Deck 1: Ten Principles of Economics

Question 1

If each person pursues their own self-interest through a market-institution, the resulting chaos would cause the market to collapse.

Answer 1

False

Question 2

When the government redistributes income from the rich to the poor, society benefits since there are more poor than rich.

Answer 2

False

Question 3

A higher price on a good is a disincentive to buying it.

Answer 3

True

Question 4

With careful planning, we can usually get something that we like without having to give up something else that we like.

Question 5

The opportunity cost of something refers to the price you pay to get it.

Question 6

The two broad reasons for a government to intervene in the economy are: to promote efficiency, and to promote equity.

Question 7

Economists study how individuals make decisions, how they interact with each other and the factors that affect the economy as a whole.

Question 8

Economics is the study of the circulation of money between banks, taxpayers and the government.

Question 9

A benefit of trade is that it permits two parties to specialise in those tasks in which they have the highest productivity.

Question 10

In economic policymaking, there is often a conflict between the goal of efficiency and the goal of equity.

Question 11

Public policies to reduce emissions from cars do not affect the private costs and benefits of driving cars.

Question 12

Scarcity means that society has less to offer than people wish to have.

Question 13

People are likely to make good decisions only if they understand the options that are available to them.

Question 14

While the 'invisible hand' cannot guarantee efficiency, it is better at guaranteeing equity.

Question 15

In international trade, if one party gains, the other party loses.

Question 16

Equity means that everyone in the economy should receive an equal share of the goods and services produced.

Question 17

The marginal cost of something is what you give up to get one extra unit of a good.

Question 18

The opportunity cost of consuming a unit of good X is the amount of resources that must be devoted to its production.

Question 19

The phrase 'there's no such thing as a free lunch' refers to the concept of scarcity.

Question 20

Efficiency refers to the size of the economic pie and equity refers to how the pie is divided.

Question 21

Protecting domestic jobs from foreign competition is the best way to raise labour productivity.

Question 22

Economics is defined as the study of:

A) politics and business
B) central planning
C) government regulation
D) how society manages its scarce resources

Question 23

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

Question 24

Which of the following is NOT included in the decisions that every society must make?

A) what goods will be produced
B) what determines consumer preferences
C) who will produce goods
D) who will consume the goods

Question 25

Inflation increases the value of money.

Question 26

Daniel decides to spend an hour playing cricket rather than working at $16 per hour. His trade-off is:

A) nothing, because he enjoys playing cricket more than working
B) the increase in skill he obtains from playing cricket for that hour
C) the $16 he could have earned
D) nothing, because he spent $16 for admission into the sports complex to play cricket

Question 27

If the government prints too much money, it will cause inflation.

Question 28

For society, a good is not scarce if:

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

Question 29

Monopoly power and income inequality are examples of market failure.

Question 30

A market economy rewards people according to their ability to produce things that other people are willing to pay for.

Question 31

Economists agree that monetary and fiscal policy, although not very powerful, are necessary instruments for controlling the economy.

Question 32

Inflation in an economy is primarily caused by profiteering by greedy firms.

Question 33

Society faces a trade-off between equity and efficiency because:

A) something that is equitable is also always efficient
B) people always think about the consequences of decisions before they act
C) government wage policies reduce incentives to work
D) often it is not possible to distribute resources fairly

Question 34

An 'increase in efficiency' suggests that an economy:

A) is able to get more goods from a given amount of resources
B) is able to get more services from a given amount of resources
C) is able to get less goods and services from a given amount of resources
D) is able to get more goods and services from a given amount of resources

Question 35

The scarcity problem:

A) has been eliminated in the richest countries
B) persists only because countries have failed to eliminate unemployment
C) has been solved in all industrialised nations
D) persists because society cannot give every individual the highest standard of living to which he or she might aspire

Question 36

When markets allocate resources efficiently and there are no market failures, the government should intervene.

Question 37

The study of economics is concerned with:

A) keeping private businesses from losing money
B) demonstrating that capitalist economies are superior to socialist economies
C) how society manages its scarce resources
D) determining the most equitable distribution of society's output

Question 38

What does the adage 'There is no such thing as a free lunch' mean?

A) the government taxes firms that sell lunches
B) lunches are indeed free
C) lunches are not free
D) every action involves an opportunity cost

Question 39

When a society cannot produce all the resources that people wish to have, it is called:

A) a trade-off
B) a market
C) efficiency
D) scarcity

Question 40

Better tools and technology can increase productivity and therefore living standards in countries.

Question 41

You have spent $500 purchasing and repairing an old car which you expect to sell for $700 once the repairs are complete. You discover that you need an additional part, which will cost $500, including labour, in order to complete the repairs. You can sell the car as it is now for $300. What should you do?

A) you should never sell something for less than it costs
B) you should cut your losses and take the $300
C) you should complete the repairs and sell the car
D) it does not matter, both actions lead to a loss

Question 42

Which of the following is the best statement about markets?

A) markets are usually a good way to organise economic activity
B) markets are usually inferior to central planning as a way to organise economic activity
C) markets are flawed and are therefore not an acceptable way to organise economic activity
D) markets are a good way to organise economic activity in developed nations, but not in less-developed nations

Question 43

Coordination of economic activity in a market economy is achieved by:

A) government regulations
B) banks and other financial intermediaries
C) planning agencies within government
D) the guiding function of prices

Question 44

Tim decides to spend an hour looking at cat videos on YouTube instead of going to the gym. The opportunity cost of him looking at cat videos is:

A) the improvement in his knowledge of the best cat videos on the internet
B) the fitness and fun he would have had at the gym
C) the money he would have spent on gym class
D) zero, since Tim chose to watch cat videos, which reflects his preferences

Question 45

In economics, the cost of something is:

A) the out-of-pocket expense of obtaining it
B) what you give up to get it
C) always measured in units of time
D) always higher than people think

Question 46

When government policies are being designed:

A) equity and efficiency goals are usually independent of each other
B) there is usually a trade-off between equity and efficiency
C) equity can usually be achieved without an efficiency loss
D) increasing efficiency usually results in more equity

Question 47

People make decisions at the margin by:

A) following tradition
B) comparing costs and benefits
C) experience
D) calculating dollar costs

Question 48

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

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 as if by an 'invisible hand'

Question 49

If Australia is better than the US at producing wheat, but the US is better than Australia at producing cars, the US should:

A) impose a tariff on Australian wheat in order to protect jobs in the US car industry
B) sell cars to Australia, and buy Australian wheat
C) subsidise its wheat industry so that it can compete with Australian wheat
D) sell wheat to Australia and buy Australian cars

Question 50

International trade:

A) prevents countries from specialising in what they do best
B) restricts the variety of goods a country can enjoy
C) encourages countries to specialise in what they do best
D) is a threat to national security

Question 51

Which of the following is most likely to be a marginal change?

A) Working one day less a month
B) Getting a new job
C) Getting a pay increase of 50 per cent
D) Deciding to work part-time

Question 52

An electronics store usually sells televisions for $1000, but business has been slow and it needs to sell them before the new model comes out. The shop buys the televisions in bulk for $550 each. The manager estimates they can only sell the old televisions for $375 each. What should the store do?

A) Never sell anything for less than they paid for it
B) Cut their losses and sell them for $375
C) Sell the televisions back to the bulk seller
D) Give the televisions to their employees as a bonus

Question 53

The opportunity cost of going to university is:

A) the total spent on food, clothing, books, transportation, tuition, lodging and other expenses
B) zero for students who to have all of their university expenses paid by someone else
C) the value of the best opportunity a student gives up to attend university
D) zero, as a university education allows a student to earn more after graduation

Question 54

Trade between Australia and New Zealand:

A) is a losing proposition for New Zealand because Australian workers are more productive
B) is a losing proposition for Australia because New Zealand has cheaper labour
C) is like a sports contest - one side wins and the other side loses
D) benefits both Australia and New Zealand

Question 55

Jack must decide whether to go skiing or work on the weekend. He decides to go skiing, which costs him $500. His opportunity cost of going skiing is:

A) the number of hours needed to earn money to pay for the ski trip
B) what else he could have done with his time if he was neither skiing nor working
C) the danger that he will get injured while skiing
D) how much he could have earned if he worked instead

Question 56

Which of the following is important for policymakers to consider when designing public policy?

A) the possibility that policies might change behaviour
B) the direct effect of policies
C) the indirect effect of policies
D) all of the above

Question 57

According to Peltzman, one effect of a government-imposed seatbelt law has been:

A) fewer pedestrian deaths
B) safer driving
C) an increase in the number of accidents
D) that everyone now wears seatbelts

Question 58

The main motivation behind the 'invisible hand' is:

A) the threat of government intervention
B) business ethics
C) self-interest
D) the legal system

Question 59

Equity means that:

A) all members of society have the same income
B) the benefits of society's resources are distributed fairly among its members
C) society's goods and services are distributed according to need
D) society is getting the most it can from its scarce resources

Question 60

A rational decision maker takes an action only if the:

A) marginal benefit is greater than the marginal cost
B) marginal benefit is less than the marginal cost
C) average benefit is greater than the average cost
D) total benefit is greater than total cost

Question 61

If paper-pulp factories generate too much water pollution with their discharge, which kills local fish stocks then:

A) the government will not be able to do anything to stop this
B) the factories will be concerned about the loss of fish and reduce their pollution
C) the government can treat the water for pollution and restock the river
D) the government can use environmental regulations to reduce the

Question 62

Which of the following is an example of market failure?

A) a firm becomes insolvent and is forced out of the market
B) a firm's research and development fails to develop a new product
C) a firm closes down a factory due to poor sales
D) a firm's pollution into a river reduces the number of fish that can be caught

Question 63

Market power refers to the:

A) relative importance of a market to the overall economy
B) ability of a person or group of people to successfully market new products
C) power of the government to regulate a market
D) power of a small group of people to influence prices

Question 64

The income of a typical worker in a country is most closely linked to which of the following?

A) population
B) labour unions
C) productivity
D) government policies

Question 65

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

A) it stabilises the economy
B) it adversely affects the allocation of resources
C) the improvement in equity justifies the reduction in efficiency
D) the reduced uncertainty associated with fixed prices is worth more than the cost in lower efficiency

Question 66

Productivity is defined as the:

A) actual amount of effort workers put into an hour of working time
B) number of workers required to produce a given amount of goods and services
C) amount of labour that can be saved by replacing workers with machines
D) amount of goods and services produced from each hour of a worker's time

Question 67

Which is the best example of an economic actor with market power?

A) A café in Melbourne
B) A coffee producer in Colombia
C) A large supermarket in a small rural town
D) A coffee drinker

Question 68

A situation in which a market left on its own fails to allocate resources efficiently is known as:

A) scarcity
B) opportunity cost
C) market failure
D) market power

Question 69

What ultimately determines a country's standard of living?

A) its ability to produce goods and services
B) its level of oil and gas reserves
C) the quantity of natural resources it has
D) the level of trade barriers to protect domestic industries

Question 70

Two important causes of market failure are:

A) externalities and market power
B) externalities and increases in prices
C) market power and increases in poverty
D) increases in poverty and increases in prices

Question 71

Which of these consumption activities is most likely to cause an external cost?

A) an executive plays a vigorous game of golf
B) a student in a flat 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 the lunch break

Question 72

The two best reasons for a government to intervene in a market are to:

A) raise revenues and to promote stability
B) promote equity and to raise revenues
C) promote efficiency and to raise revenues
D) promote equity and to promote efficiency

Question 73

If scientific research is not supported by patents and government subsidies then there is a risk that:

A) pharmaceutical companies will not make enough profit
B) too much research will be done
C) universities will have to do all the research
D) not enough research will be done

Question 74

An externality is the impact of:

A) society's decisions on the well-being of society
B) a person's actions on that person's well being
C) society's decisions on the well-being of one person
D) one person's actions on the wellbeing of a bystander

Question 75

If Australian workers are more productive than New Zealand workers, one would expect:

A) the two countries to trade with each other
B) Australia to have higher wages than New Zealand
C) Australia to have more trade barriers than New Zealand
D) Australia to provide aid to New Zealand

Question 76

A market economy is guided by:

A) a central planning department
B) people's decisions to buy and sell goods
C) people's decisions to pay taxes
D) people's ability to specialise

Question 77

Domestic fishers in South-East Asia use small boats and nets while in New Zealand, fishers use large powered boats with modern navigation devices and large nets. New Zealand fishers earn more money. The difference in the incomes of the two groups of fishers is because:

A) New Zealand fishers belong to powerful unions
B) labour is more productive with large modern boats using the latest technology
C) there is more demand for fish from New Zealand than for fish from South-East Asia
D) fish from New Zealand are worth more than fish from South-East Asia

Question 78

In Australia, it would be possible to justify a higher income tax on the rich by potential gains in:

A) efficiency
B) equity
C) market power
D) business ethics

Question 79

A good example of a monopoly is:

A) a commercial fishing boat operating in the inshore fishery
B) an eco-tourist business that has sole rights to take visitors into a reserve
C) a large computer company with many business software products
D) a bookstore in a large city

Question 80

An example of an externality is:

A) a drought reducing wheat production in Australia
B) an increase in the price of bread after a sales tax is imposed
C) a new road that increases noise levels in adjacent houses
D) a firm that loses market share after a new firm enters the market