Question 1

The "broken window fallacy"

Accepted Answer

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.E) B) and C)
F) B) and D)

Question 2

Almost all variation in living standards is attributable to differences in countries'

Accepted Answer

A)   population growth rates.
B)   productivity.
C)   systems of public education.
D)   taxes.E) All of the above
F) C) and D)

Question 3

The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

Accepted Answer

A) True 
 B)False

Question 4

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

Accepted Answer

A)   $99,000.
B)   $103,000.
C)   $108,000.
D)   $121,000.E) A) and B)
F) None of the above

Question 5

When the "invisible hand" guides economic activity, prices of products reflect

Accepted Answer

A)   only the values that society places on those products.
B)   only the costs to society of producing those products.
C)   both the values that society places on those products and the costs to society of producing those products.
D)   none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair."E) B) and C)
F) A) and D)

Question 6

A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

Accepted Answer

A)   the value of a good to society, but not the cost of making it.
B)   the cost of making a good to society, but not its value.
C)   both the value of a good to society and the cost of making it.
D)   neither the value of a good to society nor the cost of making it.E) B) and C)
F) A) and D)

Question 7

Government policies can change the costs and benefits that people face. Those policies have the potential to

Accepted Answer

A)   alter people's behavior.
B)   alter people's decisions at the margin.
C)   produce results that policymakers did not intend.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 8

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

Accepted Answer

A)   compare the total cost of your education to the total benefits of your education.
B)   compare the total cost of your education to the benefits of staying one more semester.
C)   compare the cost of staying one more semester to the benefits of staying one more semester.
D)   compare the total benefits of your education to the cost of staying one more semester.E) A) and D)
F) A) and C)

Question 9

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

Question 10

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

Question 11

Which of the following statements about trade is false?

Accepted Answer

A)   Trade increases competition.
B)   With trade, one country wins and one country loses.
C)   Bulgaria can benefit, potentially, from trade with any other country.
D)   Trade allows people to buy a greater variety of goods and services at lower cost.E) A) and B)
F) C) and D)

Question 12

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

Accepted Answer

A)   to promote efficiency
B)   to promote equality
C)   to enforce property rights
D)   to protect an industry from foreign competitionE) C) and D)
F) B) and D)

Question 13

In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?

Accepted Answer

A)   to produce good quality products so that society would benefit from the resources used
B)   to conserve on costs, so as to maintain efficiency in the economy
C)   to produce enough to meet the output target, without regard for quality or cost
D)   to produce those products that society desires mostE) C) and D)
F) All of the above

Question 14

Give an example of a trade-off faced by society.

Accepted Answer

Efficiency and equality; a cle...

Question 15

The opportunity cost of an item is

Accepted Answer

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.E) A) and B)
F) All of the above

Question 16

The property of society getting the most it can from its scarce resources is called

Accepted Answer

A)   efficiency.
B)   equality.
C)   externality.
D)   productivity.E) B) and C)
F) None of the above

Question 17

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

Accepted Answer

A)   3 percent per year
B)   5 percent per year
C)   7 percent per year
D)   9 percent per yearE) C) and D)
F) B) and C)

Question 18

Making rational decisions "at the margin" means that people

Accepted Answer

A)   make those decisions that do not impose a marginal cost.
B)   evaluate how easily a decision can be reversed if problems arise.
C)   compare the marginal costs and marginal benefits of each decision.
D)   always calculate the dollar costs for each decision.E) A) and B)
F) A) and C)

Question 19

In considering how to allocate its scarce resources among its various members, a household considers

Accepted Answer

A)   each member's abilities.
B)   each member's efforts.
C)   each member's desires.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 20

Tuition is the single-largest cost of attending college for most students.

Accepted Answer

A) True 
 B)False

Exam 1: Ten Principles of Economics

The "broken window fallacy"

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

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

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A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

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The property of society getting the most it can from its scarce resources is called

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Making rational decisions "at the margin" means that people

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Which of the following statements about trade is false?

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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 lowest level of unemployment in the economy?

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Almost all variation in living standards is attributable to differences in countries'

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In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?

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Tuition is the single-largest cost of attending college for most students.

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Give an example of a trade-off faced by society.

Correct AnswerverifiedEfficiency and equality; a cle...View AnswerShow Answer

When the "invisible hand" guides economic activity, prices of products reflect

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Government policies can change the costs and benefits that people face. Those policies have the potential to

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In considering how to allocate its scarce resources among its various members, a household considers

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The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

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Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

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Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

Correct AnswerverifiedShow Answer

The opportunity cost of an item is

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You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

Correct AnswerverifiedShow Answer

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Efficiency and equality; a cle...
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