Question 1

The price of diamonds is high, in part because the majority of the world's diamonds are controlled by a single firm. 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 2

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 3

Guns and butter are used to represent the classic societal tradeoff between spending on

Accepted Answer

A)  durable and nondurable goods. 
B)  imports and exports. 
C)  national defense and consumer goods. 
D)  law enforcement and agriculture. 
A)  durable and nondurable goods. 
B)  imports and exports. 
C)  national defense and consumer goods. 
D)  law enforcement and agriculture.

Question 4

What is the main difference between a centrally planned economy and a market economy?

Accepted Answer

In a market economy, decisions

Question 5

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

Accepted Answer

A)  goods are scarce. 
B)  people face tradeoffs. 
C)  income must be earned. 
D)  households face many decisions. 
A)  goods are scarce. 
B)  people face tradeoffs. 
C)  income must be earned. 
D)  households face many decisions.

Question 6

Bill is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $6,200. Bill discovers that he needs to do an additional $2,400 of work to make the car worth $6,200 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 $6,200. 
C)  He should complete the additional work and sell the car for $6,200. 
D)  It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because 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 $6,200. 
C)  He should complete the additional work and sell the car for $6,200. 
D)  It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way.

Question 7

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 8

Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is

Accepted Answer

A)  $96,000. 
B)  $110,000. 
C)  $114,000. 
D)  $123,000. 
A)  $96,000. 
B)  $110,000. 
C)  $114,000. 
D)  $123,000.

Question 9

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 10

Under what conditions might government intervention in a market economy improve the economy's performance?

Accepted Answer

If there is a market failure, such as an

Question 11

The economy of the former Soviet Union is best described as a

Accepted Answer

A)  primitive economy. 
B)  market economy. 
C)  hybrid economy. 
D)  centrally-planned economy. 
A)  primitive economy. 
B)  market economy. 
C)  hybrid economy. 
D)  centrally-planned economy.

Question 12

Which of the following is correct concerning opportunity cost?

Accepted Answer

A)  Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway. 
B)  To compute opportunity costs, you should subtract benefits from costs. 
C)  Opportunity costs and the idea of trade-offs are not closely related. 
D)  Rational people should compare various options without considering opportunity costs. 
A)  Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway. 
B)  To compute opportunity costs, you should subtract benefits from costs. 
C)  Opportunity costs and the idea of trade-offs are not closely related. 
D)  Rational people should compare various options without considering opportunity costs.

Question 13

The business cycle is measured by the

Accepted Answer

A)  production of goods and services. 
B)  number of people employed. 
C)  the interest rate. 
D)  Both a and b are correct. 
A)  production of goods and services. 
B)  number of people employed. 
C)  the interest rate. 
D)  Both a and b are correct.

Question 14

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 marginal cost?

Accepted Answer

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Accepted Answer

A)  government actions that distort prices. 
B)  increased competition in markets. 
C)  enforcement of property rights. 
D)  too much attention paid to efficiency. 
A)  government actions that distort prices. 
B)  increased competition in markets. 
C)  enforcement of property rights. 
D)  too much attention paid to efficiency.

Question 17

What are the two short­run effects of increasing the quantity of nation's money?

Accepted Answer

Higher inf

Question 18

The term "productivity"

Accepted Answer

A)  means the same thing as "efficiency." 
B)  is seldom used by economists, as its meaning is not precise. 
C)  refers to the quantity of goods and services produced from each unit of labor input. 
D)  refers to the variety of goods and services from which households can choose when they shop. 
A)  means the same thing as "efficiency." 
B)  is seldom used by economists, as its meaning is not precise. 
C)  refers to the quantity of goods and services produced from each unit of labor input. 
D)  refers to the variety of goods and services from which households can choose when they shop.

Question 19

The overriding reason why households and societies face many decisions is that

Accepted Answer

A)  resources are scarce. 
B)  goods and services are not scarce. 
C)  incomes fluctuate with business cycles. 
D)  people, by nature, tend to disagree. 
A)  resources are scarce. 
B)  goods and services are not scarce. 
C)  incomes fluctuate with business cycles. 
D)  people, by nature, tend to disagree.

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 price of diamonds is high, in part because the majority of the world's diamonds are controlled by a single firm. This is an example of

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

Guns and butter are used to represent the classic societal tradeoff between spending on

What is the main difference between a centrally planned economy and a market economy?

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

An example of an externality is the impact of

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

Under what conditions might government intervention in a market economy improve the economy's performance?

The economy of the former Soviet Union is best described as a

Which of the following is correct concerning opportunity cost?

The business cycle is measured by the

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 marginal cost?

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

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

What are the two short­run effects of increasing the quantity of nation's money?

The term "productivity"

The overriding reason why households and societies face many decisions 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 Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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

Filters

What are the two shortrun effects of increasing the quantity of nation's money?