Question 1

People are likely to respond to a policy change

Accepted Answer

A)   only if they think the policy is a good one.
B)   only if the policy change changes the costs of their behavior.
C)   only if the policy change changes the benefits of their behavior.
D)   if the policy changes either the costs or benefits of their behavior.E) B) and C)
F) All of the above

Question 2

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

Accepted Answer

A)   Betty plants flowers in her garden.
B)   Bonnie gets a flu vaccine.
C)   Bridget drives her car after having too much alcohol to drink.
D)   Becky buys a new flat screen television.E) A) and B)
F) All of the above

Question 3

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

Accepted Answer

A)   enhance equality.
B)   reduce efficiency.
C)   reduce the reward for working hard.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 4

When government policies are enacted,

Accepted Answer

A)   equality can usually be enhanced without an efficiency loss,but efficiency can never be enhanced without a reduction in equality.
B)   efficiency can usually be enhanced without a reduction in equality,but equality can never be enhanced without an efficiency loss.
C)   it is always the case that either efficiency and equality are both enhanced,or efficiency and equality are both diminished.
D)   None of the above are correct.E) All of the above
F) C) and D)

Question 5

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) All of the above
F) C) and D)

Question 6

The classic tradeoff between "guns and butter" states that when a society spends more on national defense,it has less to spend on consumer goods to raise the standard of living.

Accepted Answer

A) True 
 B)False

Question 7

Benefits from trade would not include

Accepted Answer

A)   the ability of people and nations to specialize.
B)   a greater variety of goods and services becoming available.
C)   less competition.
D)   lower prices.E) A) and C)
F) C) and D)

Question 8

To say that government intervenes in the economy to promote efficiency is to say that government is attempting to

Accepted Answer

A)   create a more fair distribution of income.
B)   change the way in which the economic pie is divided.
C)   enlarge the economic pie.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 9

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

Accepted Answer

A)   there is insufficient market power in the absence of government.
B)   property rights are too strong in the absence of government.
C)   the invisible hand is not perfect.
D)   Both a and b are correct.E) B) and C)
F) A) and B)

Question 10

Variations in the standard of living across countries is due almost entirely to differences in each nation's total output of goods and services.

Accepted Answer

A) True 
 B)False

Question 11

Bill is restoring a car and has already spent $4000 on the restoration.He expects to be able to sell the car for $5800.Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers.He could also sell the car now,without completing the additional work,for $3800.What should he do?

Accepted Answer

A)   He should sell the car now for $3800.
B)   He should keep the car since it wouldn't be rational to spend $6400 restoring a car and then sell it for only $5800.
C)   He should complete the additional work and sell the car for $5800.
D)   It does not matter which action he takes since the outcome will be the same either way.E) A) and B)
F) A) and C)

Question 12

Which of the following is correct?

Accepted Answer

A)   The word economy comes from the Greek word for "rational thinker."
B)   Economists study the management of scarce resources.
C)   Because economists believe that people pursue their best interests,they are not interested in how people interact.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 13

One advantage market economies have over centrally-planned economies is that market economies

Accepted Answer

A)   provide an equal distribution of goods and services to households.
B)   establish a significant role for government in the allocation of resources.
C)   solve the problem of scarcity.
D)   are more efficient.E) A) and D)
F) C) and D)

Question 14

Ellie decides to spend two hours taking a nap rather than attending her classes.Her opportunity cost of napping is

Accepted Answer

A)   the value of the knowledge she would have received had she attended class.
B)   the $24 she could have earned if she had worked at her job for those two hours.
C)   the value of her nap less the value of attending class.
D)   nothing,since she valued sleep more than attendance at class.E) A) and C)
F) A) and B)

Question 15

Market power and externalities are two possible causes of market failure.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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

Question 17

Inflation is defined as

Accepted Answer

A)   a period of rising productivity in the economy.
B)   a period of rising income in the economy.
C)   an increase in the overall level of output in the economy.
D)   an increase in the overall level of prices in the economy.E) None of the above
F) All of the above

Question 18

Prices direct economic activity in a market economy by

Accepted Answer

A)   influencing the actions of buyers and sellers.
B)   reducing scarcity of the goods and services produced.
C)   eliminating the need for government intervention.
D)   allocating goods and services in the most equitable way.E) A) and D)
F) A) and B)

Question 19

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke.This is an example of

Accepted Answer

A)   a market failure caused by an externality.
B)   a market failure caused by market power.
C)   a market failure caused by equality.
D)   There is no market failure in this case.E) A) and D)
F) None of the above

Question 20

College-age athletes who drop out of college to play professional sports

Accepted Answer

A)   are not rational decision makers.
B)   are well aware that their opportunity cost of attending college is very high.
C)   are concerned more about present circumstances than their future.
D)   underestimate the value of a college education.E) A) and B)
F) C) and D)

Exam 1: Ten Principles of Economics

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

Correct Answer
verified

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

Correct Answer
verified

To say that government intervenes in the economy to promote efficiency is to say that government is attempting to

Correct Answer
verified

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

Correct Answer
verified

The classic tradeoff between "guns and butter" states that when a society spends more on national defense,it has less to spend on consumer goods to raise the standard of living.

Correct Answer
verified

College-age athletes who drop out of college to play professional sports

Correct Answer
verified

Variations in the standard of living across countries is due almost entirely to differences in each nation's total output of goods and services.

Correct Answer
verified

Correct Answer
verified

Prices direct economic activity in a market economy by

Correct Answer
verified

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke.This is an example of

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Inflation is defined as

Correct Answer
verified

Ellie decides to spend two hours taking a nap rather than attending her classes.Her opportunity cost of napping is

Correct Answer
verified

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

Correct Answer
verified

When government policies are enacted,

Correct Answer
verified

Market power and externalities are two possible causes of market failure.

Correct Answer
verified

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

Correct Answer
verified

One advantage market economies have over centrally-planned economies is that market economies

Correct Answer
verified

Benefits from trade would not include

Correct Answer
verified

People are likely to respond to a policy change

Correct Answer
verified

Exam 1: Ten Principles of Economics

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To say that government intervenes in the economy to promote efficiency is to say that government is attempting to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The classic tradeoff between "guns and butter" states that when a society spends more on national defense,it has less to spend on consumer goods to raise the standard of living.

Correct AnswerverifiedShow Answer

College-age athletes who drop out of college to play professional sports

Correct AnswerverifiedShow Answer

Variations in the standard of living across countries is due almost entirely to differences in each nation's total output of goods and services.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Prices direct economic activity in a market economy by

Correct AnswerverifiedShow Answer

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke.This is an example of

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Inflation is defined as

Correct AnswerverifiedShow Answer

Ellie decides to spend two hours taking a nap rather than attending her classes.Her opportunity cost of napping is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When government policies are enacted,

Correct AnswerverifiedShow Answer

Market power and externalities are two possible causes of market failure.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One advantage market economies have over centrally-planned economies is that market economies

Correct AnswerverifiedShow Answer

Benefits from trade would not include

Correct AnswerverifiedShow Answer

People are likely to respond to a policy change

Correct AnswerverifiedShow Answer

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