Question 1

A typical society strives to get the most it can from its scarce resources.At the same time,the society attempts to distribute the benefits of those resources to the members of the society in a fair manner.In other words,the society faces a tradeoff between

Accepted Answer

A)  guns and butter.
B)  efficiency and equity.
C)  inflation and unemployment.
D)  work and leisure.E) A) and B)
F) B) and C)

Question 2

Since taxes affect only the price paid by the buyer,they cannot have an adverse impact on the allocation of society's resources.

Accepted Answer

A) True 
 B)False

Question 3

The cost of an action is measured in terms of foregone opportunities.

Accepted Answer

A) True 
 B)False

Question 4

Which of these activities will most likely result in an external benefit?

Accepted Answer

A)  A college student buys a deck of cards to play solitaire in her dorm room.
B)  An elderly woman plants a flower garden on the vacant lot next to her house.
C)  An executive purchases a book to read on a business trip.
D)  A ten-year-old uses his allowance to buy new Nike shoes.E) B) and C)
F) C) and D)

Question 5

An example of an externality is the impact of

Accepted Answer

A)  John's actions on Jane's well-being.
B)  John's actions on John's own well-being.
C)  society's decisions on society's well-being.
D)  society's decisions on John's well-being.E) A) and B)
F) A) and C)

Question 6

Based on what we know about the effects of mandatory seat belt laws,which of the following groups would be most likely to mount a campaign to repeal those laws?

Accepted Answer

A)  Owners of collision-repair shops.
B)  People who walk rather than drive.
C)  Policemen who have better things to do than investigate collisions.
D)  All of the above are correct.E) All of the above
F) A) and D)

Question 7

The principle that "people face tradeoffs" applies to

Accepted Answer

A)  individuals.
B)  families.
C)  societies.
D)  All of the above are correct.E) C) and D)
F) B) and D)

Question 8

As a result of a successful attempt by government to cut the economic pie into more equal slices,

Accepted Answer

A)  it is easier to cut the pie, and therefore the economy can produce a larger pie.
B)  the government can more easily allocate the pie to those most in need.
C)  the pie gets smaller, and there will be less pie overall.
D)  government will spend too much time cutting and it causes the economy to lose the ability to produce enough pie for everyone.E) All of the above
F) None of the above

Question 9

A primary function of prices in a market economy is to provide participants with

Accepted Answer

A)  relevant economic information.
B)  relevant spending limits.
C)  an equitable distribution of goods and services.
D)  All of the above are correct.E) None of the above
F) A) and C)

Question 10

Which of the following is true?

Accepted Answer

A)  Efficiency refers to the size of the economic pie; equity refers to how the pie is divided.
B)  Government policies usually improve upon both equity and efficiency.
C)  As long as the economic pie continually gets larger, no one will have to go hungry.
D)  Efficiency and equity can both be achieved if the economic pie is cut into equal pieces.E) A) and D)
F) All of the above

Question 11

Government spending is the ultimate source of inflation.

Accepted Answer

A) True 
 B)False

Question 12

When the government prevents prices from adjusting naturally to supply and demand,

Accepted Answer

A)  it stabilizes the economy by reducing market uncertainties.
B)  it adversely affects the allocation of resources.
C)  the improvement in equity justifies the reduction in efficiency.
D)  the improvement in efficiency justifies the reduction in equity.E) None of the above
F) B) and C)

Question 13

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

A)  There is no such thing as a free lunch.
B)  People buy more when prices are low than when prices are high.
C)  No matter how much people earn, they tend to spend more than they earn.
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.E) A) and C)
F) B) and D)

Question 14

One reason we need government,even in a market economy,is that

Accepted Answer

A)  there are insufficient quantities of externalities in the absence of government.
B)  property rights become too entrenched in the absence of government.
C)  the invisible hand seldom leads to an efficient allocation of resources in any market.
D)  the invisible hand, while powerful, is not perfect.E) A) and B)
F) A) and C)

Question 15

In a particular country in 1995,the average worker needed to work 25 hours to produce 40 units of output.In that same country in 2005,the average worker needed to work 40 hours to produce 68 units of output.In that country,the productivity of the average worker

Accepted Answer

A)  decreased by 1.7 percent between 1995 and 2005.
B)  remained unchanged between 1995 and 2005.
C)  increased by 4.75 percent between 1995 and 2005.
D)  increased by 6.25 percent between 1995 and 2005.E) All of the above
F) B) and D)

Question 16

For society,a good is not scarce if

Accepted Answer

A)  at least one individual in society can obtain all he or she wants of the good.
B)  firms are producing the good at full capacity.
C)  all members of society can have all they want of the good.
D)  those who have enough income can buy all they want of the good.E) C) and D)
F) B) and D)

Question 17

A person's willingness to pay for a good is based on

Accepted Answer

A)  the availability of the good.
B)  the marginal benefit that an extra unit of the good would provide for that person.
C)  the marginal cost of producing an extra unit of the good.
D)  esoteric factors, the study of which lies beyond the boundaries of economics.E) A) and D)
F) A) and C)

Question 18

People are willing to pay more for a diamond than for a bottle of water because

Accepted Answer

A)  the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
B)  the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
C)  producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
D)  water prices are held artificially low by governments, since water is necessary for life.E) B) and C)
F) A) and C)

Question 19

Which of the following principles is not one of the four principles of individual decisionmaking?

Accepted Answer

A)  People face tradeoffs.
B)  Trade can make everyone better off.
C)  People respond to incentives.
D)  Rational people think at the margin.E) B) and C)
F) A) and D)

Question 20

When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

Accepted Answer

A)  Equity is increased and efficiency is increased.
B)  Equity is increased and efficiency is decreased.
C)  Equity is decreased and efficiency is increased.
D)  Equity is decreased and efficiency is decreased.E) B) and C)
F) A) and B)

Exam 1: Ten Principles of Economics

As a result of a successful attempt by government to cut the economic pie into more equal slices,

Correct AnswerverifiedShow Answer

Since taxes affect only the price paid by the buyer,they cannot have an adverse impact on the allocation of society's resources.

Correct AnswerverifiedShow Answer

Which of the following is true?

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Based on what we know about the effects of mandatory seat belt laws,which of the following groups would be most likely to mount a campaign to repeal those laws?

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When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

Correct AnswerverifiedShow Answer

Which of the following principles is not one of the four principles of individual decisionmaking?

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Which of these activities will most likely result in an external benefit?

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Government spending is the ultimate source of inflation.

Correct AnswerverifiedShow Answer

One reason we need government,even in a market economy,is that

Correct AnswerverifiedShow Answer

People are willing to pay more for a diamond than for a bottle of water because

Correct AnswerverifiedShow Answer

In a particular country in 1995,the average worker needed to work 25 hours to produce 40 units of output.In that same country in 2005,the average worker needed to work 40 hours to produce 68 units of output.In that country,the productivity of the average worker

Correct AnswerverifiedShow Answer

For society,a good is not scarce if

Correct AnswerverifiedShow Answer

A primary function of prices in a market economy is to provide participants with

Correct AnswerverifiedShow Answer

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Correct AnswerverifiedShow Answer

The cost of an action is measured in terms of foregone opportunities.

Correct AnswerverifiedShow Answer

An example of an externality is the impact of

Correct AnswerverifiedShow Answer

When the government prevents prices from adjusting naturally to supply and demand,

Correct AnswerverifiedShow Answer

A person's willingness to pay for a good is based on

Correct AnswerverifiedShow Answer

The principle that "people face tradeoffs" applies to

Correct AnswerverifiedShow Answer

A typical society strives to get the most it can from its scarce resources.At the same time,the society attempts to distribute the benefits of those resources to the members of the society in a fair manner.In other words,the society faces a tradeoff between

Correct AnswerverifiedShow Answer

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