Question 1

Which of the following principles underlies the economics of individual choices?

Accepted Answer

A) There are gains from trade. 
B) Markets move toward equilibrium. 
C) People usually exploit opportunities to make themselves better off. 
D) Resources should be used as efficiently as possible to achieve society's goals.

Question 2

If every individual were required to be self-sufficient:

Accepted Answer

A) living standards would fall. 
B) living standards for some individuals would fall, but for others they would rise. 
C) living standards would rise. 
D) it's impossible to say how living standards would change.

Question 3

During the Great Depression, consumers and producers in the United States dramatically reduced their spending as compared to the quantity of goods and services available at the time. This statement best represents this economic concept:

Accepted Answer

A) Resources are scarce. 
B) When markets don't achieve efficiency, government intervention can improve society's welfare. 
C) Overall spending sometimes gets out of line with the economy's productive capacity. 
D) Government policies can change spending.

Question 4

Nate and Dylan are brothers. They have to mow the lawn and clean their rooms before they can go to the high school football game. Nate mows the lawn and Dylan picks up the rooms, and they make it to the football game on time. This statement best represents this economic concept:

Accepted Answer

A) People usually exploit opportunities to make themselves better off. 
B) There are gains from trade. 
C) Markets usually lead to efficiency. 
D) One person's spending is another person's income.

Question 5

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of scarcity of resources.

Accepted Answer

A) True 
 B)False

Question 6

If government decided to increase taxes or decrease its spending, most likely this was to correct:

Accepted Answer

A) a recession. 
B) inflation. 
C) high unemployment. 
D) equilibrium.

Question 7

If the state government allocates additional spending on education, the opportunity cost is:

Accepted Answer

A) zero. 
B) the dollar amount of the additional spending. 
C) considered only if taxes have to be raised to fund the spending. 
D) measured in terms of the best alternative uses for that money.

Question 8

To encourage people to retire later, because people usually exploit opportunities to make themselves better off, the government could:

Accepted Answer

A) reduce Social Security benefits. 
B) raise the tax rate on older individuals. 
C) engage in a public service campaign explaining the value of these employees to the economy. 
D) increase Social Security benefits.

Question 9

Opportunity cost is:

Accepted Answer

A) about half of the monetary cost of a product. 
B) the dollar payment for a product. 
C) the benefit derived from a product. 
D) the value of the best alternative forgone in making any choice.

Question 10

Corner offices in high-rise office buildings usually cost more to rent than other offices. This best illustrates the economic principle of:

Accepted Answer

A) marginal analysis. 
B) scarce resources. 
C) resources being used as efficiently as possible to achieve society's goals. 
D) opportunity costs.

Question 11

Equilibrium exists when:

Accepted Answer

A) output is distributed equitably. 
B) scarcity is eliminated. 
C) an individual would be better off taking a different action. 
D) no individual has an incentive to change his or her behavior.

Question 12

Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is:

Accepted Answer

A) zero-the tickets were free. 
B) the price listed on the ticket. 
C) whatever Khalil would have done had he not gone to the opera. 
D) the price listed on the ticket and whatever Khalil would have done had he not gone to the opera.

Question 13

If an economy's resources are used efficiently, then it is guaranteed that the economy will also achieve equity.

Accepted Answer

A) True 
 B)False

Question 14

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is:

Accepted Answer

A) tuition and the cost of housing. 
B) tuition, the cost of housing, and the cost of books. 
C) tuition, the cost of books, and forgone income. 
D) forgone income only.

Question 15

Which of the following can best be considered to be a resource used in the production of computers?

Accepted Answer

A) money from investors 
B) wages of computer engineers 
C) computer engineers 
D) taxes on the profits from the sale of the computers

Question 16

Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:

Accepted Answer

A) values an additional hour of studying more than the $10 she would earn tutoring. 
B) values an hour of studying less than the $10 she would earn tutoring. 
C) does not understand that there is no benefit from studying. 
D) doesn't need the money.

Question 17

A choice made _____ is a choice whether to do a little more or a little less of something.

Accepted Answer

A) at the front end 
B) in the beginning 
C) at the margin 
D) ceteris paribus

Question 18

Which of the following is NOT one of the four principles of individual choice?

Accepted Answer

A) Resources are scarce. 
B) Unpaid volunteer work is irrational, since economic rationality dictates that individuals should only engage in work they are paid for. 
C) The real cost of something is its opportunity cost. 
D) People usually take advantage of opportunities to make themselves better off.

Question 19

Marginal analysis:

Accepted Answer

A) refers to decisions about whether or not to engage in a particular activity. 
B) is primarily used when making an either-or choice. 
C) is used primarily when deciding how much of an activity should be done. 
D) does not help when making a "how much" choice.

Question 20

Market failure occurs when:

Accepted Answer

A) prices of essential goods such as gas become very high. 
B) individual actions have side effects that are not properly taken into account. 
C) mutually beneficial trades take place. 
D) a business declares bankruptcy.

Exam 1: First Principles