Question 1

When a factory closes, why does it spell bad news for the local restaurants?

Accepted Answer

A)  Sales taxes are likely to increase. 
B)  Unemployed factory workers have lower incomes and are less likely to dine out. 
C)  Unemployed factory workers are eligible for government unemployment benefits. 
D)  The opportunity cost of dining out has fallen. 
A)  Sales taxes are likely to increase. 
B)  Unemployed factory workers have lower incomes and are less likely to dine out. 
C)  Unemployed factory workers are eligible for government unemployment benefits. 
D)  The opportunity cost of dining out has fallen. B

Question 2

Because one person's spending is another person's income:

Accepted Answer

A)  if one group in the economy spends more, the incomes of other groups will decrease. 
B)  if one group in the economy spends less, the incomes of other groups will increase. 
C)  if one group in the economy spends more, the incomes of other groups will increase. 
D)  spending by one group does not influence the income of any other group. 
A)  if one group in the economy spends more, the incomes of other groups will decrease. 
B)  if one group in the economy spends less, the incomes of other groups will increase. 
C)  if one group in the economy spends more, the incomes of other groups will increase. 
D)  spending by one group does not influence the income of any other group. C

Question 3

When the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) restrict the supply of oil to increase their profits, the oil market:

Accepted Answer

A)  achieves an efficient outcome because profits increase. 
B)  achieves an equitable outcome because the nations with oil resources receive the profits commensurate with that resource. 
C)  fails because there is no longer an efficient allocation of resources. 
D)  fails because there is no longer an equitable allocation of resources. 
A)  achieves an efficient outcome because profits increase. 
B)  achieves an equitable outcome because the nations with oil resources receive the profits commensurate with that resource. 
C)  fails because there is no longer an efficient allocation of resources. 
D)  fails because there is no longer an equitable allocation of resources. C

Question 4

By early 2008 the U.S. economy was in a significant downturn. The unemployment rate began to increase, and home prices began to fall. Congress passed a stimulus package that gave tax rebates to virtually every person who paid taxes in 2007. Which of the 12 principles is described by this package?

Accepted Answer

Government policies can change spending.

Question 5

Specialization in production was the starting point for:

Accepted Answer

A)  The Wealth of Nations, by Adam Smith. 
B)  The General Theory, by John Maynard Keynes. 
C)  Das Kapital, by Karl Marx. 
D)  Free to Choose, by Milton Friedman. 
A)  The Wealth of Nations, by Adam Smith. 
B)  The General Theory, by John Maynard Keynes. 
C)  Das Kapital, by Karl Marx. 
D)  Free to Choose, by Milton Friedman.

Question 6

After a great holiday season when it opened its doors for business regularly at 6 A.M., a local retail store decides to continue to open at 6 A.M., even though many customers plan on arriving later to do their shopping. Such a plan by the retail store is:

Accepted Answer

A)  efficient, since it worked previously. 
B)  inefficient, since most customers will revert to their normal shopping behavior after the holidays are over. 
C)  efficient, since it means that workers do not have to change their hours. 
D)  most likely to lead to lower operating costs for the store. 
A)  efficient, since it worked previously. 
B)  inefficient, since most customers will revert to their normal shopping behavior after the holidays are over. 
C)  efficient, since it means that workers do not have to change their hours. 
D)  most likely to lead to lower operating costs for the store.

Question 7

At various times, the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) have restricted the supply of oil to increase their profits. This is an example of:

Accepted Answer

A)  individual actions whose side effects are not properly taken into account by the market. 
B)  one party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself. 
C)  the unsuitability of some goods for efficient management by markets. 
D)  regulating self-interest. 
A)  individual actions whose side effects are not properly taken into account by the market. 
B)  one party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself. 
C)  the unsuitability of some goods for efficient management by markets. 
D)  regulating self-interest.

Question 8

If resources are scarce, it means that they:

Accepted Answer

A)  are insufficient to provide enough goods and services to satisfy all human material wants and needs. 
B)  have no opportunity cost. 
C)  are probably not valued by consumers. 
D)  have an unlimited supply. 
A)  are insufficient to provide enough goods and services to satisfy all human material wants and needs. 
B)  have no opportunity cost. 
C)  are probably not valued by consumers. 
D)  have an unlimited supply.

Question 9

If the state government allocates additional spending on education, the opportunity cost is:

Accepted Answer

A)  zero. 
B)  the dollar amount of the additional spending. 
C)  considered only if taxes have to be raised to fund the spending. 
D)  measured in terms of the best alternative uses for that money. 
A)  zero. 
B)  the dollar amount of the additional spending. 
C)  considered only if taxes have to be raised to fund the spending. 
D)  measured in terms of the best alternative uses for that money.

Question 10

You are analyzing a trade-off when you compare the _____and _____ of doing something.

Accepted Answer

A)  direct costs; opportunity costs 
B)  marginal benefits; total benefits 
C)  costs; benefits 
D)  direct costs; total costs 
A)  direct costs; opportunity costs 
B)  marginal benefits; total benefits 
C)  costs; benefits 
D)  direct costs; total costs

Question 11

Marginal analysis:

Accepted Answer

A)  refers to decisions about whether or not to engage in a particular activity. 
B)  is primarily used when making an either-or choice. 
C)  is used primarily when deciding how much of an activity should be done. 
D)  does not help when making a "how much" choice. 
A)  refers to decisions about whether or not to engage in a particular activity. 
B)  is primarily used when making an either-or choice. 
C)  is used primarily when deciding how much of an activity should be done. 
D)  does not help when making a "how much" choice.

Question 12

Freshwater is considered a scarce good because:

Accepted Answer

A)  not enough of it is available for all needs. 
B)  it does not have any uses. 
C)  scarce goods are not expensive. 
D)  not enough of it is available for all needs and because it is not expensive. 
A)  not enough of it is available for all needs. 
B)  it does not have any uses. 
C)  scarce goods are not expensive. 
D)  not enough of it is available for all needs and because it is not expensive.

Question 13

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

Accepted Answer

A)  Resources are scarce. 
B)  The real cost of something is what you must give up to get it. 
C)  "How much" is a decision at the margin. 
D)  There are gains from trade. 
A)  Resources are scarce. 
B)  The real cost of something is what you must give up to get it. 
C)  "How much" is a decision at the margin. 
D)  There are gains from trade.

Question 14

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:

Accepted Answer

A)  $1 plus the enjoyment you would have received from the candy bar. 
B)  $2 minus the enjoyment you received from the bag of chips. 
C)  $1. 
D)  the enjoyment you would have received from the candy bar. 
A)  $1 plus the enjoyment you would have received from the candy bar. 
B)  $2 minus the enjoyment you received from the bag of chips. 
C)  $1. 
D)  the enjoyment you would have received from the candy bar.

Question 15

Market failure may occur because:

Accepted Answer

A)  individual actions have side effects that are not properly taken into account by the market. 
B)  one party to a trade benefits more than another. 
C)  all goods are suited for efficient management by markets. 
D)  of regulated self-interest. 
A)  individual actions have side effects that are not properly taken into account by the market. 
B)  one party to a trade benefits more than another. 
C)  all goods are suited for efficient management by markets. 
D)  of regulated self-interest.

Question 16

When people in Brazil engage in trade with people in Germany, the citizens of each nation are made worse off.

Accepted Answer

A) True 
 B)False

Question 17

For which of the following decisions would marginal analysis be MOST relevant?

Accepted Answer

A)  Should I invest all of my savings in real estate or should I keep it all in a savings account? 
B)  After I graduate from college, should I go to graduate school or should I get a job? 
C)  After meeting my basic needs, how should I allocate the remainder of my monthly budget? 
D)  Should I keep a pet? 
A)  Should I invest all of my savings in real estate or should I keep it all in a savings account? 
B)  After I graduate from college, should I go to graduate school or should I get a job? 
C)  After meeting my basic needs, how should I allocate the remainder of my monthly budget? 
D)  Should I keep a pet?

Question 18

Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:

Accepted Answer

A)  values an additional hour of studying more than the $10 she would earn tutoring. 
B)  values an hour of studying less than the $10 she would earn tutoring. 
C)  does not understand that there is no benefit from studying. 
D)  doesn't need the money. 
A)  values an additional hour of studying more than the $10 she would earn tutoring. 
B)  values an hour of studying less than the $10 she would earn tutoring. 
C)  does not understand that there is no benefit from studying. 
D)  doesn't need the money.

Question 19

If the value of beach-front property in Beach City decreases, the people of Beach City will likely spend _____, causing incomes in Beach City to _____.

Accepted Answer

A)  more; increase 
B)  more; decrease 
C)  less; increase 
D)  less; decrease 
A)  more; increase 
B)  more; decrease 
C)  less; increase 
D)  less; decrease

Question 20

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is:

Accepted Answer

A)  tuition and the cost of housing. 
B)  tuition, the cost of housing, and the cost of books. 
C)  tuition, the cost of books, and forgone income. 
D)  forgone income only. 
A)  tuition and the cost of housing. 
B)  tuition, the cost of housing, and the cost of books. 
C)  tuition, the cost of books, and forgone income. 
D)  forgone income only.

When a factory closes, why does it spell bad news for the local restaurants?

Because one person's spending is another person's income:

When the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) restrict the supply of oil to increase their profits, the oil market:

By early 2008 the U.S. economy was in a significant downturn. The unemployment rate began to increase, and home prices began to fall. Congress passed a stimulus package that gave tax rebates to virtually every person who paid taxes in 2007. Which of the 12 principles is described by this package?

Specialization in production was the starting point for:

After a great holiday season when it opened its doors for business regularly at 6 A.M., a local retail store decides to continue to open at 6 A.M., even though many customers plan on arriving later to do their shopping. Such a plan by the retail store is:

At various times, the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) have restricted the supply of oil to increase their profits. This is an example of:

If resources are scarce, it means that they:

If the state government allocates additional spending on education, the opportunity cost is:

You are analyzing a trade-off when you compare the _and _ of doing something.

Marginal analysis:

Freshwater is considered a scarce good because:

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:

Market failure may occur because:

When people in Brazil engage in trade with people in Germany, the citizens of each nation are made worse off.

For which of the following decisions would marginal analysis be MOST relevant?

Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:

If the value of beach-front property in Beach City decreases, the people of Beach City will likely spend _, causing incomes in Beach City to _.

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is:

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 1: First Principles

When a factory closes, why does it spell bad news for the local restaurants?

Because one person's spending is another person's income:

When the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) restrict the supply of oil to increase their profits, the oil market:

By early 2008 the U.S. economy was in a significant downturn. The unemployment rate began to increase, and home prices began to fall. Congress passed a stimulus package that gave tax rebates to virtually every person who paid taxes in 2007. Which of the 12 principles is described by this package?

Specialization in production was the starting point for:

After a great holiday season when it opened its doors for business regularly at 6 A.M., a local retail store decides to continue to open at 6 A.M., even though many customers plan on arriving later to do their shopping. Such a plan by the retail store is:

At various times, the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) have restricted the supply of oil to increase their profits. This is an example of:

If resources are scarce, it means that they:

If the state government allocates additional spending on education, the opportunity cost is:

You are analyzing a trade-off when you compare the _____and _____ of doing something.

Marginal analysis:

Freshwater is considered a scarce good because:

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:

Market failure may occur because:

When people in Brazil engage in trade with people in Germany, the citizens of each nation are made worse off.

For which of the following decisions would marginal analysis be MOST relevant?

Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:

If the value of beach-front property in Beach City decreases, the people of Beach City will likely spend _____, causing incomes in Beach City to _____.

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is:

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

You are analyzing a trade-off when you compare the _and _ of doing something.

If the value of beach-front property in Beach City decreases, the people of Beach City will likely spend _, causing incomes in Beach City to _.