Question 1

Which of these activities will most likely impose an external cost?

Accepted Answer

A)   Betty plants flowers in her garden.
B)   Bonnie gets a flu vaccine.
C)   Bridget drives her car after having too much alcohol to drink.
D)   Becky buys a new flat screen television.E) A) and B)
F) All of the above

Question 2

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) None of the above
F) B) and D)

Question 3

Which of the following would a permanent increase in the growth rate of the money supply change permanently?

Accepted Answer

A)   inflation
B)   unemployment
C)   both inflation and unemployment
D)   neither inflation nor unemploymentE) C) and D)
F) A) and B)

Question 4

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is

Accepted Answer

A)   the improvement in his grades from studying for the hour.
B)   the improvement in his grades from studying minus the enjoyment of watching tv.
C)   the enjoyment he would have received if he had watched tv with his friends.
D)   zero. Since Ed chose to study rather than to watch tv, the value of studying must have been greater than the value of watching tv.E) B) and C)
F) A) and D)

Question 5

Public policies

Accepted Answer

A)   may be able to improve either economic efficiency or equality.
B)   may be able to improve economic efficiency but cannot improve equality.
C)   may be able to improve equality but cannot improve economic efficiency.
D)   cannot improve either equality or economic efficiency.E) A) and C)
F) B) and D)

Question 6

Caroline eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

Accepted Answer

A)   can be thought of as the total benefit Caroline enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.
B)   determines Caroline's marginal cost of the first and second bananas.
C)   does not depend on how many bananas Caroline has already eaten.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 7

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) B) and C)
F) C) and D)

Question 8

Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires.

Accepted Answer

A) True 
 B)False  True

Question 9

One reason we need government, even in a market economy, is that

Accepted Answer

A)   there is insufficient market power in the absence of government.
B)   property rights are too strong in the absence of government.
C)   the invisible hand is not perfect.
D)   Both a and b are correct.E) All of the above
F) A) and D)

Question 10

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) B) and C)
F) All of the above B

Question 11

For a college student who wishes to calculate the true costs of going to college, the costs of room and board

Accepted Answer

A)   should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B)   should be counted only to the extent that they are more expensive at college than elsewhere.
C)   usually exceed the opportunity cost of going to college.
D)   plus the cost of tuition, equals the opportunity cost of going to college.E) C) and D)
F) B) and D)

Question 12

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 D)
F) A) and C)

Question 13

Slow growth in US incomes during the 1970s and 1980s was primarily due to

Accepted Answer

A)   slow productivity growth in the US.
B)   increased competition from Japan.
C)   increased competition from European countries.
D)   a rapid decrease in the quantity of money in the economy.E) B) and C)
F) A) and D)

Question 14

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Accepted Answer

A)   For the first 30 houses, the average cost per house was $250,000.
B)   The marginal cost of the 31st house, if it is built, will be $260,000.
C)   If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it.
D)   All of the above are correct.E) B) and D)
F) A) and C) D

Question 15

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 D)
F) All of the above

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Kyle is planning to take a roadtrip. After he makes his plans, he has to make some unexpected auto repairs. Also, he sees the price of gas has gone up. Which of these two events should Kyle consider in deciding if it is still worthwhile to go on the trip?

Accepted Answer

A)   the unexpected repairs and the increase in the price of gas
B)   the unexpected increase for repairs, but not the increase in the price of gas
C)   the increase in the price of gas, but not the unexpected repairs
D)   neither the unexpected increase in the price of gas nor the unexpected repairsE) A) and C)
F) B) and D)

Question 18

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

Accepted Answer

A)   goods are scarce.
B)   people face tradeoffs.
C)   income must be earned.
D)   households face many decisions.E) A) and B)
F) A) and C)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 1: Ten Principles of Economics

Which of these activities will most likely impose an external cost?

Correct AnswerverifiedShow Answer

In economics, the cost of something is

Correct AnswerverifiedShow Answer

Which of the following would a permanent increase in the growth rate of the money supply change permanently?

Correct AnswerverifiedShow Answer

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is

Correct AnswerverifiedShow Answer

Public policies

Correct AnswerverifiedShow Answer

Caroline eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires.

Correct AnswerverifiedTrue

One reason we need government, even in a market economy, is that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

For a college student who wishes to calculate the true costs of going to college, the costs of room and board

Correct AnswerverifiedShow Answer

In communism, central planners decide which of the following?

Correct AnswerverifiedShow Answer

Slow growth in US incomes during the 1970s and 1980s was primarily due to

Correct AnswerverifiedShow Answer

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Correct AnswerverifiedD

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

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

Correct AnswerverifiedShow Answer

Kyle is planning to take a roadtrip. After he makes his plans, he has to make some unexpected auto repairs. Also, he sees the price of gas has gone up. Which of these two events should Kyle consider in deciding if it is still worthwhile to go on the trip?

Correct AnswerverifiedShow Answer

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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True

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B

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A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31^st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

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D

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