Deck 1: Ten Principles of Economics

Question 1

The overriding reason as to why households and societies face many decisions is that

A)resources are scarce.
B)goods and services are not scarce.
C)incomes fluctuate with business cycles.
D)people, by nature, tend to disagree.

Answer 1

A

Question 2

Resources are

A)scarce for households but plentiful for economies.
B)plentiful for households but scarce for economies.
C)scarce for households and scarce for economies.
D)plentiful for households and plentiful for economies.

Answer 2

C

Question 3

The phenomenon of scarcity stems from the fact that

A)most economies' production methods are not very good.
B)in most economies, wealthy people consume disproportionate quantities of goods and services.
C)governments restricts production of too many goods and services.
D)resources are limited.

Answer 3

D

Question 4

For society,a good is not scarce if

A)at least one individual in society can obtain all he or she wants of the good.
B)firms are producing the good at full capacity.
C)all members of society can have all they want of the good.
D)those who have enough income can buy all they want of the good.

Question 5

The word "economy" comes from the Greek word oikonomos,which means

A)"environment."
B)"production."
C)"one who manages a household."
D)"one who makes decisions."

Question 6

Economics is the study of

A)production methods.
B)how society manages its scarce resources.
C)how households decide who performs which tasks.
D)the interaction of business and government.

Question 7

Economics is the study of

A)how society manages its scarce resources.
B)the government's role in society.
C)how a market system functions.
D)how to increase production.

Question 8

The word that comes from the Greek word for "one who manages a household" is

A)market.
B)consumer.
C)producer.
D)economy.

Question 9

Economics deals primarily with the concept of

A)scarcity.
B)poverty.
C)change.
D)power.

Question 10

When a society cannot produce all the goods and services people wish to have,it is said that the economy is experiencing

A)scarcity.
B)shortages.
C)inefficiencies.
D)inequities.

Question 11

Which of the following statements best represents the principle represented by the adage,"There is no such thing as a free lunch"?

A)Melissa can attend the concert only if she takes her sister with her.
B)Greg is hungry and homeless.
C)Brian must repair the tire on his bike before he can ride it to class.
D)Kendra must decide between going to Colorado or Cancun for spring break.

Question 12

The adage,"There is no such thing as a free lunch," means

A)even people on welfare have to pay for food.
B)the cost of living is always increasing.
C)to get something we like, we usually have to give up another thing we like.
D)all costs are included in the price of a product.

Question 13

The adage,"There is no such thing as a free lunch," is used to illustrate the principle that

A)goods are scarce.
B)people face tradeoffs.
C)income must be earned.
D)households face many decisions.

Question 14

The principle that "people face tradeoffs" applies to

A)individuals.
B)families.
C)societies.
D)All of the above are correct.

Question 15

Which of the following products would be considered scarce?

A)golf clubs
B)Picasso paintings
C)apples
D)All of the above are correct.

Question 16

Economists use the phrase "There is no such thing as a free lunch," to illustrate the principle that

A)inflation almost always results in higher prices over time.
B)nothing is free in a market economy.
C)making decisions requires trading off one goal against another.
D)if something looks too good to be true, it probably is not worth pursuing.

Question 17

Which of the following questions is not answered by the decisions that every society must make?

A)What determines consumer preferences?
B)What goods will be produced?
C)Who will produce the goods?
D)Who will consume the goods?

Question 18

In most societies,resources are allocated by

A)a single central planner.
B)a small number of central planners.
C)those firms that use resources to provide goods and services.
D)the combined actions of millions of households and firms.

Question 19

Approximately what percentage of the world's economies experience scarcity?

A)25%
B)50%
C)75%
D)100%

Question 20

A typical society strives to get the most it can from its scarce resources.At the same time,the society attempts to distribute the benefits of those resources to the members of the society in a fair manner.In other words,the society faces a tradeoff between

A)guns and butter.
B)efficiency and equity.
C)inflation and unemployment.
D)work and leisure.

Question 21

The opportunity cost of going to college is

A)the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
B)the value of the best opportunity a student gives up to attend college.
C)zero for students who are fortunate enough to have all of their college expenses paid by someone else.
D)zero, since a college education will allow a student to earn a larger income after graduation.

Question 22

When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

A)Equity is increased and efficiency is increased.
B)Equity is increased and efficiency is decreased.
C)Equity is decreased and efficiency is increased.
D)Equity is decreased and efficiency is decreased.

Question 23

Economists use the word equity to describe a situation in which

A)each member of society has the same income.
B)each member of society has access to abundant quantities of goods and services, regardless of his or her income.
C)society is getting the maximum benefits from its scarce resources.
D)the benefits of society's resources are distributed fairly among society's members.

Question 24

When government policies are enacted,

A)equity can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without an equity loss.
B)efficiency can usually be enhanced without an equity loss, but equity can never be enhanced without an efficiency loss.
C)it is always the case that either efficiency and fairness are both enhanced, or efficiency and equity are both diminished.
D)None of the above are correct.

Question 25

A tradeoff exists between a clean environment and a higher level of income in that

A)studies show that individuals with higher levels of income actually pollute less than low-income individuals.
B)efforts to reduce pollution typically are not completely successful.
C)laws that reduce pollution raise costs of production and reduce incomes.
D)by employing individuals to clean up pollution, employment and income both rise.

Question 26

When the government attempts to improve equity in an economy the result is often

A)an increase in overall output in the economy.
B)additional government revenue since overall income will increase.
C)a reduction in equity.
D)a reduction in efficiency.

Question 27

Efficiency means that

A)society is conserving resources in order to save them for the future.
B)society's goods and services are distributed equally among society's members.
C)society's goods and services are distributed fairly, though not necessarily equally, among society's members.
D)society is getting the maximum benefits from its scarce resources.

Question 28

In economics,the cost of something is

A)the dollar amount of obtaining it.
B)always measured in units of time given up to get it.
C)what you give up to get it.
D)often impossible to quantify, even in principle.

Question 29

When the government redistributes income from the wealthy to the poor,

A)efficiency is improved, but equity is not.
B)both wealthy people and poor people benefit directly.
C)people work less and produce fewer goods and services.
D)wealthy people consume fewer goods, but poor people consume more goods, resulting in no real change.

Question 30

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

A)enhance equity.
B)reduce efficiency.
C)reduce the reward for working hard.
D)All of the above are correct.

Question 31

Which of the following words and phrases best captures the notion of equity?

A)minimum waste
B)maximum benefit
C)sameness
D)fairness

Question 32

Maurice receives $100 as a birthday gift.In deciding how to spend the money,he narrows his options down to four choices: Option A,Option B,Option C,and Option D.Each option costs $100.Finally he decides on Option B.The opportunity cost of this decision is

A)the value to Maurice of the option he would have chosen had Option B not been available.
B)the value to Maurice of Options A, C and D combined.
C)$100.
D)$300.

Question 33

As a result of a successful attempt by government to cut the economic pie into more equal slices,

A)it is easier to cut the pie, and therefore the economy can produce a larger pie.
B)the government can more easily allocate the pie to those most in need.
C)the pie gets smaller, and there will be less pie overall.
D)government will spend too much time cutting and it causes the economy to lose the ability to produce enough pie for everyone.

Question 34

A furniture maker currently produces 100 tables per week and sells them for a profit.She is considering expanding her operation in order to make more tables.Should she expand?

A)Yes, because making tables is profitable.
B)No, because she may not be able to sell the additional tables.
C)It depends on the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables.
D)It depends on the average cost of producing more tables and the average revenue she will earn from selling more tables.

Question 35

Which of the following phrases best captures the notion of efficiency?

A)absolute fairness
B)equal distribution
C)minimum waste
D)equitable outcome

Question 36

Senator Smith wants to increase taxes on people with high incomes and use the money to help the poor.Senator Jones argues that such a tax will discourage successful people from working and will therefore make society worse off.An economist would say that

A)we should agree with Senator Smith.
B)we should agree with Senator Jones.
C)a good decision requires that we recognize both viewpoints.
D)there are no tradeoffs between equity and efficiency.

Question 37

When society requires that firms reduce pollution,there is

A)a tradeoff because of reduced incomes to the firms' owners and workers.
B)a tradeoff only if some firms are forced to close.
C)no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.
D)no tradeoff, since everyone benefits from reduced pollution.

Question 38

What you give up to obtain an item is called your

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

Question 39

Which of the following is true?

A)Efficiency refers to the size of the economic pie; equity refers to how the pie is divided.
B)Government policies usually improve upon both equity and efficiency.
C)As long as the economic pie continually gets larger, no one will have to go hungry.
D)Efficiency and equity can both be achieved if the economic pie is cut into equal pieces.

Question 40

Guns and butter are used to represent the classic societal tradeoff between spending on

A)durable and nondurable goods.
B)imports and exports.
C)national defense and consumer goods.
D)law enforcement and agriculture.

Question 41

Russell spends an hour studying instead of playing tennis.The opportunity cost to him of studying is

A)the improvement in his grades from studying for the hour.
B)the improvement in his grades from studying minus the enjoyment of playing tennis.
C)the enjoyment and exercise he would have received had he played tennis.
D)zero.Since Russell chose to study rather than to play tennis, the value of studying must have been greater than the value of playing tennis.

Question 42

When you calculate your true costs of going to college,what portion of your room-and-board expenses should be included?

A)Your full room-and-board expenses should always be included.
B)None of your room-and-board expenses should ever be included.
C)You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college.
D)You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.

Question 43

Making rational decisions "at the margin" means that people

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 marginal dollar costs for each decision.

Question 44

The opportunity cost of an item is

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.

Question 45

Which of the following is the best example of a marginal change?

A)The price of housing in Denver increased by 6 percent last year.
B)Kim gets a big promotion at work.She also gets a raise from $35,000 per year to $55,000 per year.
C)Mark graduates from college and takes a job.His income increases from $10,000 per year to $35,000 per year.
D)A drought hits the upper Midwest and the price of wheat increases from $4.00 per bushel to $6.50 per bushel.

Question 46

Which of the following is the best example of a marginal change?

A)After graduating college, Audrey's income increases from $500 per month to $3,000 per month.
B)Morgan gets a raise at her part-time job and is now paid $7.25 per hour instead of $7.00.
C)Housing prices in an area increase by 40 percent when a new interstate is built that passes nearby.
D)A hard freeze wipes out half of the orange crop in Florida and the price of orange juice doubles.

Question 47

For most students,the largest single cost of a college education is

A)the wages given up to attend school.
B)tuition, fees, and books.
C)room and board.
D)transportation, parking, and entertainment.

Question 48

A marginal change is a

A)change that involves little, if anything, that is important.
B)large, significant adjustment.
C)change for the worse, and so it is usually a short-term change.
D)small, incremental adjustment.

Question 49

Rational people make decisions at the margin by

A)following marginal traditions.
B)behaving in a random fashion.
C)thinking in black-and-white terms.
D)comparing marginal costs and marginal benefits.

Question 50

Teresa eats three oranges during a particular day.The marginal benefit she enjoys from eating the third orange

A)can be thought of as the total benefit Teresa enjoys by eating three oranges minus the total benefit she would have enjoyed by eating just the first two oranges.
B)determines Teresa's willingness to pay for the first, second, and third oranges.
C)does not depend on how many oranges Teresa has already eaten.
D)All of the above are correct.

Question 51

A person's willingness to pay for a good is based on

A)the availability of the good.
B)the marginal benefit that an extra unit of the good would provide for that person.
C)the marginal cost of producing an extra unit of the good.
D)esoteric factors, the study of which lies beyond the boundaries of economics.

Question 52

Mallory decides to spend three hours working overtime rather than watching a video with her friends.She earns $8 an hour.Her opportunity cost of working is

A)the $24 she earns working.
B)the $24 minus the enjoyment she would have received from watching the video.
C)the enjoyment she would have received had she watched the video.
D)nothing, since she would have received less than $24 of enjoyment from the video.

Question 53

College-age athletes who drop out of college to play professional sports

A)are not rational decision makers.
B)are well aware that their opportunity cost of attending college is very high.
C)are concerned more about present circumstances than their future.
D)underestimate the value of a college education.

Question 54

For a college student who wishes to calculate the true costs of going to college,the costs of room and board

A)should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B)should be counted only to the extent that they are more expensive at college than elsewhere.
C)usually exceed the opportunity cost of going to college.
D)plus the cost of tuition, equals the opportunity cost of going to college.

Question 55

The word "margin" means

A)edge.
B)distance.
C)space.
D)measure.

Question 56

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

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 57

To say that "people respond to incentives" is to say that

A)changes in costs (but not changes in benefits) influence people's decisions and their behavior.
B)changes in benefits (but not changes in costs) influence people's decisions and their behavior.
C)changes in benefits or changes in costs influence people's decisions and their behavior.
D)tradeoffs can be eliminated by rational people who think at the margin.

Question 58

A marginal change is best illustrated by which of the following?

A)Nancy retires and takes a part-time job.She was working 40 hours per week and now works 15 hours per week.
B)A large, state-supported university has announced that due to state budget deficits, tuition must rise by 20 percent next year.
C)Ryan moved to a new apartment and now pays 40 percent more rent than before.
D)Arizona, which usually receives 10 inches of rain per year, received 11 inches last year.

Question 59

A rational decisionmaker

A)ignores marginal changes and focuses instead on "the big picture."
B)ignores the likely effects of government policies when he or she makes choices.
C)takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
D)takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

Question 60

A rational decisionmaker takes an action if and only if

A)the marginal benefit of the action exceeds the marginal cost of the action.
B)the marginal cost of the action exceeds the marginal benefit of the action.
C)the marginal cost of the action is zero.
D)the opportunity cost of the action is zero.

Question 61

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

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.

Question 62

Warren drinks four cups of coffee during a particular day.The marginal benefit he enjoys from drinking the fourth cup

A)can be thought of as the total benefit Warren enjoys by drinking four cups minus the total benefit he would have enjoyed by drinking just three cups.
B)determines Warren's willingness to pay for the fourth cup.
C)is likely different from the marginal benefit provided to Warren by the third cup.
D)All of the above are correct.

Question 63

Based on what we know about the effects of mandatory seat belt laws,which of the following groups would be most likely to mount a campaign to repeal those laws?

A)Owners of collision-repair shops.
B)People who walk rather than drive.
C)Policemen who have better things to do than investigate collisions.
D)All of the above are correct.

Question 64

After much consideration,you have chosen Cancun over Ft.Lauderdale as your Spring Break destination this year.However,Spring Break is still months away,and you may reverse this decision.Which of the following events would prompt you to reverse this decision?

A)The marginal benefit of going to Cancun increases.
B)The marginal cost of going to Cancun decreases.
C)The marginal benefit of going to Ft.Lauderdale decreases.
D)The marginal cost of going to Ft.Lauderdale decreases.

Question 65

Economists are particularly adept at understanding that people respond to

A)laws.
B)incentives.
C)punishments more than rewards.
D)rewards more than punishments.

Question 66

Sarah buys and sells real estate.Two weeks ago,she paid $140,000 for a house on Oak Street,intending to spend $20,000 on repairs sell the house for $175,000.Last week,the city government announced a plan to build a "halfway house" for convicted criminals on Oak Street.As a result of the city's announced plan,Sarah is weighing two alternatives: She can go ahead with the $20,000 in repairs and then sell the house for $135,000,or she can forgo the repairs and sell the house as it is for $120,000.Sarah should

A)keep the house and live in it.
B)go ahead with the $20,000 in repairs and sell the house for $135,000.
C)forgo the repairs and sell the house as it is for $120,000.
D)move the house from Oak Street to a more desirable location, irrespective of the cost of doing so.

Question 67

One effect of the government-imposed seat belt law in the U.S.has been

A)a dramatic decrease in the number of pedestrian deaths.
B)safer driving.
C)an increase in the number of accidents.
D)a dramatic decrease in the number of driver deaths.

Question 68

A donut shop sells fresh baked donuts from 5
A)Lower the price of the remaining donuts, even if the price falls below $1.50 per dozen.

A)m.until 3 p.m.every day.The shop does not sell day-old donuts, so all unsold donuts are thrown away at 3 p.m.each day.The cost of making and selling a dozen donuts is $1.50; there are no costs associated with throwing donuts away.If the manager has 10 dozen donuts left at 2:30 p.m.on a particular day, which of the following alternatives is most attractive?
B)Lower the price of the remaining donuts, but under no circumstances should the price fall below $1.50 per dozen.
C)Throw the donuts away and produce 10 fewer dozen donuts tomorrow.
D)Starting tomorrow, lower the price on all donuts so they will all be sold earlier in the day.

Question 69

Your professor loves her work,teaching economics.She has been offered other positions in the corporate world that would increase her income by 25 percent,but she has decided to continue working as a professor.Her decision would not change unless the marginal

A)cost of teaching increased.
B)benefit of teaching increased.
C)cost of teaching decreased.
D)cost of a corporate job increased.

Question 70

Mike has spent $500 purchasing and repairing an old fishing boat,which he expects to sell for $800 once the repairs are complete.Mike discovers that,in addition to the $500 he has already spent,he needs to make an additional repair,which will cost another $400,in order to make the boat worth $800 to potential buyers.He can sell the boat as it is now for $300.What should he do?

A)He should sell the boat as it is now for $300.
B)He should keep the boat since it would not be rational to spend $900 on repairs and then sell the boat for $800.
C)He should complete the repairs and sell the boat for $800.
D)It does not matter which action he takes; the outcome is the same either way.

Question 71

A construction company has built 50 houses so far this year at a total cost to the company of $8 million.If the company builds a 51ˢᵗ house,its total cost will increase to $8.18 million.Which of the following statements is correct?

A)For the first 50 houses, the average cost per house was $160,000.
B)The marginal cost of the 51ˢᵗ house, if it is built, will be $180,000.
C)If the company can experience a marginal benefit of $190,000 by building the 51ˢᵗ house, then the company should build it.
D)All of the above are correct.

Question 72

U.S.laws requiring that drivers wear seat belts have resulted in

A)a reduction in both driver deaths and pedestrian deaths.
B)fewer accidents and fewer deaths per accident.
C)fewer driver deaths, fewer accidents and fewer pedestrian deaths.
D)little change in the number of driver deaths, but more accidents and more pedestrian deaths.

Question 73

A rational decision maker takes an action only if the

A)marginal benefit is less than the marginal cost.
B)marginal benefit is greater than the marginal cost.
C)average benefit is greater than the average cost.
D)marginal benefit is greater than both the average cost and the marginal cost.

Question 74

Evidence indicates that seat belt laws have led to

A)fewer pedestrian deaths.
B)fewer automobile accidents.
C)fewer deaths per automobile accident.
D)All of the above are correct.

Question 75

People are willing to pay more for a diamond than for a bottle of water because

A)the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
B)the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
C)producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
D)water prices are held artificially low by governments, since water is necessary for life.

Question 76

Stan buys a 1966 Mustang for $2,000,planning to restore and sell the car.He goes on to spend $8,000 restoring the car.At this point he can sell the car for $9,000.As an alternative,he can spend an additional $3,000 replacing the engine.With a new engine the car would sell for $12,000.Stan should

A)complete the repairs and sell the car for $12,000.
B)sell the car now for $9, 000.
C)never try such an expensive project again.
D)be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Question 77

The average cost per seat on the 50-passenger Floating-On-Air Bus company's trip from Kansas City to St.Louis,on which no refreshments are served,is $45.In advance of a particular trip,three seats remain unsold.The bus company could increase its profit only if it

A)charged any ticket price above $0 for the three remaining seats.
B)charged at least $15 for each of the three remaining seats.
C)charged at least $45 for each of the three remaining seats.
D)paid three people to occupy the three remaining seats.

Question 78

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?

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 most

Question 79

Based on the available evidence,which of the following groups benefits most from mandatory seat belt laws?

A)automakers
B)pedestrians
C)drivers
D)owners of collision-repair shops

Question 80

Ralph Nader's book Unsafe at Any Speed caused Congress to require

A)safety glass in all new cars.
B)seat belts in all new cars.
C)air bags in all new cars.
D)stricter drunk driving laws in all states.