Question 1

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 2

Prices usually reflect

Accepted Answer

A)  only the value of a good to society. 
B)  only the cost to society of making a good. 
C)  both the value of a good to society and the cost to society of making the good. 
D)  neither the value of a good to society nor the cost to society of making the good. 
A)  only the value of a good to society. 
B)  only the cost to society of making a good. 
C)  both the value of a good to society and the cost to society of making the good. 
D)  neither the value of a good to society nor the cost to society of making the good.

Question 3

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

Accepted Answer

A)  cost of leaving was greater than the marginal benefit. 
B)  benefit of leaving was greater than the marginal cost. 
C)  benefit of teaching was greater than the marginal cost. 
D)  All of the above are correct. 
A)  cost of leaving was greater than the marginal benefit. 
B)  benefit of leaving was greater than the marginal cost. 
C)  benefit of teaching was greater than the marginal cost. 
D)  All of the above are correct.

Question 4

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 5

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

Accepted Answer

A)  the $60 she earns working. 
B)  the $60 minus the enjoyment she would have received from going to the park. 
C)  the enjoyment she would have received had she gone to the park. 
D)  nothing, since she would have received less than $60 worth of enjoyment from going to the park. 
A)  the $60 she earns working. 
B)  the $60 minus the enjoyment she would have received from going to the park. 
C)  the enjoyment she would have received had she gone to the park. 
D)  nothing, since she would have received less than $60 worth of enjoyment from going to the park.

Question 6

Trade makes costs

Accepted Answer

A)  higher and reduces the variety of goods and services available. 
B)  higher but raises the variety of goods and services available. 
C)  lower but reduces the variety of goods and services available. 
D)  lower and raises the variety of goods and services available. 
A)  higher and reduces the variety of goods and services available. 
B)  higher but raises the variety of goods and services available. 
C)  lower but reduces the variety of goods and services available. 
D)  lower and raises the variety of goods and services available.

Question 7

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 8

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 9

When society gets the most it can from its scarce resources, then the outcome is called

Accepted Answer

A)  equitable. 
B)  efficient. 
C)  normal. 
D)  efficacious. 
A)  equitable. 
B)  efficient. 
C)  normal. 
D)  efficacious.

Question 10

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

Accepted Answer

A)  an increase in the number of unskilled jobs available. 
B)  a decrease in the number of unskilled jobs available. 
C)  a decrease in the number of workers wanting unskilled jobs. 
D)  None of the above is correct. 
A)  an increase in the number of unskilled jobs available. 
B)  a decrease in the number of unskilled jobs available. 
C)  a decrease in the number of workers wanting unskilled jobs. 
D)  None of the above is correct.

Question 11

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

Accepted Answer

A)  People face tradeoffs. 
B)  The cost of something is what you give up to get it. 
C)  Rational people think at the margin. 
D)  People respond to incentives. 
A)  People face tradeoffs. 
B)  The cost of something is what you give up to get it. 
C)  Rational people think at the margin. 
D)  People respond to incentives.

Question 12

It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company's cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then

Accepted Answer

A)  its average cost is greater than its marginal cost. 
B)  its average cost and its marginal cost are equal. 
C)  its average cost is less than its marginal cost. 
D)  there is insufficient information to compute average and marginal costs. 
A)  its average cost is greater than its marginal cost. 
B)  its average cost and its marginal cost are equal. 
C)  its average cost is less than its marginal cost. 
D)  there is insufficient information to compute average and marginal costs.

Question 13

Inflation is defined as

Accepted Answer

A)  a period of rising productivity in the economy. 
B)  a period of rising income in the economy. 
C)  an increase in the overall level of output in the economy. 
D)  an increase in the overall level of prices in the economy. 
A)  a period of rising productivity in the economy. 
B)  a period of rising income in the economy. 
C)  an increase in the overall level of output in the economy. 
D)  an increase in the overall level of prices in the economy.

Question 14

To say that government intervenes in the economy to promote equality is to say that government is aiming to

Accepted Answer

A)  create a more fair distribution of income. 
B)  change the ingredients that are used to "bake" the economic pie. 
C)  enlarge the economic pie. 
D)  All of the above are correct. 
A)  create a more fair distribution of income. 
B)  change the ingredients that are used to "bake" the economic pie. 
C)  enlarge the economic pie. 
D)  All of the above are correct.

Question 15

When the government prevents prices from adjusting naturally to supply and demand,

Accepted Answer

A)  it equates the amount buyers want to buy with the amount sellers want to sell. 
B)  it adversely affects the allocation of resources. 
C)  it improves equality and efficiency. 
D)  it improves efficiency but reduces equality. 
A)  it equates the amount buyers want to buy with the amount sellers want to sell. 
B)  it adversely affects the allocation of resources. 
C)  it improves equality and efficiency. 
D)  it improves efficiency but reduces equality.

Question 16

To increase living standards, public policy should

Accepted Answer

A)  ensure that workers are well educated and have the necessary tools and technology. 
B)  make unemployment benefits more generous. 
C)  move workers into jobs directly from high school. 
D)  ensure a greater degree of equality, taking all income-earners into account. 
A)  ensure that workers are well educated and have the necessary tools and technology. 
B)  make unemployment benefits more generous. 
C)  move workers into jobs directly from high school. 
D)  ensure a greater degree of equality, taking all income-earners into account.

Question 17

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

Accepted Answer

A) True 
 B)False

Question 18

Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit the rich at the expense of the poor.

Accepted Answer

A)  Both senators' arguments are primarily about equality. 
B)  Both senators' arguments are primarily about efficiency. 
C)  Senator Jackson's argument is primarily about equality, while Senator Feldman's argument is primarily about efficiency. 
D)  Senator Jackson's argument is primarily about efficiency, while Senator Feldman's argument is primarily about equality. 
A)  Both senators' arguments are primarily about equality. 
B)  Both senators' arguments are primarily about efficiency. 
C)  Senator Jackson's argument is primarily about equality, while Senator Feldman's argument is primarily about efficiency. 
D)  Senator Jackson's argument is primarily about efficiency, while Senator Feldman's argument is primarily about equality.

Question 19

In the short run, an increase in the money supply is likely to lead to inflation and unemployment.

Accepted Answer

The answer of In the short run, an increase in...

Question 20

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.

Exam 1: Ten Principles of Economics

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

Prices usually reflect

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

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

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

Trade makes costs

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,

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

When society gets the most it can from its scarce resources, then the outcome is called

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company's cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then

Inflation is defined as

To say that government intervenes in the economy to promote equality is to say that government is aiming to

When the government prevents prices from adjusting naturally to supply and demand,

To increase living standards, public policy should

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit the rich at the expense of the poor.

In the short run, an increase in the money supply is likely to lead to inflation and unemployment.

Large or persistent inflation is almost always caused by

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

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