Question 1

For your birthday,your friends have joined forces and offer you a choice among the following options (they will pay all expenses of your choice): A)A two-week trip to an exotic destination;B)A new,high-tech mountain bike,C)An annual pass to your preferred sports team games,and D)A dinner with your preferred movie star.Suppose your subjective valuations of these options are as follows: A)$800,B)$700,C)$1500,and D)$1000.If you are a rational individual,you will obviously choose C,the annual pass,because it is the option of your highest valuation.
a)What is your opportunity cost of choosing option C? Explain.
b)Now,suppose your friends announce at the last minute a fifth option,E,a cheque of $1100.What is now your opportunity cost of choosing option C?
c)As you can see,the theory of opportunity cost implies that the cost of an action depends on other,seemingly unrelated facts.Why does this make sense?

Accepted Answer

a) The opportunity cost of an action is ...

Question 2

What is one advantage that market economies have over central planning?

Accepted Answer

A)  Market economies provide an equal distribution of goods and services to consumers.
B)  Market economies establish government economic control.
C)  Market economies solve the problem of scarcity.
D)  Market economies are more efficient.E) None of the above
F) All of the above

Question 3

How does a tradeoff exist between a clean environment and a higher level of income?

Accepted Answer

A)  Studies show that individuals with higher levels of income actually pollute less than low-income individuals.
B)  To pay for pollution cleanup, the government must increase taxes, which lowers income.
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.E) A) and D)
F) All of the above C

Question 4

What is the business cycle?

Accepted Answer

A)  the relationship between unemployment and inflation
B)  the irregular fluctuations in economic activity
C)  the positive relationship between the quantity of money in an economy and inflation
D)  the predictable changes in economic activity due to changes in government spending and taxesE) A) and D)
F) A) and C)

Question 5

Stan buys a 1966 Mustang,which he plans to restore and sell.He anticipates that the cost of the car and the repairs will be $8000 and that he can sell it for $10 000.When he has spent $7000,he discovers he needs to replace the engine,which will cost $4000.He can sell the car without the new engine for $9000.What should Stan do?

Accepted Answer

A)  He should complete the repairs and sell the car for $10 000.
B)  He should sell the car now for $9000.
C)  He should keep the car for his own use because selling it would be a loss.
D)  He should be totally indifferent between finishing the project and selling the car now.E) C) and D)
F) A) and C)

Question 6

What is the effect of an increase in the money supply in the economy?

Accepted Answer

A)  It increases unemployment in the short run.
B)  It increases inflation in the long run.
C)  It increases inflation in the short run.
D)  It increases unemployment in the long run.E) None of the above
F) All of the above

Question 7

In which of the following situations would economists use the word equity?

Accepted Answer

A)  Each member of society has the same income.
B)  Society is getting the most it can from its scarce resources.
C)  Those in society who have the least will receive the most.
D)  The benefits of society's resources are distributed fairly among society's members.E) B) and C)
F) A) and D)

Question 8

Who coined the term "invisible hand"?

Accepted Answer

A)  Adam Smith
B)  David Ricardo
C)  John Maynard Keynes
D)  Milton FriedmanE) A) and D)
F) None of the above A

Question 9

When society requires that firms reduce pollution,what happens?

Accepted Answer

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

Question 10

How does trade affect the well-being of the nations involved?

Accepted Answer

A)  Trade makes every nation better off.
B)  Trade makes exporting nations better off and importing nations worse off.
C)  Trade makes a nation better off only if the nation cannot produce that good itself.
D)  Trade makes rich nations better off and poor nations worse off.E) B) and C)
F) C) and D)

Question 11

What is market power?

Accepted Answer

A)  the power of a single person or group to influence market prices
B)  the ability of a person or group of people to successfully market new products
C)  the power of the government to regulate a market
D)  the relative importance of a market to the overall economyE) A) and C)
F) A) and B)

Question 12

What do households and economies have in common?

Accepted Answer

A)  They both must allocate scarce resources.
B)  They both face many decisions.
C)  They both must allocate the goods and services they produce.
D)  They both must have a central decision maker.E) A) and D)
F) A) and B)

Question 13

Which of the following is NOT a reason for the government to intervene in the market?

Accepted Answer

A)  to promote efficiency
B)  to enforce property rights
C)  to promote equity
D)  to protect an industryE) A) and C)
F) A) and B)

Question 14

What concept does economics primarily deal with?

Accepted Answer

A)  scarcity
B)  poverty
C)  change
D)  powerE) A) and B)
F) B) and C) A

Question 15

What is the amount of goods and services produced from each hour of a worker's time called?

Accepted Answer

A)  total output
B)  productivity
C)  marginal product
D)  efficiencyE) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would NOT be a result of laws that require firms to reduce pollution?

Accepted Answer

A)  lower spending by government
B)  higher prices to consumers
C)  lower wages to workers
D)  smaller profit to firmsE) A) and D)
F) A) and B)

Question 18

Which of the following goods best meets the definition of scarcity?

Accepted Answer

A)  air
B)  water in the ocean
C)  water in a city
D)  wood in a forestE) A) and D)
F) A) and C)

Question 19

Which word comes from the Greek word for "one who manages a household"?

Accepted Answer

A)  market
B)  consumer
C)  producer
D)  economyE) None of the above
F) B) and C)

Question 20

Suppose that the average income of a Kenyan is higher than the average income of a South African.What might you conclude?

Accepted Answer

A)  South African firms are faced with stricter government regulations than Kenyan firms.
B)  Total income is divided among fewer workers in Kenya since it has a smaller labour force than South Africa.
C)  Kenya's climate allows for longer growing seasons and therefore Kenya can produce large quantities of grain.
D)  Productivity in Kenya is higher than in South Africa.E) A) and B)
F) A) and C)

Exam 1: Ten Principles of Economics

Correct Answer
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a) The opportunity cost of an action is ...
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What is one advantage that market economies have over central planning?

Correct Answer
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How does a tradeoff exist between a clean environment and a higher level of income?

Correct Answer
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C

What is the business cycle?

Correct Answer
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Correct Answer
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What is the effect of an increase in the money supply in the economy?

Correct Answer
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In which of the following situations would economists use the word equity?

Correct Answer
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Who coined the term "invisible hand"?

Correct Answer
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A

When society requires that firms reduce pollution,what happens?

Correct Answer
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How does trade affect the well-being of the nations involved?

Correct Answer
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What is market power?

Correct Answer
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What do households and economies have in common?

Correct Answer
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Which of the following is NOT a reason for the government to intervene in the market?

Correct Answer
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What concept does economics primarily deal with?

Correct Answer
verified
A

What is the amount of goods and services produced from each hour of a worker's time called?

Correct Answer
verified

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

Correct Answer
verified

Which of the following would NOT be a result of laws that require firms to reduce pollution?

Correct Answer
verified

Which of the following goods best meets the definition of scarcity?

Correct Answer
verified

Which word comes from the Greek word for "one who manages a household"?

Correct Answer
verified

Suppose that the average income of a Kenyan is higher than the average income of a South African.What might you conclude?

Correct Answer
verified

Exam 1: Ten Principles of Economics

Correct Answerverifieda) The opportunity cost of an action is ...View AnswerShow Answer

What is one advantage that market economies have over central planning?

Correct AnswerverifiedShow Answer

How does a tradeoff exist between a clean environment and a higher level of income?

Correct AnswerverifiedC

What is the business cycle?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the effect of an increase in the money supply in the economy?

Correct AnswerverifiedShow Answer

In which of the following situations would economists use the word equity?

Correct AnswerverifiedShow Answer

Who coined the term "invisible hand"?

Correct AnswerverifiedA

When society requires that firms reduce pollution,what happens?

Correct AnswerverifiedShow Answer

How does trade affect the well-being of the nations involved?

Correct AnswerverifiedShow Answer

What is market power?

Correct AnswerverifiedShow Answer

What do households and economies have in common?

Correct AnswerverifiedShow Answer

Which of the following is NOT a reason for the government to intervene in the market?

Correct AnswerverifiedShow Answer

What concept does economics primarily deal with?

Correct AnswerverifiedA

What is the amount of goods and services produced from each hour of a worker's time called?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would NOT be a result of laws that require firms to reduce pollution?

Correct AnswerverifiedShow Answer

Which of the following goods best meets the definition of scarcity?

Correct AnswerverifiedShow Answer

Which word comes from the Greek word for "one who manages a household"?

Correct AnswerverifiedShow Answer

Suppose that the average income of a Kenyan is higher than the average income of a South African.What might you conclude?

Correct AnswerverifiedShow Answer

Correct Answer
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a) The opportunity cost of an action is ...
View Answer

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C

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A

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A

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