Deck 1: Ten Principles of Economics

Question 1

Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight.If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night,the hotel manager should

A)rent the room because the marginal benefit exceeds the marginal cost.
B)rent the room because the marginal benefit exceeds the average cost.
C)not rent the room because the marginal benefit is less than the marginal cost.
D)not rent the room because the marginal benefit is less than the average cost.

Answer 1

A

Question 2

The word "economy" comes from the Greek word oikonomos,which means

A)"environment."
B)"production."
C)"one who manages a household."
D)"one who makes decisions."

Answer 2

C

Question 3

The overriding reason why households and societies face many decisions is that

A)resources are scarce.
B)goods and services are not scarce.
C)incomes fluctuate with business cycles.
D)people,by nature,tend to disagree.

Answer 3

A

Question 4

Approximately what percentage of the world's economies experience scarcity?

A)10%
B)40%
C)85%
D)100%

Question 5

Resources are

A)scarce for households but plentiful for economies.
B)plentiful for households but scarce for economies.
C)scarce for households and scarce for economies.
D)plentiful for households and plentiful for economies.

Question 6

When a society cannot produce all the goods and services people wish to have,it is said that the economy is experiencing

A)scarcity.
B)surpluses.
C)inefficiencies.
D)inequalities.

Question 7

Economics deals primarily with the concept of

A)scarcity.
B)money.
C)poverty.
D)banking.

Question 8

Oil is considered to be a non-renewable energy source.Oil

A)is an unlimited resource.
B)is a scarce resource.
C)is not a productive resource.
D)has no opportunity cost.

Question 9

The principle that "people face tradeoffs" applies to

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

Question 10

When the government attempts to improve equality in an economy the result is often

A)an increase in overall output in the economy.
B)additional government revenue since overall income will increase.
C)a reduction in equality.
D)a reduction in efficiency.

Question 11

When society requires that firms reduce pollution,there is

A)a tradeoff because of reduced incomes to the firms' owners and workers.
B)a tradeoff only if some firms are forced to close.
C)no tradeoff,since the cost of reducing pollution falls only on the firms affected by the requirements.
D)no tradeoff,since everyone benefits from reduced pollution.

Question 12

A woman eats two bananas during a particular day.The marginal benefit she enjoys from eating the second banana

A)can be thought of as the total benefit she enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.
B)determines her marginal cost of the first and second bananas.
C)does not depend on how many bananas she has already eaten.
D)All of the above are correct.

Question 13

The phenomenon of scarcity stems from the fact that

A)most economies' production methods are not very good.
B)in most economies,wealthy people consume disproportionate quantities of goods and services.
C)governments restrict production of too many goods and services.
D)resources are limited.

Question 14

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

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

Question 15

A student spends an hour studying instead of watching tv with his friends.The opportunity cost to him of studying is

A)the improvement in his grades from studying for the hour.
B)the improvement in his grades from studying minus the enjoyment of watching tv.
C)the enjoyment he would have received if he had watched tv with his friends.
D)zero.Since he chose to study rather than to watch tv,the value of studying must have been greater than the value of watching tv.

Question 16

The opportunity cost of an item is

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.

Question 17

Efficiency means that

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 18

A rational decisionmaker

A)ignores marginal changes and focuses instead on "the big picture."
B)ignores the likely effects of government policies when he or she makes choices.
C)takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
D)takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

Question 19

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

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

Question 20

Economists use the word equality to describe a situation in which

A)each member of society has the same income.
B)each member of society has access to abundant quantities of goods and services,regardless of his or her income.
C)society is getting the maximum benefits from its scarce resources.
D)society's resources are used efficiently.

Question 21

A company that formerly produced software went out of business because too many potential customers bought illegally-produced copies of the software instead of buying the product directly from the company.This instance serves as an example of

A)market power.
B)inefficient trade.
C)inadequate enforcement of property rights.
D)the invisible hand at work.

Question 22

The term "productivity"

A)means the same thing as "efficiency."
B)is seldom used by economists,as its meaning is not precise.
C)refers to the quantity of goods and services produced from each unit of labor input.
D)refers to the variety of goods and services from which households can choose when they shop.

Question 23

Following the implementation of laws requiring automobiles to have seat belts,which of the following occurred?

A)An individual's probability of surviving an auto accident rose.
B)There was an increase in pedestrian deaths.
C)There was an increase in automobile accidents.
D)All of the above are correct.

Question 24

What is the most important factor that explains differences in living standards across countries?

A)the quantity of money
B)the level of unemployment
C)productivity
D)equality

Question 25

In the United States,incomes historically have grown about 2 percent per year.At this rate,average income doubles every

A)15 years.
B)25 years.
C)35 years.
D)45 years.

Question 26

The term "invisible hand" was coined by

A)Adam Smith.
B)David Ricardo.
C)Karl Marx.
D)Benjamin Franklin.

Question 27

According to a recent study of Chilean bus drivers,drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour.If Chilean bus drivers are paid by the number of passengers they transport and Colombian bus drivers are paid by the hour,we can conclude that

A)Chilean bus drivers likely have a higher standard of living than Colombian bus drivers.
B)Colombian bus drivers likely have a higher standard of living than Chilean bus drivers.
C)Chilean and Colombian bus drivers likely have the same standard of living.
D)Chilean and Colombian bus drivers likely have a higher standard of living than US bus drivers.

Question 28

Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person.Which country can benefit?

A)only the one with a low level of output per person.
B)only the one with a high level of output per person.
C)both
D)neither

Question 29

Which is the most accurate statement about trade?

A)Trade can make every nation better off.
B)Trade makes some nations better off and others worse off.
C)Trading for a good can make a nation better off only if the nation cannot produce that good itself.
D)Trade helps rich nations and hurts poor nations.

Question 30

For markets to work well,there must be

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

Question 31

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

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.

Question 32

Central planning refers to

A)markets guiding economic activity.Today many countries that had this system have abandoned it.
B)markets guiding economic activity.Today many countries that did not have this system have implemented it.
C)government guiding economic activity.Today many countries that had this system have abandoned it.
D)government guiding economic activity.Today many countries that did not have this system have implemented it.

Question 33

Economists are particularly good at understanding that people respond to

A)laws.
B)incentives.
C)punishments more than rewards.
D)rewards more than punishments.

Question 34

Public policies

A)may be able to improve either economic efficiency or equality.
B)may be able to improve economic efficiency but cannot improve equality.
C)may be able to improve equality but cannot improve economic efficiency.
D)cannot improve either equality or economic efficiency.

Question 35

Trade

A)allows specialization,which increases costs.
B)allows specialization,which reduces costs.
C)reduces specialization,which increases costs.
D)reduces specialization,which reduces costs.

Question 36

In a market economy,economic activity is guided by

A)the government.
B)corporations.
C)central planners.
D)self-interest and prices.

Question 37

Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level.Which country can benefit?

A)only the one with a low level of output per person.
B)only the one with a high level of output per person.
C)both
D)neither

Question 38

Suppose that the average income of a Costa Rican is higher than the average income of a Guatemalan.You might conclude that

A)Costa Rican firms are faced with stricter government regulations than Guatemalan firms.
B)total income is divided among fewer workers in Costa Rica since it has a smaller labor force than Guatemala.
C)Guatemala's climate allows for longer growing seasons and therefore Guatemala can produce large quantities of grain and other crops.
D)productivity in Costa Rica is higher than in Guatemala.

Question 39

Which of the following is a principle concerning how people interact?

A)Markets are usually a good way to organize economic activity.
B)Rational people think at the margin.
C)People respond to incentives.
D)All of the above are correct.

Question 40

If the price of a dozen eggs were fixed above the current price,then we would expect

A)an increase in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell.
B)an increase in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell.
C)a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell.
D)a decrease in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell.

Question 41

The government can potentially improve market outcomes if market inequalities or market failure exists.

Question 42

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.

Question 43

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

Question 44

Trade allows each person to specialize in the activities he or she does best,thus increasing each individual's productivity.

Question 45

A marginal change is a small incremental adjustment to an existing plan of action.

Question 46

Which of the following is the most correct statement about the relationship between inflation and unemployment?

A)In the short run,falling inflation is associated with falling unemployment.
B)In the short run,falling inflation is associated with rising unemployment.
C)In the long run,falling inflation is associated with falling unemployment.
D)In the long run,falling inflation is associated with rising unemployment.

Question 47

When a government program is justified not on its merits but on the number of jobs it will create,

A)the program is an efficient use of taxpayer dollars.
B)it should be approved only if the unemployment rate is low.
C)taxes should be raised to fund the program.
D)it is known as the "broken window fallacy."

Question 48

Economics is the study of how evenly goods and services are distributed within society.

Question 49

In a particular country in 1998,the average worker needed to work 25 hours to produce 40 units of output.In that same country in 2008,the average worker needed to work 40 hours to produce 68 units of output.In that country,the productivity of the average worker

A)decreased by 1.7 percent between 1998 and 2008.
B)remained unchanged between 1998 and 2008.
C)increased by 4.75 percent between 1998 and 2008.
D)increased by 6.25 percent between 1998 and 2008.

Question 50

The business cycle is measured by the

A)production of goods and services.
B)number of people employed.
C)the interest rate.
D)Both a and b are correct.

Question 51

Because resources are scarce,a society cannot give all individuals the standard of living to which each aspires.

Question 52

To promote good economic outcomes,policymakers should strive to enact policies that

A)enhance productivity.
B)enhance individuals' market power.
C)result in a rapidly-growing quantity of money.
D)All of the above are correct.

Question 53

An increase in the overall level of prices in an economy is referred to as

A)the income effect.
B)inflation.
C)deflation.
D)the substitution effect.

Question 54

In the short run,an increase in the money supply is likely to lead to

A)lower unemployment and lower inflation.
B)lower unemployment and higher inflation.
C)higher unemployment and lower inflation.
D)higher unemployment and higher inflation.

Question 55

The "broken window fallacy"

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.

Question 56

Equality means distributing society's resources in the most efficient manner.

Question 57

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

Question 58

Government policies that improve equality usually increase efficiency at the same time.

Question 59

It once took 90 percent of our population to grow our food.It now takes only 3 percent of the population to grow our food.Which of the following statements is true?

A)This loss of jobs has been detrimental to our economy.
B)The government should provide subsidies to encourage more people to become farmers.
C)This reduction in the number of farmers explains the increase in the price of food.
D)This is progress because freed-up labor that is used to produce other goods.

Question 60

Trade with any nation can be mutually beneficial.

Question 61

The broken window fallacy states that when a window breaks and someone spends money to repair it,they have created new economic activity that would not have otherwise taken place.

Question 62

One tradeoff society faces is between efficiency and equality.Define each term.If a government redistributes income from the rich to the poor,explain how this action affects equality as well as efficiency in the economy.

Question 63

How does the study of economics depend upon the phenomenon of scarcity?

Question 64

In the short-run,society faces a tradeoff between inflation and unemployment.

Question 65

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

Question 66

Inflation is the primary determinant of a country's living standards.

Question 67

Define opportunity cost.What is the opportunity cost to you of attending college?
What was your opportunity cost of coming to class today?

Question 68

Under what conditions might government intervention in a market economy improve the economy's performance?

Question 69

The business cycle refers to fluctuations in economic activity such as employment and production.