Question 1

Making rational decisions "at the margin" means that people

Accepted Answer

A)  make those decisions that do not impose a marginal cost. 
B)  evaluate how easily a decision can be reversed if problems arise. 
C)  compare the marginal costs and marginal benefits of each decision. 
D)  always calculate the dollar costs for each decision. 
A)  make those decisions that do not impose a marginal cost. 
B)  evaluate how easily a decision can be reversed if problems arise. 
C)  compare the marginal costs and marginal benefits of each decision. 
D)  always calculate the dollar costs for each decision.

Question 2

The phenomenon of scarcity stems from the fact that

Accepted Answer

A)  most economies' production methods are not very good. 
B)  in most economies, wealthy people consume disproportionate quantities of goods and services. 
C)  governments restrict production of too many goods and services. 
D)  resources are limited. 
A)  most economies' production methods are not very good. 
B)  in most economies, wealthy people consume disproportionate quantities of goods and services. 
C)  governments restrict production of too many goods and services. 
D)  resources are limited.

Question 3

The invisible hand ensures that economic prosperity is distributed equally.

Accepted Answer

A) True 
 B)False

Question 4

Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that

Accepted Answer

A)  we should agree with Senator Brown. 
B)  we should agree with Senator Johnson. 
C)  a good decision requires that we recognize both viewpoints. 
D)  there are no tradeoffs between equity and efficiency. 
A)  we should agree with Senator Brown. 
B)  we should agree with Senator Johnson. 
C)  a good decision requires that we recognize both viewpoints. 
D)  there are no tradeoffs between equity and efficiency.

Question 5

Economists study how people make decisions.

Accepted Answer

A) True 
 B)False

Question 6

Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

Accepted Answer

Whatever must be given up to obtain some

Question 7

President Gerald Ford referred to inflation as

Accepted Answer

A)  a blight on our nation's economy. 
B)  a necessary evil to combat high unemployment. 
C)  public enemy number one. 
D)  a fly in the ointment. 
A)  a blight on our nation's economy. 
B)  a necessary evil to combat high unemployment. 
C)  public enemy number one. 
D)  a fly in the ointment.

Question 8

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

Accepted Answer

A)  scarcity. 
B)  surpluses. 
C)  inefficiencies. 
D)  inequalities. 
A)  scarcity. 
B)  surpluses. 
C)  inefficiencies. 
D)  inequalities.

Question 9

Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

Accepted Answer

A)  the value of the knowledge she would have received had she attended class. 
B)  the $24 she could have earned if she had worked at her job for those two hours. 
C)  the value of her nap minus the value of attending class. 
D)  nothing, since she valued sleep more than attendance at class. 
A)  the value of the knowledge she would have received had she attended class. 
B)  the $24 she could have earned if she had worked at her job for those two hours. 
C)  the value of her nap minus the value of attending class. 
D)  nothing, since she valued sleep more than attendance at class.

Question 10

Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should Cole do?

Accepted Answer

A)  He should sell the cabinet now for $100. 
B)  He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. 
C)  He should complete the additional work and sell the cabinet for $360. 
D)  It does not matter which action he takes since the outcome will be the same either way. 
A)  He should sell the cabinet now for $100. 
B)  He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. 
C)  He should complete the additional work and sell the cabinet for $360. 
D)  It does not matter which action he takes since the outcome will be the same either way.

Question 11

If Faith attends college, it will take her four years, during which time she will earn no income. She will pay $50,000 for tuition, $12,000 for room and board, and $5,000 for books. If she spends the four years working rather than attending college, she will pay $18,000 for room and board, pay no intuition, and buy no books. Based on this information, Faith's economic cost of attending college would be $67,000 if, over the four years, she could earn

Accepted Answer

A)  $12,000 instead of attending college. 
B)  $14,000 instead of attending college. 
C)  $16,000 instead of attending college. 
D)  $18,000 instead of attending college. 
A)  $12,000 instead of attending college. 
B)  $14,000 instead of attending college. 
C)  $16,000 instead of attending college. 
D)  $18,000 instead of attending college.

Question 12

Evidence indicates that seat belt laws have led to

Accepted Answer

A)  fewer pedestrian deaths. 
B)  fewer automobile accidents. 
C)  fewer deaths per automobile accident. 
D)  All of the above are correct. 
A)  fewer pedestrian deaths. 
B)  fewer automobile accidents. 
C)  fewer deaths per automobile accident. 
D)  All of the above are correct.

Question 13

Approximately what percentage of the world's economies experience scarcity?

Accepted Answer

A)  10% 
B)  85% 
C)  100% 
D)  40% 
A)  10% 
B)  85% 
C)  100% 
D)  40%

Question 14

During the early 1920s in Germany, prices

Accepted Answer

A)  doubled annually. 
B)  doubled monthly. 
C)  tripled monthly. 
D)  tripled annually. 
A)  doubled annually. 
B)  doubled monthly. 
C)  tripled monthly. 
D)  tripled annually.

Question 15

Government policies can change the costs and benefits that people face. Those policies have the potential to

Accepted Answer

A)  alter people's behavior. 
B)  alter people's decisions at the margin. 
C)  produce results that policymakers did not intend. 
D)  All of the above are correct. 
A)  alter people's behavior. 
B)  alter people's decisions at the margin. 
C)  produce results that policymakers did not intend. 
D)  All of the above are correct.

Question 16

One reason we need government, even in a market economy, is that

Accepted Answer

A)  there is insufficient market power in the absence of government. 
B)  property rights are too strong in the absence of government. 
C)  the invisible hand is not perfect. 
D)  Both a and b are correct. 
A)  there is insufficient market power in the absence of government. 
B)  property rights are too strong in the absence of government. 
C)  the invisible hand is not perfect. 
D)  Both a and b are correct.

Question 17

The goal of President Obama's stimulus package and increased government spending following the deep economic downturn in 2008 and 2009 was to reduce inflation.

Accepted Answer

A) True 
 B)False

Question 18

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

Accepted Answer

A)  decreased by 1.7 percent between 1998 and 2008. 
B)  remained unchanged between 1998 and 2008. 
C)  increased by 4.75 percent between 1998 and 2008. 
D)  increased by 6.25 percent between 1998 and 2008. 
A)  decreased by 1.7 percent between 1998 and 2008. 
B)  remained unchanged between 1998 and 2008. 
C)  increased by 4.75 percent between 1998 and 2008. 
D)  increased by 6.25 percent between 1998 and 2008.

Question 19

People are likely to respond to a policy change

Accepted Answer

A)  only if they think the policy is a good one. 
B)  only if the policy change changes the costs of their behavior. 
C)  only if the policy change changes the benefits of their behavior. 
D)  if the policy changes either the costs or benefits of their behavior. 
A)  only if they think the policy is a good one. 
B)  only if the policy change changes the costs of their behavior. 
C)  only if the policy change changes the benefits of their behavior. 
D)  if the policy changes either the costs or benefits of their behavior.

Question 20

In which of the following decades was there both high inflation and rapid money supply growth in the US?

Accepted Answer

A)  the 1970's and the 1990's 
B)  the 1970's but not the 1990's 
C)  the 1990's but not the 1970's 
D)  neither the 1970's nor the 1990's 
A)  the 1970's and the 1990's 
B)  the 1970's but not the 1990's 
C)  the 1990's but not the 1970's 
D)  neither the 1970's nor the 1990's

Exam 1: Ten Principles of Economics

Making rational decisions "at the margin" means that people

The phenomenon of scarcity stems from the fact that

The invisible hand ensures that economic prosperity is distributed equally.

Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that

Economists study how people make decisions.

Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

President Gerald Ford referred to inflation as

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

Evidence indicates that seat belt laws have led to

Approximately what percentage of the world's economies experience scarcity?

During the early 1920s in Germany, prices

Government policies can change the costs and benefits that people face. Those policies have the potential to

One reason we need government, even in a market economy, is that

The goal of President Obama's stimulus package and increased government spending following the deep economic downturn in 2008 and 2009 was to reduce inflation.

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

People are likely to respond to a policy change

In which of the following decades was there both high inflation and rapid money supply growth in the US?

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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