Question 1

When the "invisible hand" guides economic activity, prices of products reflect

Accepted Answer

A)   only the values that society places on those products.
B)   only the costs to society of producing those products.
C)   both the values that society places on those products and the costs to society of producing those products.
D)   none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair."E) C) and D)
F) A) and B)

Question 2

In considering how to allocate its scarce resources among its various members, a household considers

Accepted Answer

A)   each member's abilities.
B)   each member's efforts.
C)   each member's desires.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 3

Give an example of a trade-off faced by society.

Accepted Answer

Efficiency and equality; a cle...

Question 4

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.E) A) and D)
F) None of the above

Question 5

The property of society getting the most it can from its scarce resources is called

Accepted Answer

A)   efficiency.
B)   equality.
C)   externality.
D)   productivity.E) C) and D)
F) B) and D)

Question 6

Which of the following statements about trade is false?

Accepted Answer

A)   Trade increases competition.
B)   With trade, one country wins and one country loses.
C)   Bulgaria can benefit, potentially, from trade with any other country.
D)   Trade allows people to buy a greater variety of goods and services at lower cost.E) None of the above
F) A) and B)

Question 7

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.E) B) and D)
F) A) and B)

Question 8

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

Accepted Answer

A)   to promote efficiency
B)   to promote equality
C)   to enforce property rights
D)   to protect an industry from foreign competitionE) A) and B)
F) B) and D)

Question 9

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.E) All of the above
F) A) and C)

Question 10

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.E) A) and C)
F) All of the above

Question 11

The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

Accepted Answer

A) True 
 B)False

Question 12

Tuition is the single-largest cost of attending college for most students.

Accepted Answer

A) True 
 B)False

Question 13

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

Accepted Answer

A)   $99,000.
B)   $103,000.
C)   $108,000.
D)   $121,000.E) None of the above
F) C) and D)

Question 14

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?

Accepted Answer

A)   3 percent per year
B)   5 percent per year
C)   7 percent per year
D)   9 percent per yearE) None of the above
F) All of the above

Question 15

The "broken window fallacy"

Accepted Answer

A)   explains why inflation is so high.
B)   is a justification for the government to print more money.
C)   is illustrated when a government program is justified not on its merits but on the number of jobs it will create.
D)   has nothing to do with public policy.E) A) and D)
F) All of the above

Question 16

In a market economy, who makes the decisions that guide most economic activity?

Accepted Answer

A)   firms only
B)   households only
C)   firms and households
D)   governmentE) C) and D)
F) B) and D)

Question 17

The opportunity cost of an item is

Accepted Answer

A)   the number of hours needed to earn money to buy the item.
B)   what you give up to get that item.
C)   usually less than the dollar value of the item.
D)   the dollar value of the item.E) C) and D)
F) All of the above

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 mostE) A) and B)
F) None of the above

Question 19

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.E) B) and C)
F) B) and D)

Question 20

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

Accepted Answer

A)   compare the total cost of your education to the total benefits of your education.
B)   compare the total cost of your education to the benefits of staying one more semester.
C)   compare the cost of staying one more semester to the benefits of staying one more semester.
D)   compare the total benefits of your education to the cost of staying one more semester.E) None of the above
F) A) and B)

Exam 1: Ten Principles of Economics

In a market economy, who makes the decisions that guide most economic activity?

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Give an example of a trade-off faced by society.

Correct AnswerverifiedEfficiency and equality; a cle...View AnswerShow Answer

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?

Correct AnswerverifiedShow Answer

The "broken window fallacy"

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Tuition is the single-largest cost of attending college for most students.

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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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Making rational decisions "at the margin" means that people

Correct AnswerverifiedShow Answer

In considering how to allocate its scarce resources among its various members, a household considers

Correct AnswerverifiedShow Answer

Which of the following statements about trade is false?

Correct AnswerverifiedShow Answer

When the "invisible hand" guides economic activity, prices of products reflect

Correct AnswerverifiedShow Answer

The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

Correct AnswerverifiedShow Answer

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

Correct AnswerverifiedShow Answer

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

Correct AnswerverifiedShow Answer

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The opportunity cost of an item is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The property of society getting the most it can from its scarce resources is called

Correct AnswerverifiedShow Answer

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Efficiency and equality; a cle...
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