Deck 1: Ten Principles of Economics

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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 16

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

Question 17

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

Question 18

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 19

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

Question 20

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

Question 21

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 22

Trade with any nation can be mutually beneficial.

Question 23

With the understanding that people respond to incentives,outline the possible outcome for teachers if the K-12 school year is extended to 11 months per year instead of the existing 9 months per year.

Question 24

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

Question 25

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

Question 26

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

Question 27

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

Question 28

Under what conditions might government intervention in a market economy improve the economy's performance?

Question 29

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

Question 30

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

Question 31

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

Question 32

The invisible hand ensures that economic prosperity is distributed equally.

Question 33

Define opportunity cost.What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

Question 34

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

Question 35

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

Question 36

How does the study of economics depend upon the phenomenon of scarcity?

Question 37

Inflation increases the value of money.

Question 38

One tradeoff society faces is between efficiency and equality.Define each term.If the U.S.government redistributes income from the rich to the poor,explain how this action affects equality as well as efficiency in the economy.

Question 39

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

Question 40

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

Question 41

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 42

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

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

Question 43

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 44

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 restrict production of too many goods and services.
D) resources are limited.

Question 45

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 46

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 47

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 48

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) surpluses.
C) inefficiencies.
D) inequalities.

Question 49

In considering how to allocate its scarce resources among its various members,a household considers

A) each member's abilities.
B) each member's efforts.
C) each member's desires.
D) all of the above

Question 50

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) people face tradeoffs.
D) all costs are included in the price of a product.

Question 51

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out.Both the amplifier and the mp3 player cost $100,so he can only buy one.This illustrates the basic concept that

A) trade can make everyone better off.
B) people face trade-offs
C) rational people think at the margin.
D) people respond to incentives.

Question 52

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.

Question 53

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

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

Question 54

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 55

The principle that "people face tradeoffs" applies to

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

Question 56

Sophia is planning her activities for a hot summer day.She would like to go to the local swimming pool and see the latest blockbuster movie,but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity.This illustrates the basic principle that

A) people respond to incentives.
B) rational people think at the margin.
C) people face tradeoffs.
D) improvements in efficiency sometimes come at the expense of equality.

Question 57

Which of the following is correct?

A) The word economy comes from the Greek word for "rational thinker."
B) Economists study the management of scarce resources.
C) Because economists believe that people pursue their best interests,they are not interested in how people interact.
D) All of the above are correct.

Question 58

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 59

Economics deals primarily with the concept of

A) scarcity.
B) money.
C) poverty.
D) banking.

Question 60

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.

Question 61

The government has just passed a law requiring that all residents earn the same annual income regardless of work effort.This law is likely to

A) increase efficiency and increase equality.
B) increase efficiency but decrease equality.
C) decrease efficiency but increase equality.
D) decrease efficiency and decrease equality.

Question 62

The terms equality and efficiency are similar in that they both refer to benefits to society.However they are different in that

A) equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.
B) equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits.
C) equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits.
D) equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs.

Question 63

When government policies are enacted,

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

Question 64

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

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

Question 65

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 equality.
C) inflation and unemployment.
D) work and leisure.

Question 66

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 67

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 68

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) those who earn more income pay less in taxes.
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 69

When the government attempts to improve equality 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 equality.
D) a reduction in efficiency.

Question 70

Which of the following is true?

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

Question 71

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 72

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 73

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor.This redistribution of wealth

A) is more efficient and more equal for society.
B) is more efficient but less equal for society.
C) is more equal but less efficient for society.
D) is less equal and less efficient for society.

Question 74

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

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

Question 75

Economists use the word equality 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) society's resources are used efficiently.

Question 76

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

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

Question 77

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 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) employing individuals to clean up pollution causes increases in employment and income.

Question 78

Senator Smith argues that replacing the income tax with a national sales tax would increase the level of output.Senator Wells objects that this policy would benefit the rich at the expense of the poor.

A) Both Senators' arguments are primarily about equality.
B) Both Senators' arguments are primarily about efficiency.
C) Senator Smith's argument is primarily about equality,while Senator Well's argument is primarily about efficiency.
D) Senator Smith's argument is primarily about efficiency,while Senator Well's argument is primarily about equality.

Question 79

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

A) efficiency is improved,but equality is not.
B) both wealthy people and poor people benefit directly.
C) people work less and produce fewer goods and services.
D) the government collects less revenue in total.

Question 80

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

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