Question 1

Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie's bread and pastries,

Accepted Answer

A) only Sam is made better off by trade. 
B) only Annie is made better off by trade. 
C) both Sam and Annie are made better off by trade. 
D) neither Sam nor Annie are made better off by trade.

Question 2

The combination of President Obama's strategies and the Federal Reserve's reaction to the deep economic downturn in the US in 2008 and 2009

Accepted Answer

A) was intended to reduce unemployment. 
B) may lead to excessive inflation over time. 
C) resulted in higher taxes and an increased supply of money. 
D) Both a and b are correct.

Question 3

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.

Question 4

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.

Question 5

Invisible hand is a term used by the economist ______ in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Accepted Answer

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

Question 6

Which of the following is not an example of a group responding to an incentive?

Accepted Answer

A) Students attend class because of an attendance policy that reduces their grade for absences. 
B) Consumers buy more of a product when it is on sale at a reduced price. 
C) Universities offer fewer online classes when they generate more revenue than traditional classes. 
D) Employees work harder to earn higher commissions.

Question 7

Market power and externalities are two possible causes of market failure.

Accepted Answer

A) True 
 B)False

Question 8

Economics is the study of how evenly goods and services are distributed within society.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a subject that economists study?

Accepted Answer

A) the growth in average income 
B) the fraction of the population that cannot find work 
C) the rate at which prices are rising 
D) All of the above are correct.

Question 10

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.

Question 11

A rationale for government involvement in a market economy is

Accepted Answer

A) markets sometimes fail to produce a fair distribution of economic well-being. 
B) markets sometimes fail to produce an efficient allocation of resources. 
C) property rights have to be enforced. 
D) All of the above are correct.

Question 12

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.

Question 13

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

Accepted Answer

A) equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. 
B) equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. 
C) equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. 
D) equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs.

Question 14

In the short run, an increase in the money supply is likely to lead to

Accepted Answer

A) lower unemployment and lower inflation. 
B) lower unemployment and higher inflation. 
C) higher unemployment and lower inflation. 
D) higher unemployment and higher inflation.

Question 15

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay

Accepted Answer

A) more than $40, as the average benefit will exceed the marginal cost. 
B) more than $40, as the marginal benefit will exceed the marginal cost. 
C) more than $80, as the average benefit will exceed the marginal cost. 
D) more than $80, as the marginal benefit will exceed the marginal cost.

Question 16

For most students, the earnings they give up to attend college are

Accepted Answer

A) a minor cost when compared to the costs of tuition, room and board, and the like. 
B) the single largest cost of their education. 
C) about equal to the costs of room and board at college. 
D) not considered true costs by an economist.

Question 17

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.

Question 18

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

Accepted Answer

A) True 
 B)False

Question 19

In a market economy, economic activity is guided by

Accepted Answer

A) the government. 
B) central planners. 
C) large businesses. 
D) prices and self-interest.

Question 20

A variety of fuels can be used to generate electricity. Considering only the availability of the fuel and not the cost of converting it into electricity, which of the following fuels is most scarce?

Accepted Answer

A) ​wind power 
B) ​solar energy 
C) ​fossil fuel 
D) ​hydro-power

Exam 1: Ten Principles of Economics

Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie's bread and pastries,

The combination of President Obama's strategies and the Federal Reserve's reaction to the deep economic downturn in the US in 2008 and 2009

In the early 1920s,

Invisible hand is a term used by the economist ______ in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Which of the following is not an example of a group responding to an incentive?

Market power and externalities are two possible causes of market failure.

Economics is the study of how evenly goods and services are distributed within society.

Which of the following is a subject that economists study?

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

A rationale for government involvement in a market economy is

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

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

In the short run, an increase in the money supply is likely to lead to

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay

For most students, the earnings they give up to attend college are

What you give up to obtain an item is called your

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

In a market economy, economic activity is guided by

A variety of fuels can be used to generate electricity. Considering only the availability of the fuel and not the cost of converting it into electricity, which of the following fuels is most scarce?