the following is a subject that economists study?

Accepted Answer

A)  the growth in average income 
B)  the fraction of the population that cannot find work 
C)  the rate at which prices are rising 
D)  All of the above are correct. 
A)  the growth in average income 
B)  the fraction of the population that cannot find work 
C)  the rate at which prices are rising 
D)  All of the above are correct.

Question 20

Explain the concept of market failure.

Accepted Answer

Market failure is a situation

Exam 1: Ten Principles of Economics

An example of an externality is the impact of

Which is the most accurate statement about trade?

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

The "invisible hand" refers to

The relatively low inflation experienced in the United States in the 1990s is attributable to

Which of the following is an example of something economists study?

In an economy in which decisions are guided by prices and individual self-interest, there is

Large or persistent inflation is almost always caused by

The term "market failure"

If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome,

The failure of communism in a large number of countries is at least partly explained by

Which of the following firms is most likely to have market power?

Which of the following is an important cause of inflation in an economy?

Economists are particularly adept at understanding that people respond to

Which of these activities will most likely impose an external cost?

Public policies

Which of the following firms is likely to have the greatest market power?

Which of the following is a subject that economists study?

Explain the concept of market failure.

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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