Question 1

In economics,the cost of something is

Accepted Answer

A)  the dollar amount of obtaining it.
B)  always measured in units of time given up to get it.
C)  what you give up to get it.
D)  often impossible to quantify, even in principle.

Question 2

Guns and butter are used to represent the classic societal tradeoff between spending on

Accepted Answer

A)  durable and nondurable goods.
B)  imports and exports.
C)  national defense and consumer goods.
D)  law enforcement and agriculture.

Question 3

Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.

Accepted Answer

A) True 
 B)False

Question 4

Adam Smith's book The Wealth of Nations was published in

Accepted Answer

A)  1692.
B)  1776.
C)  1816.
D)  1936.

Question 5

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 marginal dollar costs for each decision.

Question 6

Rational people make decisions at the margin by

Accepted Answer

A)  following marginal traditions.
B)  behaving in a random fashion.
C)  thinking in black-and-white terms.
D)  comparing marginal costs and marginal benefits.

Question 7

Large or persistent inflation is almost always caused by

Accepted Answer

A)  excessive government spending.
B)  excessive growth in the quantity of money.
C)  foreign competition.
D)  higher-than-normal levels of productivity.

Question 8

Which of these consumption activities will most likely impose an external cost?

Accepted Answer

A)  An executive plays a vigorous game of golf.
B)  A student in a dorm plays her CDs at 120 decibels late at night.
C)  A young mother exercises to an aerobics video.
D)  A construction worker eats a sandwich during his lunch break.

Question 9

For markets to work well,there must be

Accepted Answer

A)  market power.
B)  a central planner.
C)  property rights.
D)  abundant, not scarce, resources.

Question 10

Maurice receives $100 as a birthday gift.In deciding how to spend the money,he narrows his options down to four choices: Option A,Option B,Option C,and Option D.Each option costs $100.Finally he decides on Option B.The opportunity cost of this decision is

Accepted Answer

A)  the value to Maurice of the option he would have chosen had Option B not been available.
B)  the value to Maurice of Options A, C and D combined.
C)  $100.
D)  $300.

Question 11

When government policies are enacted,

Accepted Answer

A)  equity can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without an equity loss.
B)  efficiency can usually be enhanced without an equity loss, but equity can never be enhanced without an efficiency loss.
C)  it is always the case that either efficiency and fairness are both enhanced, or efficiency and equity are both diminished.
D)  None of the above are correct.

Question 12

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

Accepted Answer

A)  the invisible hand.
B)  market power.
C)  government intervention.
D)  oikonomos.

Question 13

A friend of yours asks you why market prices are better than government-determined prices.Because you understand economic principles,you say that market-determined prices are better because they generally reflect

Accepted Answer

A)  the value of a good to society, but not the cost of making it.
B)  the cost of making a good to society, but not its value.
C)  both the value of a good to society and the cost of making it.
D)  neither the value of a good to society nor the cost of making it.

Question 14

The business cycle is the

Accepted Answer

A)  relationship between unemployment and inflation.
B)  irregular fluctuations in economic activity.
C)  positive relationship between the quantity of money in an economy and inflation.
D)  predictable changes in economic activity due to changes in government spending and taxes.

Question 15

Which is the most correct statement about the invisible hand?

Accepted Answer

A)  The invisible hand always ensures both equity and efficiency.
B)  The invisible hand is more effective at ensuring equity than it is at ensuring efficiency.
C)  The invisible hand is more effective at ensuring efficiency than it is at ensuring equity.
D)  Market power is the instrument with which the invisible hand directs economic activity.

Question 16

Efficiency means that

Accepted Answer

A)  society is conserving resources in order to save them for the future.
B)  society's goods and services are distributed equally among society's members.
C)  society's goods and services are distributed fairly, though not necessarily equally, among society's members.
D)  society is getting the maximum benefits from its scarce resources.

Question 17

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 18

In the former Soviet Union,producers were paid for meeting output targets,not for selling products.Under those circumstances,what were the economic incentives for producers?

Accepted Answer

A)  to produce good quality products so that society would benefit from the resources used
B)  to conserve on costs, so as to maintain efficiency in the economy
C)  to produce enough to meet the output target, without regard for quality or cost
D)  to produce those products that society desires most

Question 19

Stan buys a 1966 Mustang for $2,000,planning to restore and sell the car.He goes on to spend $8,000 restoring the car.At this point he can sell the car for $9,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $12,000.Stan should

Accepted Answer

A)  complete the repairs and sell the car for $12,000.
B)  sell the car now for $9, 000.
C)  never try such an expensive project again.
D)  be indifferent between (i)  selling the car now and (ii)  replacing the engine and then selling it.

Question 20

Taxes adversely affect the allocation of resources in society because

Accepted Answer

A)  they do not always fall more heavily on the rich than on the poor.
B)  the taxes collected are not enough to finance government spending.
C)  not everyone pays taxes.
D)  they distort prices and thus distort the decisions of households and firms.

Exam 1: Ten Principles of Economics

Rational people make decisions at the margin by

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In the early 1920s,

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Stan buys a 1966 Mustang for $2,000,planning to restore and sell the car.He goes on to spend $8,000 restoring the car.At this point he can sell the car for $9,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $12,000.Stan should

Correct AnswerverifiedShow Answer

Taxes adversely affect the allocation of resources in society because

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In the former Soviet Union,producers were paid for meeting output targets,not for selling products.Under those circumstances,what were the economic incentives for producers?

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The business cycle is the

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Making rational decisions "at the margin" means that people

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Adam Smith's book The Wealth of Nations was published in

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Which is the most correct statement about the invisible hand?

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Guns and butter are used to represent the classic societal tradeoff between spending on

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In economics,the cost of something is

Correct AnswerverifiedShow Answer

A friend of yours asks you why market prices are better than government-determined prices.Because you understand economic principles,you say that market-determined prices are better because they generally reflect

Correct AnswerverifiedShow Answer

Large or persistent inflation is almost always caused by

Correct AnswerverifiedShow Answer

Efficiency means that

Correct AnswerverifiedShow Answer

When government policies are enacted,

Correct AnswerverifiedShow Answer

Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.

Correct AnswerverifiedShow Answer

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

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Which of these consumption activities will most likely impose an external cost?

Correct AnswerverifiedShow Answer

Maurice receives $100 as a birthday gift.In deciding how to spend the money,he narrows his options down to four choices: Option A,Option B,Option C,and Option D.Each option costs $100.Finally he decides on Option B.The opportunity cost of this decision is

Correct AnswerverifiedShow Answer

For markets to work well,there must be

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