Deck 1: Ten Principles of Economics

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.

Answer 3

True

Question 4

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Question 5

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

Question 6

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

Question 7

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

Question 8

Economists study how people make decisions.

Question 9

If wages for accountants rose, then accountants' leisure time would have a lower opportunity cost.

Question 10

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

Question 11

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

Question 12

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 13

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

Question 14

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

Question 15

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

Question 16

Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.

Question 17

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

Question 18

Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.

Question 19

An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs.

Question 20

Economics is the study of how society allocates its unlimited resources.

Question 21

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

Question 22

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

Question 23

One of the effects of gas prices rising from about $2 to about $4 per gallon was airlines ordering new, fuel-efficient aircraft.

Question 24

Market power and externalities are two possible causes of market failure.

Question 25

A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.

Question 26

Trade with any nation can be mutually beneficial.

Question 27

Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives.

Question 28

The invisible hand ensures that economic prosperity is distributed equally.

Question 29

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.

Question 30

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

Question 31

Productivity is defined as the quantity of goods and services produced from each unit of labor input.

Question 32

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

Question 33

Communist countries worked on the premise that government officials were in the best position to allocate the economy's scarce resources.

Question 34

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

Question 35

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

Question 36

Trade can make everyone better off except in the case where one person is better at doing everything.

Question 37

Market failure refers to a situation in which the market does not allocate resources efficiently.

Question 38

Market failure occurs when no individual has the ability to substantially influence market prices.

Question 39

Inflation increases the value of money.

Question 40

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.

Question 41

The goal of President Obama's stimulus package and increased government spending following the deep economic downturn in 2008 and 2009 was to reduce inflation.

Question 42

Productivity is defined as the

A)amount of goods and services produced from each unit of labor input.
B)number of workers required to produce a given amount of goods and services.
C)amount of labor that can be saved by replacing workers with machines.
D)actual amount of effort workers put into an hour of working time.

Question 43

In the long run the primary effect of increasing the quantity of money is higher prices.

Question 44

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

Question 45

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 46

The opportunity cost of working one hour is the sum of the values you would have received from all other activities you could have done in that hour.​

Question 47

The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour.​

Question 48

In the United States, incomes have historically grown

A)about 0.5 percent per year.
B)about 2 percent per year.
C)about 4 percent per year.
D)about 6 percent per year.

Question 49

The amount of goods and services produced from each unit of labor input is called

A)opportunity cost.
B)productivity.
C)externality.
D)marginal benefit.

Question 50

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

Question 51

Inflation measures the increase in the quantity of goods and services produced from each hour of a worker's time.

Question 52

A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost.

Question 53

Variations in the standard of living across countries is due almost entirely to differences in each nation's total output of goods and services.

Question 54

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

A)The average American purchases more televisions than the average Nigerian.
B)The average American has better nutrition and healthcare than the average Nigerian.
C)The average American has a longer life expectancy than the average Nigerian.
D)All of the above are correct.

Question 55

Over the past century, the average income in the United States has risen about

A)twofold.
B)fivefold.
C)eightfold.
D)tenfold.

Question 56

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

A)population growth rates.
B)productivity.
C)systems of public education.
D)taxes.

Question 57

The "invisible hand" influences market behavior through trade.​

Question 58

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 59

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 60

Inflation and unemployment both increase as the money supply increases.

Question 61

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 62

Suppose that in Brazil total annual output is worth $600 million and people work 30 million hours. In Peru total annual output is worth $800 million and people work 50 million hours. Productivity is higher

A)in Brazil. Most variation in the standard of living across countries is due to differences in productivity.
B)in Brazil. Differences in productivity explain very little of the variation in the standard of living across countries.
C)in Peru. Most variation in the standard of living across countries is due to differences in productivity.
D)in Peru. Differences in productivity explain very little of the variation in the standard of living across countries.

Question 63

In a particular country in 1999, the average worker had to work 20 hours to produce 55 units of output. In that same country in 2009, the average worker needed to work 28 hours to produce 77 units of output. In that country, the productivity of the average worker

A)increased by 2 percent between 1999 and 2009.
B)increased by 5 percent between 1999 and 2009.
C)remained unchanged between 1999 and 2009.
D)decreased by 3 percent between 1999 and 2009.

Question 64

The fact that different countries experience different standards of living is largely explained by differences in those countries'

A)populations.
B)productivity levels.
C)locations.
D)None of the above is correct. Economists are puzzled by differences in standards of living around the world.

Question 65

Suppose the average income of a citizen of Poland is higher than the average income of a citizen of Romania. You might conclude that

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

Question 66

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

A)labor unions
B)minimum wage laws
C)productivity
D)efficiency

Question 67

Slow growth in US incomes during the 1970s and 1980s was primarily due to

A)slow productivity growth in the US.
B)increased competition from Japan.
C)increased competition from European countries.
D)a rapid decrease in the quantity of money in the economy.

Question 68

The primary determinant of a country's standard of living is

A)the country's ability to prevail over foreign competition.
B)the country's ability to produce goods and services.
C)the total supply of money in the economy.
D)the average age of the country's labor force.

Question 69

In a particular country in 1998, the average worker needed to work 40 hours to produce 100 units of output. In that same country in 2008, the average worker needed to work 36 hours to produce 72 units of output. In that country, the productivity of the average worker

A)decreased between 1998 and 2008, so we would expect the standard of living to have decreased accordingly.
B)increased between 1998 and 2008, so we would expect the standard of living to have increased accordingly.
C)decreased between 1998 and 2008, so we would expect inflation to have decreased accordingly.
D)increased between 1998 and 2008, so we would expect inflation to have increased accordingly.

Question 70

The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by

A)unstable economic conditions in Eastern Europe.
B)increased competition from abroad.
C)a decline in the rate of increase in U.S. productivity.
D)a strong U.S. dollar abroad, hurting U.S. exports.

Question 71

Suppose a typical worker in India can produce 32 units of product in an eight-hour day, while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day. We can conclude that

A)worker productivity in Bangladesh is higher than in India.
B)the standard of living will likely be higher in India than in Bangladesh.
C)productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for the worker in India.
D)there will be no difference between the standard of living in India and Bangladesh.

Question 72

A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?

A)U.S. textile workers belong to a union, whereas Vietnamese textile workers do not belong to a union.
B)There is little demand for cotton cloth in Vietnam and great demand in the U.S.
C)Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
D)Vietnam has a low-wage policy to make its textile industry more competitive in world markets.

Question 73

A direct or positive relationship exists between a country's

A)productivity and its standard of living.
B)amount of government spending and its productivity.
C)total population and its average citizen's income.
D)rate of population growth and the extent of its trade with other countries.

Question 74

In a particular country in 2000, the average worker needed to work 40 hours to produce 55 units of output. In that same country in 2008, the average worker needed to work 30 hours to produce 45 units of output. In that country, the productivity of the average worker

A)decreased by about 6 percent between 2000 and 2008.
B)remained unchanged between 2000 and 2008.
C)increased by about 9 percent between 2000 and 2008.
D)increased by about 18 percent between 2000 and 2008.

Question 75

US citizens have better nutrition, better healthcare, and a longer life expectancy than citizens of Ghana. Which of the following conclusions can be drawn from this statement?

A)Average income in the US is higher than the average income in Ghana.
B)The US has a higher standard of living than Ghana.
C)Productivity in the US is higher than productivity in Ghana.
D)All of the above are correct.

Question 76

The income of a typical worker in a country is most closely linked to which of the following?

A)population
B)productivity
C)market power
D)government policies

Question 77

The historical rise in living standards of American workers is primarily a result of

A)the influence of labor unions in America.
B)tariff protection imposed by the American government.
C)the enactment of minimum-wage laws in America.
D)the rise in American productivity.

Question 78

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 79

To increase living standards, public policy should

A)ensure that workers are well educated and have the necessary tools and technology.
B)make unemployment benefits more generous.
C)move workers into jobs directly from high school.
D)ensure a greater degree of equality, taking all income-earners into account.

Question 80

To raise productivity, policymakers could

A)increase spending on education.
B)provide tax credits to firms for capital improvements.
C)fund research and development.
D)All of the above are correct.