Question 1

Economists use the term to refer to the ability of a single person or a small group) to have a substantial influence on market prices.

Accepted Answer

The answer of Economists use the term to refer to...

Question 2

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 3

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.

Question 4

Which of the following statements does not apply to a market economy?

Accepted Answer

A)  Firms decide whom to hire and what to produce. 
B)  The "invisible hand" usually maximizes the well­being of society as a whole. 
C)  Households decide which firms to work for and what to buy with their incomes. 
D)  Government policies are the primary forces that guide the decisions of firms and households.

Question 5

Government policies resulting in reduced efficiency include i) the welfare system
Ii) unemployment insurance
Iii) progressive income tax

Accepted Answer

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

Question 6

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of

Accepted Answer

A)  market power caused by a change in the country's standard of living. 
B)  market power caused by a single firm controlling the newspaper production. 
C)  inflation caused by increased productivity in the economy. 
D)  inflation caused by an increase in the quantity of money in the economy.

Question 7

Market failure is the ability of a single person to have a substantial influence on market prices.

Accepted Answer

A) True 
 B)False

Question 8

Almost all variation in living standards is attributable to differences in countries'

Accepted Answer

A)  population growth rates. 
B)  productivity. 
C)  systems of public education. 
D)  taxes.

Question 9

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 10

In communism, central planners decide which of the following?

Accepted Answer

A)  what goods and services will be produced 
B)  how much will be produced 
C)  who produced and consumed the goods and services 
D)  All of the above are correct.

Question 11

Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics?

Accepted Answer

A)  Trade can make everyone better off. 
B)  Markets are usually a good way to organize economic activity. 
C)  Governments can sometimes improve market outcomes. 
D)  Prices rise when the government prints too much money.

Question 12

Which of the following is not an example of the opportunity cost of going to school?

Accepted Answer

A)  The money a student could have earned by working if he had not gone to college. 
B)  The nap a student could have enjoyed if he had not attended class. 
C)  The party a student could have enjoyed if he had not stayed in to study for his exam. 
D)  The money a student spends on rent for his apartment while attending school.

Question 13

When the government redistributes income from the wealthy to the poor,

Accepted Answer

A)  efficiency is improved, but equality is not. 
B)  both wealthy people and poor people benefit directly. 
C)  people work less and produce fewer goods and services. 
D)  the government collects more revenue in total.

Question 14

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5,800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?

Accepted Answer

A)  He should sell the car now for $3,800. 
B)  He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800. 
C)  He should complete the additional work and sell the car for $5,800. 
D)  It does not matter which action he takes since the outcome will be the same either way.

Question 15

Which of the following words and phrases best captures the notion of equality?

Accepted Answer

A)  minimum waste 
B)  maximum benefit 
C)  sameness 
D)  efficiency

Question 16

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.

Question 17

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda

Accepted Answer

A)  can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas. 
B)  determines Bridget's willingness to pay for the third soda. 
C)  is likely different from the marginal benefit provided to Bridget by the second soda. 
D)  All of the above are correct.

Question 18

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.

Question 19

What is the most important factor that explains differences in living standards across countries?

Accepted Answer

A)  the quantity of money 
B)  the level of unemployment 
C)  productivity 
D)  equality

Question 20

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

Accepted Answer

A)  1960s. 
B)  1970s. 
C)  1980s. 
D)  1990s.

Exam 1: Ten Principles of Economics