Question 1

Ellie decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

Accepted Answer

A)  the value of the knowledge she would have received had she attended class.
B)  the $24 she could have earned if she had worked at her job for those two hours.
C)  the value of her nap less the value of attending class.
D)  nothing, since she valued sleep more than attendance at class.E) None of the above
F) A) and D)

Question 2

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

Accepted Answer

A)  trade can make everyone better off.
B)  rational people think at the margin.
C)  people face tradeoffs.
D)  people respond to incentives.E) B) and D)
F) A) and B)

Question 3

A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

Accepted Answer

A)  the value of a good to society, but not the cost of making it.
B)  the cost of making a good to society, but not its value.
C)  both the value of a good to society and the cost of making it.
D)  neither the value of a good to society nor the cost of making it.E) A) and C)
F) A) and B)

Question 4

One advantage market economies have over centrally-planned economies is that market economies

Accepted Answer

A)  provide an equal distribution of goods and services to households.
B)  establish a significant role for government in the allocation of resources.
C)  solve the problem of scarcity.
D)  are more efficient.E) None of the above
F) C) and D)

Question 5

Which of the following firms is likely to have the greatest market power?

Accepted Answer

A)  an electric company
B)  a farmer
C)  a grocery store
D)  a local electronics retailerE) A) and C)
F) None of the above

Question 6

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

Accepted Answer

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

Question 7

Which of the following examples does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"?

Accepted Answer

A)  Joe needs to pay his rent and his electric bill.
B)  Pete must choose between buying a new flat screen television and buying his textbooks for this semester.
C)  Kevin must decide between studying for his economics exam and working at his part-time job.
D)  Lisa can spend her money on a new sweater or a pair of jeans.E) A) and C)
F) B) and C)

Question 8

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

Accepted Answer

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.E) C) and D)
F) A) and D)

Question 9

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Accepted Answer

A)  efficiency.
B)  equality.
C)  externalities.
D)  productivity.E) B) and C)
F) A) and D)

Question 10

The opportunity cost of going to college is

Accepted Answer

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.E) All of the above
F) None of the above

Question 11

Which of the following is correct concerning opportunity cost?

Accepted Answer

A)  Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.
B)  To compute opportunity costs, you should subtract benefits from costs.
C)  Opportunity costs and the idea of trade-offs are not closely related.
D)  Rational people should compare various options without considering opportunity costs.E) A) and C)
F) A) and B)

Question 12

In a market economy, economic activity is guided by

Accepted Answer

A)  the government.
B)  corporations.
C)  central planners.
D)  self-interest and prices.E) A) and B)
F) All of the above

Question 13

The broken window fallacy states that when a window breaks and someone spends money to repair it, they have created new economic activity that would not have otherwise taken place.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  twofold.
B)  fivefold.
C)  eightfold.
D)  tenfold.E) A) and B)
F) A) and C)

Question 15

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

Accepted Answer

A)  The marginal benefit of going to Spain increases.
B)  The marginal cost of going to Spain increases.
C)  The marginal benefit of going to Ireland increases.
D)  The marginal cost of going to Ireland decreases.E) A) and B)
F) A) and C)

Question 16

Which of the following principles is not one of the four principles of individual decisionmaking?

Accepted Answer

A)  People face tradeoffs.
B)  Trade can make everyone better off.
C)  People respond to incentives.
D)  Rational people think at the margin.E) None of the above
F) All of the above

Question 17

Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade?

Accepted Answer

A)  Only Country A can benefit.
B)  Only Country B can benefit.
C)  Both Country A and Country B can benefit.
D)  Neither Country A nor Country B can benefit.E) All of the above
F) A) and C)

Question 18

Economics is the study of

Accepted Answer

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.E) C) and D)
F) B) and D)

Question 19

In communism, central planners decide which of the following?

Accepted Answer

A)  what goods and services will be produced
B)  how much will be produced
C)  who produced and consumed the goods and services
D)  All of the above are correct.E) A) and C)
F) A) and B)

Question 20

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

Accepted Answer

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

Exam 1: Ten Principles of Economics

Economics is the study of

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Which of the following is correct concerning opportunity cost?

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Ellie decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

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

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Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Correct AnswerverifiedShow Answer

The broken window fallacy states that when a window breaks and someone spends money to repair it, they have created new economic activity that would not have otherwise taken place.

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In communism, central planners decide which of the following?

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Which of the following firms is likely to have the greatest market power?

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

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Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade?

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Which of the following principles is not one of the four principles of individual decisionmaking?

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The opportunity cost of going to college is

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

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In a market economy, economic activity is guided by

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Which of the following examples does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"?

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A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

Correct AnswerverifiedShow Answer

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

Correct AnswerverifiedShow Answer

One advantage market economies have over centrally-planned economies is that market economies

Correct AnswerverifiedShow Answer

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