Question 1

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

Accepted Answer

A)  Yes, because cutting hair is profitable. 
B)  No, because he may not be able to sell more services. 
C)  It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. 
D)  It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients. 
A)  Yes, because cutting hair is profitable. 
B)  No, because he may not be able to sell more services. 
C)  It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. 
D)  It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

Question 2

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 3

Inflation is the primary determinant of a country's living standards.

Accepted Answer

A) True 
 B)False

Question 4

The irregular and largely unpredictable fluctuations in economic activity are called

Accepted Answer

A)  market failure. 
B)  business cycle. 
C)  inflation. 
D)  unemployment. 
A)  market failure. 
B)  business cycle. 
C)  inflation. 
D)  unemployment.

Question 5

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Accepted Answer

A)  is a basic principle regarding individual decisionmaking. 
B)  amounts to a denial of one of the basic principles regarding interactions among people. 
C)  supports the idea that the "invisible hand" should guide economic activity. 
D)  was promoted by the economist Adam Smith in a well-known 1776 book. 
A)  is a basic principle regarding individual decisionmaking. 
B)  amounts to a denial of one of the basic principles regarding interactions among people. 
C)  supports the idea that the "invisible hand" should guide economic activity. 
D)  was promoted by the economist Adam Smith in a well-known 1776 book.

Question 6

Rational people make decisions "at the margin" by comparing

Accepted Answer

A)  average costs and benefits. 
B)  total costs and benefits. 
C)  additional costs and benefits. 
D)  opportunity costs and benefits. 
A)  average costs and benefits. 
B)  total costs and benefits. 
C)  additional costs and benefits. 
D)  opportunity costs and benefits.

Question 7

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. A customer is willing to pay $60 for the 601st heart rate monitor. Should the company produce and sell it? Explain.

Accepted Answer

No, because the marg

Question 8

Government policies designed to equalize the distribution of economic well-being include

Accepted Answer

A)  (i) only 
B)  (ii) only 
C)  (i) and (ii) only 
D)  (i), (ii), and (iii) 
A)  (i) only 
B)  (ii) only 
C)  (i) and (ii) only 
D)  (i), (ii), and (iii)

Question 9

Market power refers to the

Accepted Answer

A)  power of a single person or small group to influence market prices. 
B)  ability of a person or small group to successfully market new products. 
C)  power of the government to regulate a market. 
D)  importance of a certain market in relation to the overall economy. 
A)  power of a single person or small group to influence market prices. 
B)  ability of a person or small group to successfully market new products. 
C)  power of the government to regulate a market. 
D)  importance of a certain market in relation to the overall economy.

Question 10

Both the production of goods and services and the unemployment rate are used to measure

Accepted Answer

A)  the business cycle. 
B)  productivity. 
C)  the interest rate. 
D)  inflation. 
A)  the business cycle. 
B)  productivity. 
C)  the interest rate. 
D)  inflation.

Question 11

What you give up to obtain an item is called your

Accepted Answer

A)  opportunity cost. 
B)  explicit cost. 
C)  monetary cost. 
D)  direct cost. 
A)  opportunity cost. 
B)  explicit cost. 
C)  monetary cost. 
D)  direct cost.

Question 12

Variations in the standard of living across countries are due almost entirely to differences in each nation's total output of goods and services.

Accepted Answer

A) True 
 B)False

Question 13

In a market economy,

Accepted Answer

A)  households decide which firms to work for and what to buy with their incomes. 
B)  firms decide whom to hire and what to make. 
C)  a central planner makes decisions about production and consumption. 
D)  Both a and b are correct. 
A)  households decide which firms to work for and what to buy with their incomes. 
B)  firms decide whom to hire and what to make. 
C)  a central planner makes decisions about production and consumption. 
D)  Both a and b are correct.

Question 14

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. 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 15

One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.

Accepted Answer

A) True 
 B)False

Question 16

For which of the following individuals would the opportunity cost of going to college be highest?

Accepted Answer

A)  a promising young mathematician who will command a high salary once she earns her college degree 
B)  a student with average grades who has never held a job 
C)  a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree 
D)  a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball 
A)  a promising young mathematician who will command a high salary once she earns her college degree 
B)  a student with average grades who has never held a job 
C)  a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree 
D)  a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball

Question 17

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. 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 18

Equality means distributing society's resources in the most efficient manner.

Accepted Answer

A) True 
 B)False

Question 19

A rational decision maker takes an action if and only if

Accepted Answer

A)  the average benefit of the action exceeds the average cost. 
B)  the average cost of the action exceeds the average benefit. 
C)  the marginal benefit of the action exceeds the marginal cost. 
D)  the marginal cost of the action exceeds the marginal benefit. 
A)  the average benefit of the action exceeds the average cost. 
B)  the average cost of the action exceeds the average benefit. 
C)  the marginal benefit of the action exceeds the marginal cost. 
D)  the marginal cost of the action exceeds the marginal benefit.

Question 20

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that

Accepted Answer

A)  they should leave the price at $10. 
B)  it does not matter if they charge $10 or $15. 
C)  they would do better charging $15 than $10. 
D)  they should raise the price even more. 
A)  they should leave the price at $10. 
B)  it does not matter if they charge $10 or $15. 
C)  they would do better charging $15 than $10. 
D)  they should raise the price even more.

Exam 1: Ten Principles of Economics

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

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

Inflation is the primary determinant of a country's living standards.

The irregular and largely unpredictable fluctuations in economic activity are called

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Rational people make decisions "at the margin" by comparing

Government policies designed to equalize the distribution of economic well-being include

Market power refers to the

Both the production of goods and services and the unemployment rate are used to measure

What you give up to obtain an item is called your

Variations in the standard of living across countries are due almost entirely to differences in each nation's total output of goods and services.

In a market economy,

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.

For which of the following individuals would the opportunity cost of going to college be highest?

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

Equality means distributing society's resources in the most efficient manner.

A rational decision maker takes an action if and only if

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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