Question 1

It costs a company $50,000 to produce 5000 beach towels. The company's cost will be $50,009 if it produces an additional beach towel. If the company produces 5,000 beach towels then

Accepted Answer

A)  its average cost is greater than its marginal cost.
B)  its average cost and its marginal cost are equal.
C)  its average cost is less than its marginal cost.
D)  there is insufficient information to compute average and marginal costs.E) A) and B)
F) A) and C)

Question 2

Shane 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

Accepted Answer

A)  the value to Shane of the option he would have chosen had Option B not been available.
B)  the value to Shane of Options A, C and D combined.
C)  $50.
D)  $100.E) B) and C)
F) A) and B)

Question 3

Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.

Accepted Answer

A) True 
 B)False

Question 4

Causes of market failure include

Accepted Answer

A)  externalities and market power.
B)  market power and incorrect forecasts of consumer demand.
C)  externalities and foreign competition.
D)  incorrect forecasts of consumer demand and foreign competition.E) B) and D)
F) None of the above

Question 5

The term "invisible hand" was coined by

Accepted Answer

A)  Adam Smith.
B)  David Ricardo.
C)  Karl Marx.
D)  Benjamin Franklin.E) A) and B)
F) A) and D)

Question 6

Suppose that in Ireland total annual output is worth $600 million and people work 30 million hours. In Canada total annual output is worth $800 million and people work 50 million hours. Productivity is higher

Accepted Answer

A)  in Ireland. Most variation in the standard of living across countries is due to differences in productivity.
B)  in Ireland. Differences in productivity explain very little of the variation in the standard of living across countries.
C)  in Canada. Most variation in the standard of living across countries is due to differences in productivity.
D)  in Canada. Differences in productivity explain very little of the variation in the standard of living across countries.E) C) and D)
F) All of the above

Question 7

A rational decisionmaker

Accepted Answer

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.E) A) and D)
F) None of the above

Question 8

England can benefit from trade

Accepted Answer

A)  only with nations that can produce goods England cannot produce.
B)  only with less developed nations.
C)  only with nations outside of Europe.
D)  with any nation.E) None of the above
F) A) and B)

Question 9

Inflation is defined as

Accepted Answer

A)  a period of rising productivity in the economy.
B)  a period of rising income in the economy.
C)  an increase in the overall level of output in the economy.
D)  an increase in the overall level of prices in the economy.E) B) and C)
F) C) and D)

Question 10

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

Accepted Answer

To lower inflation, the government may c...

Question 11

The classic tradeoff between "guns and butter" states that when a society spends more on national defense, it has less to spend on consumer goods to raise the standard of living.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?

Accepted Answer

A)  Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based.
B)  The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy.
C)  Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally-planned economy.
D)  None of the above are correct.E) A) and B)
F) A) and C)

Question 13

The mainstream view among economists is that

Accepted Answer

A)  society faces a tradeoff between unemployment and inflation, but only in the short run.
B)  society faces a tradeoff between unemployment and inflation, but only in the long run.
C)  society faces a tradeoff between unemployment and inflation, both in the short run and in the long run.
D)  no tradeoff exists between unemployment and inflation, either in the short run or in the long run.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A)  the wages given up to attend school.
B)  tuition, fees, and books.
C)  room and board.
D)  transportation, parking, and entertainment.E) None of the above
F) All of the above

Question 15

The principle that "people face tradeoffs" applies to

Accepted Answer

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

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

An example of an externality is the impact of

Accepted Answer

A)  bad weather on the income of farmers.
B)  the personal income tax on a person's ability to purchase goods and services.
C)  pollution from a factory on the health of people in the vicinity of the factory.
D)  increases in health care costs on the health of individuals in society.E) C) and D)
F) A) and D)

Question 18

When the France trades with Russia,

Accepted Answer

A)  both countries are likely made better off.
B)  only Russia benefits since France can produce all goods at a higher level of quality than Russia.
C)  only France benefits since Russia's low wages guarantee profitable firms in Russia regardless of trade.
D)  neither country will benefit since France is more efficient than Russia at producing all goods.E) A) and D)
F) B) and C)

Question 19

The short-run tradeoff between inflation and unemployment implies that, in the short run,

Accepted Answer

A)  a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
B)  an increase in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
C)  policymakers are able to reduce the inflation rate and, at the same time, reduce the unemployment rate.
D)  policymakers can influence the inflation rate, but not the unemployment rate.E) B) and C)
F) A) and B)

Question 20

To raise productivity, policymakers could

Accepted Answer

A)  increase spending on education.
B)  provide tax credits to firms for capital improvements.
C)  fund research and development.
D)  All of the above are correct.E) B) and C)
F) A) and B)

Exam 1: Ten Principles of Economics

A rational decisionmaker

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Causes of market failure include

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The short-run tradeoff between inflation and unemployment implies that, in the short run,

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Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?

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The principle that "people face tradeoffs" applies to

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England can benefit from trade

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When the France trades with Russia,

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Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.

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The classic tradeoff between "guns and butter" states that when a society spends more on national defense, it has less to spend on consumer goods to raise the standard of living.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An example of an externality is the impact of

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It costs a company $50,000 to produce 5000 beach towels. The company's cost will be $50,009 if it produces an additional beach towel. If the company produces 5,000 beach towels then

Correct AnswerverifiedShow Answer

Inflation is defined as

Correct AnswerverifiedShow Answer

Suppose that in Ireland total annual output is worth $600 million and people work 30 million hours. In Canada total annual output is worth $800 million and people work 50 million hours. Productivity is higher

Correct AnswerverifiedShow Answer

To raise productivity, policymakers could

Correct AnswerverifiedShow Answer

Shane 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

Correct AnswerverifiedShow Answer

The term "invisible hand" was coined by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTo lower inflation, the government may c...View AnswerShow Answer

The mainstream view among economists is that

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

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To lower inflation, the government may c...
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