Question 1

The term market failure refers to

Accepted Answer

A)   a situation in which the market on its own fails to allocate resources efficiently.
B)   an unsuccessful advertising campaign which reduces demand for a product.
C)   a situation in which competition among firms becomes ruthless.
D)   a firm which is forced out of business because of losses.E) B) and C)
F) A) and D)

Question 2

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

Accepted Answer

A)   the pie gets larger, and there will be more pie overall.
B)   the pie gets smaller, and there will be less pie overall.
C)   it increases the reward for working hard, resulting in people producing more goods and services.
D)   those who earn more income pay less in taxes.E) B) and C)
F) A) and D)

Question 3

In economics,the cost of something is

Accepted Answer

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.E) B) and D)
F) All of the above

Question 4

Which of the following is the most correct statement about the relationship between inflation and unemployment?

Accepted Answer

A)   In the short run, falling inflation is associated with falling unemployment.
B)   In the short run, falling inflation is associated with rising unemployment.
C)   In the long run, falling inflation is associated with falling unemployment.
D)   In the long run, falling inflation is associated with rising unemployment.E) All of the above
F) C) and D)

Question 5

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

Accepted Answer

A)   10%
B)   40%
C)   85%
D)   100%E) A) and D)
F) A) and C)

Question 6

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

Accepted Answer

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.E) C) and D)
F) All of the above

Question 7

In an economy in which decisions are guided by prices and individual self-interest,there is

Accepted Answer

A)   the potential to achieve efficiency in production.
B)   a strong need for government intervention in the market.
C)   less efficiency than would be observed in a centrally-planned economy.
D)   more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.E) A) and C)
F) B) and D)

Question 8

Which of the following is not an example of a group responding to an incentive?

Accepted Answer

A)   Students attend class because of an attendance policy that reduces their grade for absences.
B)   Consumers buy more of a product when it is on sale at a reduced price.
C)   Universities offer fewer online classes when they generate more revenue than traditional classes.
D)   Employees work harder to earn higher commissions.E) A) and D)
F) A) and B)

Question 9

The term "market failure"

Accepted Answer

A)   means the same thing as "market power."
B)   refers to the dissolution of a market when firms decide to quit producing a certain product.
C)   refers to the failure of a market to produce an efficient allocation of resources.
D)   refers to government's failure to enforce the property rights of households or firms that participate in a certain market.E) B) and C)
F) C) and D)

Question 10

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

Accepted Answer

A)   1960s.
B)   1970s.
C)   1980s.
D)   1990s.E) A) and D)
F) B) and D)

Question 11

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

Accepted Answer

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.E) A) and C)
F) B) and C)

Question 12

The property of society getting the most it can from its scarce resources is called

Accepted Answer

A)   equity.
B)   efficiency.
C)   equality.
D)   efficacy.E) A) and D)
F) B) and C)

Question 13

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

Accepted Answer

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 basketballE) B) and C)
F) A) and B)

Question 14

Making rational decisions "at the margin" means that people

Accepted Answer

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 dollar costs for each decision.E) A) and D)
F) C) and D)

Question 15

In the 1990s,inflation in the United States was

Accepted Answer

A)   very close to zero.
B)   about 3 percent per year.
C)   about 6 percent per year.
D)   commonly referred to as "public enemy number one."E) B) and C)
F) A) and B)

Question 16

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

Accepted Answer

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.E) A) and D)
F) A) and B)

Question 17

A worker in Equador can earn $3 per day making cotton cloth on a hand loom.A worker in the United States can earn $70 per day making cotton cloth with a mechanical loom.What accounts for the difference in wages?

Accepted Answer

A)   U.S. textile workers belong to a union.
B)   There is little demand for cotton cloth in Equador 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)   Equador has a low-wage policy to make its textile industry more competitive in world markets.E) A) and B)
F) A) and C)

Question 18

Which of the following statements does not apply to a market economy?

Accepted Answer

A)   Firms decide whom to hire and what to produce.
B)   The "invisible hand" usually maximizes the well-being of society as a whole.
C)   Households decide which firms to work for and what to buy with their incomes.
D)   Government policies are the primary forces that guide the decisions of firms and households.E) All of the above
F) None of the above

Question 19

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

A)   There is no such thing as a free lunch.
B)   People buy more when prices are low than when prices are high.
C)   No matter how much people earn, they tend to spend more than they earn.
D)   Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.E) B) and C)
F) A) and D)

Question 20

When a species of fish dies off due to pollution in a river where it once lived,this is an example of

Accepted Answer

A)   a market failure caused by an externality.
B)   a market failure caused by market power.
C)   a market failure caused by equality.
D)   There is no market failure in this case.E) None of the above
F) A) and C)

Exam 1: Ten Principles of Economics.

In the 1990s,inflation in the United States was

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When a species of fish dies off due to pollution in a river where it once lived,this is an example of

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In an economy in which decisions are guided by prices and individual self-interest,there is

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In economics,the cost of something is

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A worker in Equador can earn $3 per day making cotton cloth on a hand loom.A worker in the United States can earn $70 per day making cotton cloth with a mechanical loom.What accounts for the difference in wages?

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Which of the following statements does not apply to a market economy?

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Making rational decisions "at the margin" means that people

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The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

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

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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

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Which of the following is not an example of a group responding to an incentive?

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

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

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The term market failure refers to

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

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Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

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The property of society getting the most it can from its scarce resources is called

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The term "market failure"

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

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Which of the following is the most correct statement about the relationship between inflation and unemployment?

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