Question 1

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 2

What do prices reflect in a market economy?

Accepted Answer

The value of a good

Question 3

Communist countries worked under the premise that

Accepted Answer

A)  markets were the best way to organize economic activity. 
B)  central planners were in the best position to determine the allocation of scarce resources in the economy. 
C)  households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources. 
D)  allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources. 
A)  markets were the best way to organize economic activity. 
B)  central planners were in the best position to determine the allocation of scarce resources in the economy. 
C)  households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources. 
D)  allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources.

Question 4

Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is

Accepted Answer

A)  the improvement in his grades from studying for the hour. 
B)  the improvement in his grades from studying minus the enjoyment of watching TV. 
C)  the enjoyment he would have received if he had watched TV with his friends. 
D)  zero. Since Hamid chose to study rather than to watch TV, the value of studying must have been greater to him than the value of watching TV. 
A)  the improvement in his grades from studying for the hour. 
B)  the improvement in his grades from studying minus the enjoyment of watching TV. 
C)  the enjoyment he would have received if he had watched TV with his friends. 
D)  zero. Since Hamid chose to study rather than to watch TV, the value of studying must have been greater to him than the value of watching TV.

Question 5

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

Accepted Answer

A)  more than $200. 
B)  more than $300. 
C)  more than $500. 
D)  This cannot be determined from the information given. 
A)  more than $200. 
B)  more than $300. 
C)  more than $500. 
D)  This cannot be determined from the information given.

Question 6

When government policies are enacted,

Accepted Answer

A)  equality can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without a reduction in equality. 
B)  efficiency can usually be enhanced without a reduction in equality, but equality can never be enhanced without an efficiency loss. 
C)  it is always the case that either efficiency and equality are both enhanced, or efficiency and equality are both diminished. 
D)  None of the above are correct. 
A)  equality can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without a reduction in equality. 
B)  efficiency can usually be enhanced without a reduction in equality, but equality can never be enhanced without an efficiency loss. 
C)  it is always the case that either efficiency and equality are both enhanced, or efficiency and equality are both diminished. 
D)  None of the above are correct.

Question 7

One of the 20th century's worst episodes of inflation occurred in

Accepted Answer

A)  the United States in the 1960s. 
B)  Italy in the 1950s. 
C)  Russia in the 1930s. 
D)  Germany in the 1920s. 
A)  the United States in the 1960s. 
B)  Italy in the 1950s. 
C)  Russia in the 1930s. 
D)  Germany in the 1920s.

Question 8

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

A)  There is no such thing as a free lunch. 
B)  People buy more when prices are low than when prices are high. 
C)  No matter how much people earn, they tend to spend more than they earn. 
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. 
A)  There is no such thing as a free lunch. 
B)  People buy more when prices are low than when prices are high. 
C)  No matter how much people earn, they tend to spend more than they earn. 
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Question 9

Scenario 1-2
Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour.
-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 Scenario 1-2
Suppose that you have a choice...

Question 10

Slow growth in US incomes during the 1970s and 1980s was primarily due to

Accepted Answer

A)  slow productivity growth in the US. 
B)  increased competition from Japan. 
C)  increased competition from European countries. 
D)  a rapid decrease in the quantity of money in the economy. 
A)  slow productivity growth in the US. 
B)  increased competition from Japan. 
C)  increased competition from European countries. 
D)  a rapid decrease in the quantity of money in the economy.

Question 11

Invisible hand is a term used by the economist to describe how the decisions of households and firms lead to desirable market outcomes.

Accepted Answer

The answer of Invisible hand is a term used by...

Question 12

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 13

In the short-run, society faces a tradeoff between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the average income of a citizen of Poland is higher than the average income of a citizen of Romania. You might conclude that

Accepted Answer

A)  Polish firms are faced with stricter government regulations than Romanian firms. 
B)  total income is divided among fewer workers in Poland since it has a smaller labor force than Romania. 
C)  Romania's climate allows for longer growing seasons and therefore Romania can produce large quantities of grain and other crops. 
D)  productivity in Poland is higher than in Romania. 
A)  Polish firms are faced with stricter government regulations than Romanian firms. 
B)  total income is divided among fewer workers in Poland since it has a smaller labor force than Romania. 
C)  Romania's climate allows for longer growing seasons and therefore Romania can produce large quantities of grain and other crops. 
D)  productivity in Poland is higher than in Romania.

Question 15

In the early 1920s,

Accepted Answer

A)  Germany experienced a very high rate of inflation. 
B)  the quantity of German money was declining rapidly. 
C)  the value of German money remained almost constant. 
D)  All of the above are correct. 
A)  Germany experienced a very high rate of inflation. 
B)  the quantity of German money was declining rapidly. 
C)  the value of German money remained almost constant. 
D)  All of the above are correct.

Question 16

The adage, "There is no such thing as a free lunch," means

Accepted Answer

A)  even people on welfare have to pay for food. 
B)  the cost of living is always increasing. 
C)  people face tradeoffs. 
D)  all costs are included in the price of a product. 
A)  even people on welfare have to pay for food. 
B)  the cost of living is always increasing. 
C)  people face tradeoffs. 
D)  all costs are included in the price of a product.

Question 17

What does the term "marginal change" mean?

Accepted Answer

A small incremental

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

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 20

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

Accepted Answer

A)  a market economy. 
B)  a strong reliance on prices and individuals' self­interests. 
C)  a system of large privately-owned firms. 
D)  the actions of government central planners. 
A)  a market economy. 
B)  a strong reliance on prices and individuals' self­interests. 
C)  a system of large privately-owned firms. 
D)  the actions of government central planners.

Exam 1: Ten Principles of Economics

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

What do prices reflect in a market economy?

Communist countries worked under the premise that

Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is

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

When government policies are enacted,

One of the 20th century's worst episodes of inflation occurred in

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Slow growth in US incomes during the 1970s and 1980s was primarily due to

Invisible hand is a term used by the economist to describe how the decisions of households and firms lead to desirable market outcomes.

The term "market failure"

In the short-run, society faces a tradeoff between inflation and unemployment.

Suppose the average income of a citizen of Poland is higher than the average income of a citizen of Romania. You might conclude that

In the early 1920s,

The adage, "There is no such thing as a free lunch," means

What does the term "marginal change" mean?

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

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?

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained 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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