Deck 1: Welcome to Economics

Question 1

basic postulate of economics indicates that changes inincentives influence the:

A)actions of producers but not consumers.
B)actions of consumers but not producers.
C)choices of individuals only when they buy and sell goods in the marketplace.
D)choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.(True
Answer )Correct

Answer 1

D

Question 2

Which of the following choices best illustrates the concept ofAdam Smith's ―invisible hand‖?

A)A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a
Customer.
B)A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge.
C)A government regulates a firm to clean up the pollutants it has released as part of its production process.
D)An apartment building is built, which provides much needed housing, on the site of the only playground for children in that
Town.

Answer 2

A

Question 3

Recall the chapter opening story about the British sea captainsand the convicted felons. Instead of paying the sea captains foreach prisoner placed on board the ships in Great Britain, aneconomist suggested:

A)paying for each prisoner who walked off the ship in Australia.
B)paying for food and water to reduce costs of caring for prisoners during the transit.
C)doing nothing, since the suggested change would not matter.
D)that new regulations be passed to require prisoner safety and health.

Answer 3

A

Question 4

Which of the following statements reflects Adam Smith'simportant insight into marketplace behavior?

A)Society benefits when people and firms pursue their own self interests.
B)Markets are usually an inefficient way of organizing economic activity.
C)Greedy, self-interested behavior needs to be constrained to ensure strong economic growth.
D)Trade restrictions on imported goods increase domestic employment.

Question 5

idea that markets work efficiently:

A)refers to the fact that self-interest can be aligned with social interest.
B)means that trade-offs can be reduced through channeling greed toward good ends.
C)suggests that there is never any need for government regulation, taxes, or subsidies.
D)has been known for many centuries.

Question 6

an effort to clean the air, many communities imposerestrictions on the burning of garbage. This policy causes moregarbage to be buried underground, potentially increasinggroundwater contamination. What concept does this examplerepresent?

A)trade-offs
B)marginal pollution
C)sunk costs
D)public provision

Question 7

opportunity cost of winning a free ticket to the Super Bowlworth $950 and attending the game is:

A)zero, since the ticket was free.
B)priceless, if the person really loves football.
C)at least $950, the lost market value of selling the ticket and the time to go.
D)zero, if the person would rather go to the game than do anything else.

Question 8

Economists think that people are self-interested:

A)only when monetary incentives are present.
B)because they respond to incentives in predictable ways.(True Answer )Correct
C)only rarely in response to incentives.
D)unless they are being altruistic.

Question 9

the market for pharmaceuticals, the issue of ―drug loss‖illustrates which of the following ideas?

A)The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
B)If a drug is not tested for safety, it might kill more people.
C)Because of the higher the cost of testing a drug, fewer drugs are made, and more lives are lost.
D)Lives are being lost because safe drugs that are still in the testing stage have not been approved.

Question 10

Suppose the U.S. government wants to encourage individuals tosave more of their income. The easiest way for the governmentto realize this goal is to:

A)pass a law requiring people to save a larger percentage of their income.
B)decrease government spending in order to set an example for individuals.
C)increase the tax rate on savings in order to encourage more savings.
D)develop incentives such as tax breaks on savings in order to encourage more savings.

Question 11

Susan quits her administrative job, which pays $40,000 a year,to finish her four-year college degree. Her annual collegeexpenses are $8,000 for tuition, $900 for books, and $2,500 forfood. The opportunity cost of attending college for the year is:

A)$11,400.
B)$8,900.
C)$48,700.
D)$51,400.

Question 12

Every day we rely on the work of millions of other people toprovide us with food, clothing, and shelter. People work for ourbenefit because:

A)people think at the margin.
B)trade-offs are everywhere.
C)they benefit by doing so.
D)institutions require them to do so.

Question 13

Smith's metaphor of the ―invisible hand‖ refers to thenotion that:

A)greed is always good when externally motivated.
B)behavior based on self-interest can lead to an overall benefit to society.
C)market incentive can lead to negative side effects.
D)markets always align self-interest with social interest.

Question 14

opportunity cost of a choice is:

A)the value of the opportunities lost.
B)the net value of the opportunities gained.
C)the difference between the benefits and costs of the choice.
D)sometimes positive or negative.

Question 15

it comes to getting the flu shot, most people consider_______, not _________.

A)the social interest; their self-interest
B)their public interest; their social interest
C)their costs; their benefits
D)their self-interest; the social interest

Question 16

it comes to the safety of pharmaceutical drugs:

A)the government should spare no expense in determining whether drugs are safe.
B)the government's lengthy testing to ensure the safety of new drugs may cost lives.
C)economic cost benefit analysis informs us that more safety is always better.
D)profit-driven pharmaceutical companies have no incentive to produce safe drugs.

Question 17

Smith sought to explain the concept of aligning self-interest with the promotion of society's overall interest by:

A)using an analysis of wealth as productivity.
B)suggesting markets are led by an Invisible Hand.(True Answer )Correct
C)arguing that markets were ineffective institutions.
D)admitting his own inability to explain how such alignment takes place.

Question 18

Recall the chapter opening story about the British sea captainsand the convicted felons. In what way did economics use the ideaof incentives to solve the problem of the high mortality rate onboard the ships?

A)Payment (to ship captains) was to be offered for each prisoner that was taken aboard the ships.
B)Payment (to ship captains) was made independent of the regulations passed for prisoner welfare.
C)Regulations were passed so that prisoners could get better food, water, and medical care.
D)Payment (to ship captains) was made dependent on the survival rate of prisoners.

Question 19

the market for pharmaceuticals, the issue of ―drug lag‖illustrates which of the following ideas?

A)The longer a drug is tested for safety, the lower the opportunity cost in terms of lives lost.
B)If a drug is not tested for safety, it might kill more people.
C)Because of the higher the cost of testing a drug, it takes longer to make it, and more lives are lost.
D)Lives are being lost because safe drugs that are still in the testing stage have not yet been approved.

Question 20

must decide whether to attend class tomorrow morning ortake your friend to the airport. Your decision highlights thefollowing ―big idea‖ in economics.

A)Institutions matter.
B)Incentives matter.
C)Economics is fun.
D)Trade-offs are everywhere.

Question 21

person has a comparative advantage in activity X when thatperson's:

A)opportunity cost of performing that activity is very high.
B)ability to perform that activity exceeds that of all other people.
C)government negotiates a favorable trade agreement.
D)opportunity cost is lower than other trading partners.(True Answer )Correct

Question 22

people benefit from trade:
I) if they both live in the same country
II)regardless of where they live
III) if they can negotiate directly with each other.

A)I only
B)I and III
C)II and III
D)II only

Question 23

Suppose your teacher finishes class 30 minutes early on the daybefore an exam. She indicates that you may leave, or stay on foran optional study period which will last for the remaining 30minutes of the scheduled class time. You should:

A)always choose to stay for the study period, since you have already paid for the class time.
B)only choose to stay if you like the instructor, since the value obtained is higher than if you disliked the instructor.
C)only choose to stay if the benefits gained from the extra study session exceed the cost of another 30 minutes in class.(True Answer )Correct
D)only choose to stay for the study session if you do not plan to study on your own for the exam.

Question 24

Which of the following arise as benefits from trade?
I) economies of scaleII. cost reduction from mass productionIII. the division of knowledge

A)I only
B)II and III only
C)I and III only
D)I, II, and III

Question 25

are given a ticket to a Bob Dylan concert with a face valueof $50. You only value the ticket at $40, sell it to a friend for $40and attend a U2 concert priced at $60. The opportunity cost ofattending the U2 concert is:

A)$20 worth of alternative goods and services.
B)$40 worth of alternative goods and services.
C)$50 worth of alternative goods and services.
D)$60 worth of alternative goods and services.(True Answer )Correct

Question 26

is a plausible economic explanation as to why Braille―dots‖ are commonly found on drive-up automatic tellermachines?

A)Blind people must be able use such machines, due to government regulations requiring such dots on the keys under
The Americans with Disabilities Act.
B)The marginal cost of making two different types of keypads is substantial, and the benefit of providing keypads without the
Braille dots is a mere inconvenience to ATM users.
C)The marginal cost of making the keys with the Braille dots is less than making the keys without the Braille dots.
D)There is no economic concept that explains why the keypads have Braille dots.

Question 27

Which of these groups can benefit from trade?
I) firmsII. consumersIII. workers

A)I and II only
B)I and III only
C)II and III only
D)I, II, and III

Question 28

do grocery stores offer ―buy one, get one half off‖ specials?
I) It's a way to offer an incentive to consumers (who might notordinarily buy two units of the same item) to buy the extra item
II)They are thinking at the margin, and they stand to makeadditional profit even if they sell the second unit at a lower pricethan the first unit
III) Government regulations require them to hold suchpromotions from time to time.

A)I only
B)II only
C)III only
D)I and II

Question 29

you give up to obtain an item is called your:

A)opportunity cost.
B)explicit cost.
C)true cost.
D)direct cost.

Question 30

do you think researchers sometimes find a positiverelationship between the unemployment rate and collegeenrollment rates?

A)The opportunity cost of attending college rises during economic booms, leading to higher college enrollment
Rates.
B)The opportunity cost of attending college rises during recessions, leading to higher college enrollment rates.
C)The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates.(True Answer )Correct
D)The opportunity cost of attending college falls during economic booms, leading to higher college enrollment
Rates.

Question 31

travel from New York to Los Angeles costs $800 and takesfour hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one'stime that would induce a rational individual to fly rather thandrive would be:

A)$1 per hour.
B)$7 per hour.
C)$12 per hour.
D)$120 per hour.

Question 32

Suppose you have ordered a value meal at a local fast-foodrestaurant. The cashier asks if you would like to ―super-size‖your meal. In order to make an efficient decision, you shouldcompare:

A)the total cost of the larger, ―super-sized‖ meal versus the total benefits received.
B)the additional cost of the larger meal versus the additional benefits received.
C)the total cost of the larger meal versus the additional cost to the restaurant.
D)the benefits of the smaller meal versus the additional benefits obtained from consuming the ―super-sized‖ meal.

Question 33

deciding whether or not to undertake an activity,economists compare:

A)the total cost of the activity against the total benefit received.
B)the total benefit of the activity against the total cost of production.
C)the additional cost of the activity against the additional benefits received.
D)the average cost of the activity versus the total benefits received.

Question 34

do you think goods are sometimes marked in prices thatend in 9s, for example ―$29.99‖ instead of $30, or ―$9.99‖instead of $10?
I) Consumers respond to incentives-they view the products ascheaper and so they buy more
II)Businesses are sneaky and add the extra cent onto taxes onthe product
III) It is a sales strategy that makes people think the product ison sale.

A)I only
B)II only
C)III only
D)I and III

Question 35

Theory of Comparative Advantage recognizes that:
I) very productive people can do everything
II)people can make more by specializing than by doingeverything
III) the division of knowledge helps increase productivity.

A)I, II, and III
B)II and III only
C)I and II only
D)I and III only

Question 36

opportunity cost of attending college is:

A)tuition and books.
B)travel expenses, tuition, and books.
C)psychic costs of missing your family and friends while in school.
D)lost wages from not working full time.

Question 37

real power of trade lies in people's ability to:

A)get things they can't produce.
B)get the lowest price possible.
C)increase their consumption.
D)specialize and increase production.

Question 38

runs a landscape business. He knows that providinglandscaping services costs him $100 per hour on average, whilethe cost of providing such services is $150 per hour after 5 PM(due to overtime pay, reduced productivity, and the added wearand tear on his equipment). A potential client offers Joe $130per hour to provide services but needs him to provide theservices after 5PM due to circumstances at the property.

A)Joe should take the job, since $130 exceeds his average cost of production.
B)Joe should take the job, since he is making a $30 profit per hour.
C)Joe should decline the job, since he would lose $150 per hour worked on the job.
D)Joe should decline the job, since he would lose $20 per hour worked.

Question 39

Deciding whether to study an additional hour for an exam bycomparing the additional benefits to the additional costs of anextra hour of study is an example of:

A)normative analysis.
B)transformational thought.
C)marginal thinking.
D)None of the answers is correct.

Question 40

average tax on a professor's income of $100,000 is 18percent, and the marginal tax rate above $100,000 is 45 percent.If the professor teaches during the summer and earns anadditional $10,000 (bringing her total earnings for the year to$110,000), how much of the summer income does she keep afterpaying taxes?

A)$4,500
B)$1,800
C)$6,300
D)$5,500

Question 41

Great Depression was:

A)a natural manifestation of competitive markets.
B)cut short because of well-thought-out monetary policy.
C)to date, the worst economic period in U.S.economic history.
D)about as severe as the 2008-2009 recession.

Question 42

Economists have discovered that economic booms and busts:

A)are needless and can be eliminated.
B)should be encouraged because they help make people better off.
C)can be moderated but not eliminated.
D)cause people to specialize so they become more productive.

Question 43

does self-interest relate to creativity by firms (in terms ofproduction methods or product attributes)?

A)Firms are interested in sharing their new ideas with the world.
B)Firms innovate because they are interested in making a profit.
C)Ideas can be used by everyone at the same time.
D)All of the answers are correct.

Question 44

Recessions are marked by which of the following phenomena?

A)falling wages
B)falling national output
C)rising unemployment
D)All of the answers are correct.

Question 45

Which of the following phenomena occurred during the GreatDepression?

A)National output fell by 30 percent.
B)Unemployment rose by 20 percentage points.
C)The stock market fell to less than a third of its original value.
D)All of the answers are correct.

Question 46

Monetary and fiscal policies:

A)can reduce the severity of economic busts.(True Answer )Correct
B)have always been well understood and ultimately led to the end of the Great Depression.
C)when used properly, can end every recession.
D)All of the answers are correct.

Question 47

are more people unhealthy in developing countries than indeveloped countries?
I) Wealthier people are not attacked by mosquitoes
II)Wealthier people can pay for better treatments
III) Wealthier people can pay for better prevention of disease.

A)I only
B)II only
C)III only
D)II and III only

Question 48

Among the most powerful institutions for supporting goodincentives are:
I) property rights
II)political stability
III) honest government.

A)I only
B)I and II only
C)II and III only
D)I, II, and III

Question 49

Wealthy countries tend to have ______ physical capital perworker and _______ human capital per worker.

A)little; a lot of
B)a lot of; little
C)a lot of; a lot of
D)no; a lot of

Question 50

economy where entrepreneurs are free to experiment withnew ideas and bring innovative products to the market will:

A)help economic growth but not affect living standards.
B)lead to improved living standards and increased economic growth.
C)lead to increased living standards but stagnate economic growth.
D)help stagnate living standards but increase economic growth.

Question 51

Which of the following environments contains factors suitablefor economic growth?

A)well-functioning markets, specialization in one's comparative advantage, and good health care systems
B)well-functioning competitive markets, property rights, and firm creativity
C)development of physical and human capital per worker, and technological advancement
D)All of the answers are correct.

Question 52

Zimbabwe, the government ______ the ______ money, whichcaused the country's severe inflation.

A)decreased; demand for
B)decreased; supply of
C)increased; supply of
D)increased; demand for

Question 53

North Korea and South Korea were both equally poor in 1950, why did South Korea develop so much faster?

A)The two countries have different language, cultural, and historical backgrounds.
B)North Korea has an economic system that develops incentives.
C)South Korea has a more market-based economic system.
D)South Korea began with a higher per capita GDP.

Question 54

can ―good institutions‖ foster growth?
I) They provide incentives for entrepreneurs to create andinnovate
II)They provide financial support for organizations to acquirehuman and physical capital
III) They establish property rights, functioning legal systems,and open markets.

A)I and II only
B)II and III only
C)III only
D)I and III only

Question 55

dependable legal system and competitive, open markets helpto:

A)shape incentives that induce economic growth.(True Answer )Correct
B)reduce liberty and varied freedoms.
C)bring about honest government and political stability.
D)increase inefficiencies.

Question 56

factor is responsible for ending malaria in the UnitedStates?

A)inflation
B)wealth
C)the gold standard
D)yardstick competition

Question 57

are the institutions that help foster the appropriateincentives for economic growth?

A)regulated labor and credit markets; and unions
B)communal property rights and absence of a profit-loss system
C)a dependable legal system, property rights, and competitive and open markets
D)production and export quotas; and supply and demand

Question 58

causes countries to become wealthier over time?

A)government central planning
B)economic growth
C)price controls on key natural resources
D)restrictions on imported goods

Question 59

Inflation is primarily caused by:

A)businesses raising their prices in response to increasing energy prices.
B)the government printing too much money.(True Answer )Correct
C)misguided fiscal policy.
D)economic downturns in GDP.

Question 60

historical rise in living standards of American workers isprimarily 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 61

decisions made by the Federal Reserve Bank sometimesresult in negative effects on the economy because:

A)the economy is weakened when the government interferes using monetary policy.
B)the government uses money inefficiently when it comes to fiscal policy.
C)the Fed finds that forecasting economic conditions is easy but controlling the money supply is difficult.
D)too much money or too little money might induce inflation or unemployment due to bad timing of decisions.(True Answer
)Correct

Question 62

economists believe that an increase in the supply of moneyresults in:

A)an increase in the demand for goods and services.
B)higher unemployment in the short run.
C)higher inflation in the long run.
D)no change for the economy.

Question 63

opportunity cost of attending college includes tuition, roomand board, cost of meals, and the lost opportunity to makemoney at a job.

Question 64

marginal change is a small incremental adjustment to anexisting plan of action.

Question 65

the government decreases the supply of money, there is anincrease in the general level of prices.

Question 66

policymaker wants to reduce inflation. In order to make anintelligent decision about how to do so, the policymaker:

A)should use a simple rule: once inflation is gone, it will always be gone.
B)needs to know the causes of inflation, such as the government's printing too much money.
C)should find out if people are really better off as a result of the inflation.
D)should realize that inflation can be reduced without any costs.

Question 67

Inflation can be defined as:

A)the general rise in the level of output in an economy.
B)the boom and bust cycles of an economy.
C)the rise and fall of the general level of prices in an economy.
D)the increase in the general level of prices in an economy.

Question 68

careful planning, we can usually get something that we likewithout having to give up something else that we like.

Question 69

Marginal thinking was simultaneously discovered by threeeconomists-Stanley Jevons, Carl Menger, and Adam Smith.

Question 70

two countries are initially at the same level of development,the institution of well-functioning markets can allow one countryto develop faster than the other.

Question 71

countries to be wealthy, they need lots of physical andhuman capital per worker-which, in turn, depends on a systemof private property rights, political stability, a just legal system,honest government, and competitive and open markets.

Question 72

example of Adam Smith's invisible hand is self-interestedbusiness people developing a better keyboard for the blind inhopes of making large profits.

Question 73

Which of the following choices describes why the Fed might findit difficult to combat recessions?
I) lags in the effects of monetary policyII. continuously changing economic conditionsIII. changes in the money supply, which do not always lead toexpected changes in economic conditions.

A)I and II only
B)II and III only
C)I and III only
D)I, II, and III

Question 74

According to Milton Friedman, ―Inflation is always andeverywhere a _________.‖

A)capitalist problem
B)communist problem
C)monetary phenomenon
D)situation caused by haphazard technological growth

Question 75

Greater emphasis on self-sufficiency and trading less withforeign countries would increase incomes and living standards inthe United States.

Question 76

is one cause of inflation?

A)the persistent rise in prices in the economy
B)production's inability to keep up with spending in the economy
C)increased spending by people and the government.
D)economic growth without money growth

Question 77

Economics:

A)teaches us how to make the world a better place.
B)increases our understanding of historical events.
C)can help you better manage your finances.
D)All of the answers are correct.

Question 78

Economies MUST experience both booms and busts. Alleconomists can do is work to limit the extent of the economicfluctuations.

Question 79

Monetary and fiscal policies are among a government's tools formitigating economic fluctuations.

Question 80

Which of the following statements is FALSE?
I) The Federal Reserve can micromanage the economy withgreat precision
II)The Federal Reserve's decisions usually have an immediateeffect on the economy's unemployment rate
III) Most economists believe that the Federal Reserve does moreharm than good.

A)I and II only
B)II only
C)II and III only
D)I, II, and III