Question 1

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) A) and B)
F) A) and C)

Question 2

A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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.E) B) and C)
F) None of the above

Question 4

In the United States, the overall level of prices more than doubled during the

Accepted Answer

A)  1950s.
B)  1960s.
C)  1970s.
D)  1980s.E) B) and C)
F) A) and C)

Question 5

Which of the following could reduce economic efficiency?

Accepted Answer

A)  laws that encourage lawsuits
B)  policies that redistribute income
C)  policies that impose significant restrictions on international trade
D)  All of the above are correctE) A) and D)
F) All of the above

Question 6

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) None of the above
F) B) and C)

Question 7

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

Accepted Answer

A)  1 percent per year
B)  2 percent per year
C)  3 percent per year
D)  4 percent per yearE) A) and B)
F) B) and C)

Question 8

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

Accepted Answer

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 Ed chose to study rather than to watch tv, the value of studying must have been greater than the value of watching tv.E) All of the above
F) A) and D)

Question 9

Which of the following phrases best captures the notion of efficiency?

Accepted Answer

A)  absolute fairness
B)  equal distribution
C)  minimum waste
D)  equitable outcomeE) A) and C)
F) A) and B)

Question 10

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

Question 11

Trade between countries tends to

Accepted Answer

A)  reduce both competition and specialization.
B)  reduce competition and increase specialization.
C)  increase competition and reduce specialization.
D)  increase both competition and specialization.E) B) and D)
F) None of the above

Question 12

Efficiency means that

Accepted Answer

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

Question 13

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

Accepted Answer

Because economics is the study of how so...

Question 14

Efficiency

Accepted Answer

A)  and equality both refer to how much a society can produce with its resources.
B)  and equality both refer to how fairly the benefits from using resources are distributed between members of a society.
C)  refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.
D)  refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resourcesE) B) and C)
F) None of the above

Question 15

Scarcity means that there is less of a good or resource available than people wish to have.

Accepted Answer

A) True 
 B)False

Question 16

The relatively low inflation experienced in the United States in the 1990s is attributable to

Accepted Answer

A)  slow growth of U.S. productivity during the 1990s.
B)  slow growth of the quantity of money in the U.S. in the 1990s.
C)  low levels of government spending in the U.S. in the 1980s and 1990s.
D)  the eight-year presidency of William Jefferson Clinton during the 1990s.E) All of the above
F) B) and D)

Question 17

For which of the following individuals would the opportunity cost of going to college be highest?

Accepted Answer

A)  a promising young mathematician who will command a high salary once she earns her college degree
B)  a student with average grades who has never held a job
C)  a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree
D)  a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketballE) B) and D)
F) All of the above

Question 18

Market power refers to the

Accepted Answer

A)  power of a single person or small group to influence market prices.
B)  ability of a person or small group to successfully market new products.
C)  power of the government to regulate a market.
D)  importance of a certain market in relation to the overall economy.E) A) and D)
F) None of the above

Question 19

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

Accepted Answer

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."E) None of the above
F) A) and C)

Question 20

The economy of the former Soviet Union is best described as a

Accepted Answer

A)  primitive economy.
B)  market economy.
C)  hybrid economy.
D)  centrally-planned economy.E) B) and C)
F) A) and B)

Exam 1: Ten Principles of Economics

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

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Trade between countries tends to

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Scarcity means that there is less of a good or resource available than people wish to have.

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

Correct AnswerverifiedBecause economics is the study of how so...View AnswerShow Answer

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

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

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Efficiency

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For which of the following individuals would the opportunity cost of going to college be highest?

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Which of the following could reduce economic efficiency?

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

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Efficiency means that

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

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Which of the following phrases best captures the notion of efficiency?

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In the United States, the overall level of prices more than doubled during the

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

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Market power refers to the

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

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A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

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The relatively low inflation experienced in the United States in the 1990s is attributable to

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The economy of the former Soviet Union is best described as a

Correct AnswerverifiedShow Answer

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Because economics is the study of how so...
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