Question 1

Explain the concept of externality and give an example.

Accepted Answer

The impact of one person's actions on the well-being of a bystander; pollution

Question 2

Nevaeh decides to spend four hours playing video games rather than attending her classes. Her opportunity cost of playing video games is

Accepted Answer

A) the value of the knowledge she would have received had she attended her classes. 
B) the $40 she could have earned if she had worked at her job for those four hours. 
C) the value of her time playing video games minus the value of attending classes. 
D) nothing, since she valued playing video games more than attending classes. 
A) the value of the knowledge she would have received had she attended her classes. 
B) the $40 she could have earned if she had worked at her job for those four hours. 
C) the value of her time playing video games minus the value of attending classes. 
D) nothing, since she valued playing video games more than attending classes. A

Question 3

Rational people make decisions "at the margin" by comparing ______.

Accepted Answer

marginal costs and marginal benefits

Question 4

Trade

Accepted Answer

A) allows specialization, which increases costs. 
B) allows specialization, which reduces costs. 
C) reduces specialization, which increases costs. 
D) reduces specialization, which reduces costs. 
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 5

The "invisible hand" refers to

Accepted Answer

A) how central planners made economic decisions. 
B) how the decisions of households and firms lead to desirable market outcomes. 
C) the control that large firms have over the economy. 
D) government regulations without which the economy would be less efficient. 
A) how central planners made economic decisions. 
B) how the decisions of households and firms lead to desirable market outcomes. 
C) the control that large firms have over the economy. 
D) government regulations without which the economy would be less efficient.

Question 6

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A) government intervention. 
B) a decrease in foreign competition. 
C) fewer market participants. 
D) weaker property rights. 
A) government intervention. 
B) a decrease in foreign competition. 
C) fewer market participants. 
D) weaker property rights.

Question 7

What do prices reflect in a market economy?

Accepted Answer

The value of a good

Question 8

The invisible hand ensures that economic prosperity is distributed equally.

Accepted Answer

A) True 
 B)False

Question 9

Rami Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.2 million. If the company builds a 25th house, its total cost will increase to $4.375 million. Which of the following statements is correct?

Accepted Answer

A) For the first 24 houses, the average cost per house was $170,000. 
B) The marginal cost of the 25th house, if it is built, will equal $175,000. 
C) If the company can sell the 25th house for at least $167,000, then it should build it. 
D) The company should never build the 25th house because this increases its total cost. 
A) For the first 24 houses, the average cost per house was $170,000. 
B) The marginal cost of the 25th house, if it is built, will equal $175,000. 
C) If the company can sell the 25th house for at least $167,000, then it should build it. 
D) The company should never build the 25th house because this increases its total cost.

Question 10

Which of the following industries has a marginal cost that is close to zero?

Accepted Answer

A) Automobile 
B) Aircraft 
C) Software 
D) Furniture 
A) Automobile 
B) Aircraft 
C) Software 
D) Furniture

Question 11

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 basketball 
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 basketball

Question 12

Scenario 1-2
Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour.
-Refer to Scenario 1-2. What is your opportunity cost of going to the movies?

Accepted Answer

The answer of Scenario 1-2
Suppose that you have a choice...

Question 13

What are the two short-run effects of increasing the quantity of nation's money?

Accepted Answer

Higher inf

Question 14

Suppose the cost of flying a 350-seat plane for an airline is $350,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is

Accepted Answer

A) $350. 
B) $3,500. 
C) $350,000. 
D) This cannot be determined from the information given. 
A) $350. 
B) $3,500. 
C) $350,000. 
D) This cannot be determined from the information given.

Question 15

One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.

Accepted Answer

A) True 
 B)False

Question 16

What does the term "marginal change" mean?

Accepted Answer

A small incremental

Question 17

Which of the following do economists not generally regard 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 competition 
A) To promote efficiency 
B) To promote equality 
C) To enforce property rights 
D) To protect an industry from foreign competition

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Large or persistent inflation is almost always caused by

Accepted Answer

A) excessive government spending. 
B) excessive growth in the quantity of money. 
C) foreign competition. 
D) higher-than-normal levels of productivity. 
A) excessive government spending. 
B) excessive growth in the quantity of money. 
C) foreign competition. 
D) higher-than-normal levels of productivity.

Question 20

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Accepted Answer

A) David Ricardo 
B) Thorstein Veblen 
C) John Maynard Keynes 
D) Adam Smith 
A) David Ricardo 
B) Thorstein Veblen 
C) John Maynard Keynes 
D) Adam Smith

Exam 1: Ten Principles of Economics

Explain the concept of externality and give an example.

Nevaeh decides to spend four hours playing video games rather than attending her classes. Her opportunity cost of playing video games is

Rational people make decisions "at the margin" by comparing ______.

Trade

The "invisible hand" refers to

If an externality is present in a market, economic efficiency may be enhanced by

What do prices reflect in a market economy?

The invisible hand ensures that economic prosperity is distributed equally.

Rami Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.2 million. If the company builds a 25th house, its total cost will increase to $4.375 million. Which of the following statements is correct?

Which of the following industries has a marginal cost that is close to zero?

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

What are the two short-run effects of increasing the quantity of nation's money?

Suppose the cost of flying a 350-seat plane for an airline is $350,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is

One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.

What does the term "marginal change" mean?

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?

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

Large or persistent inflation is almost always caused by

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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