Chapter 1 Ten Principles of Economics

Test B
NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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Scarcity is the result of a. an unfair distribution of income. b. taxes that are too low. c. taxes that are too high. d. too few resources to satisfy societys desires. ANSWER: d. too few resources to satisfy societys desires. !"E: # $E!1: % &'(E) *+E: 1 RAN%&#: !
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A good is considered to be scarce in a society when a. firms could be -roducing more of the good but ha.e decided not to. b. the go.ernment -laces a tax on the good in an attem-t to lower the demand for it. c. e.eryone in that society cannot ha.e all they want of the good. d. only the richest -eo-le in the economy can buy all they want of the good. ANSWER: c. e.eryone in that society cannot ha.e all they want of the good. !"E: # $E!1: % &'(E) *+E: 1 RAN%&#: !
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Economics is the study of a. the go.ernments role in society. b. how society manages its scarce resources. c. how to o-erate a -rofitable business. d. successful stoc0 mar0et in.esting. ANSWER: b. how society manages its scarce resources. !"E: # $E!1: % &'(E) *+E: 1 RAN%&#: !
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Efficiency is most closely defined by which of the following2 a. absolute fairness b. minimum waste c. e3ual distribution d. consumer so.ereignty ANSWER: b. minimum waste !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: / RAN%&#: !
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Economists use the word e3uity to describe a situation in which a. e.ery member of society would ha.e the same income. b. benefits of societys resources are distributed fairly among its members. c. society is getting the most it can from its scarce resources. d. those in society who ha.e the least will recei.e the most. ANSWER: b. benefits of societys resources are distributed fairly among its members. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: / RAN%&#: !

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8 )ha-ter 19 en "rinci-les of Economics

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When the go.ernment im-lements such -rograms as welfare assistance and -rogressi.e income tax rates7 which of the following is li0ely to occur2 a. E3uity is increased and efficiency is increased. b. E3uity is decreased and efficiency is increased. c. E3uity is increased and efficiency is decreased. d. E3uity is decreased and efficiency is decreased. ANSWER: c. E3uity is increased and efficiency is decreased. !"E: # $E!1: ) SE) *&N: , &'(E) *+E: : RAN%&#: !
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Economists use the -hrase ; here is no such thing as a free lunch7< to illustrate a. the conce-t of inflation. b. the conce-t of tradeoffs. c. that -eo-le arent as generous today as they used to be. d. that if something loo0s too good to be true7 it -robably is. ANSWER: b. the conce-t of tradeoffs. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: , RAN%&#: !
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Whate.er must be gi.en u- to obtain an item is the definition of a. e3uity. b. an ex-licit cost. c. efficiency. d. o--ortunity cost. ANSWER: d. o--ortunity cost. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: / RAN%&#: !
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When economists refer to -eo-le ma0ing decisions ;at the margin< they mean that -eo-le a. ma0e decisions only if those decisions do not im-ose a cost. b. e.aluate how easily a decision can be re.ersed if -roblems arise. c. always calculate the dollar costs for each decision. d. com-are the costs and benefits of each decision. ANSWER: d. com-are the costs and benefits of each decision. !"E: # $E!1: ) SE) *&N: 1 &'(E) *+E: 1 RAN%&#: !
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Which of the following is the best exam-le of a marginal change2 a. (ayson gets a raise at his -art@time Aob and is now -aid B8.:4 -er hour instead of B8.4?. b. After graduating college7 #egans income increases from B4?? -er month to B/7??? -er month. c. %ue to an increase in the crime rates of a local suburb7 housing -rices in the area fall by 1?C. d. A hard freeDe wi-es out half of the orange cro- in Elorida and the -rice of orange Auice doubles. ANSWER: a. (ayson gets a raise at his -art@time Aob and is now -aid B8.:4 -er hour instead of B8.4?. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: 1 RAN%&#: ! NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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When economists say that indi.iduals res-ond to incenti.es7 they mean that a. indi.iduals act .ery 3uic0ly when faced with a -roblem. b. indi.iduals res-ond to -ositi.e stimuli7 but not to negati.e stimuli. c. if the benefit of an acti.ity increases7 -eo-le will engage in more of that acti.ity. d. once indi.iduals ha.e made a mista0e7 they will ne.er ma0e the same mista0e again. ANSWER: c. if the benefit of an acti.ity increases7 -eo-le will engage in more of that acti.ity. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: 4 RAN%&#: !

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)ha-ter 19 en "rinci-les of Economics :

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*f (a-an decides to trade with 'angladesh7 we 0now that a. 'angladesh will be better off7 but trading with a less@de.elo-ed country will not hel- (a-an. b. 'angladesh and (a-an will both be better off with trade. c. it will not benefit 'angladesh because wor0ers in (a-an are more -roducti.e. d. it will not benefit either country because they are too culturally different. ANSWER: b. 'angladesh and (a-an will both be better off with trade. !"E: # $E!1: ) SE) *&N: , &'(E) *+E: 8 RAN%&#: !
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Any nation which chooses to engage in trade a. will only benefit if it trades with countries that -roduce goods it cannot -roduce. b. cannot benefit if it trades with less@de.elo-ed countries. c. can benefit by trading with any other country. d. should first attem-t to -roduce the good itself. ANSWER: c. can benefit by trading with any other country. !"E: # $E!1: ) SE) *&N: , &'(E) *+E: 8 RAN%&#: !
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*n Adam Smiths boo0 The Wealth of Nations, the ;in.isible hand< refers to a. human 0indness. b. the free mar0et system. c. su-ernatural beings. d. go.ernment restrictions. ANSWER: b. the free mar0et system. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: !
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"rofit and self@interest guide the decisions of firms and households in a a. command economy. b. traditional economy. c. mar0et economy. d. all of the abo.e ANSWER: c. mar0et economy. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: !
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When a mar0et7 left on its own7 fails to allocate resources efficiently7 which of the following has occurred2 a. go.ernment interference b. economic meltdown c. mono-oly -ower d. mar0et failure ANSWER: d. mar0et failure !"E: # $E!1: ) SE) *&N: , &'(E) *+E: : RAN%&#: !
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Which of the following would be an exam-le of an externality2 a. A construction com-any remodels se.eral run@down7 .acant homes in a low@income -art of town7 im-ro.ing -ro-erty .alues. b. eachers at a local high school ha.e -iDDa deli.ered e.ery Eriday for lunch. c. An elderly cou-le -urchases a hot tub to ease their arthritis. d. (ohn buys a tractor to mow his newly -urchased 4@acre lot. ANSWER: a. A construction com-any remodels se.eral run@down7 .acant homes in a low@income -art of town7 im-ro.ing -ro-erty .alues. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: !

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= )ha-ter 19 en "rinci-les of Economics

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#ar0et failure can be caused by a. mar0et -ower and su--ly shoc0s. b. externalities and mar0et -ower. c. go.ernment inter.ention and low consumer demand. d. high -rices and foreign com-etition. ANSWER: b. externalities and mar0et -ower. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: !
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An exam-le of a firm with mar0et -ower would be a a. .ideo rental store in %allas. b. farmer in *owa. c. gas station in allahassee. d. cable + -ro.ider in a $ansas )ity suburb. ANSWER: d. cable + -ro.ider in a $ansas )ity suburb. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: !
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he -rimary determinant of a countrys standard of li.ing is a. the ability to reduce foreign com-etition. b. its ability to -roduce goods and ser.ices. c. the total su--ly of money in the economy. d. the a.erage age of the countrys labor force. ANSWER: b. its ability to -roduce goods and ser.ices !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: !
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Su--ose that the a.erage income of a 'raDilian is higher than the a.erage income of a )anadian. !ou might conclude that a. )anadian firms are faced with stricter go.ernment regulations than in 'raDil. b. total income is di.ided among fewer wor0ers in 'raDil than in )anada since 'raDil has a smaller labor force than )anada. c. -roducti.ity in 'raDil is higher than in )anada. d. 'raDils climate allows for longer growing seasons and therefore 'raDil can -roduce large 3uantities of grain. ANSWER: c. -roducti.ity in 'raDil is higher than in )anada. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: !
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*f the go.ernment wanted to enact a -olicy to increase li.ing standards in the country7 it should a. increase educational o--ortunities for wor0ers. b. ma0e it more difficult to recei.e unem-loyment benefits. c. strictly enforce all wor0-lace safety regulations. d. -rohibit any union from restricting membershi-. ANSWER: a. increase educational o--ortunities for wor0ers. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: !
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*n most cases7 the cause of high or -ersistent inflation is a. increased go.ernment regulations. b. higher wor0er -roducti.ity. c. growth in the 3uantity of money. d. an increased demand for domestic -roduction. ANSWER: c. growth in the 3uantity of money. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: !

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)ha-ter 19 en "rinci-les of Economics >

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*n the 1>,?s7 the 3uantity of money in Fermany was increased. As a result a. unem-loyment increased. b. many -eo-le in Fermany became rich. c. Fermany ex-erienced hy-erinflation. d. Fermany was able to re-ay all its foreign debts. ANSWER: c. Fermany ex-erienced hy-erinflation. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: ! NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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According to the "hilli-s cur.e a. there is no tradeoff between inflation and unem-loyment. b. if inflation increases7 so does unem-loyment. c. increases in unem-loyment are associated with a rise in -rices. d. there is a short@run tradeoff between inflation and unem-loyment. ANSWER: d. there is a short@run tradeoff between inflation and unem-loyment. !"E: # $E!1: ) SE) *&N: / &'(E) *+E: = RAN%&#: !

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ANSWER: d. too few resources to satisfy societys desires. !"E: # $E!1: % &'(E) *+E: 1 RAN%&#: ! ANSWER: c. e.eryone in that society cannot ha.e all they want of the good. !"E: # $E!1: % &'(E) *+E: 1 RAN%&#: ! ANSWER: b. how society manages its scarce resources. !"E: # $E!1: % &'(E) *+E: 1 RAN%&#: ! ANSWER: b. minimum waste !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: / RAN%&#: ! ANSWER: b. benefits of societys resources are distributed fairly among its members. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: / RAN%&#: ! ANSWER: c. E3uity is increased and efficiency is decreased. !"E: # $E!1: ) SE) *&N: , &'(E) *+E: : RAN%&#: ! ANSWER: b. the conce-t of tradeoffs. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: , RAN%&#: ! ANSWER: d. o--ortunity cost. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: / RAN%&#: ! ANSWER: d. com-are the costs and benefits of each decision. !"E: # $E!1: ) SE) *&N: 1 &'(E) *+E: 1 RAN%&#: ! ANSWER: a. (ayson gets a raise at his -art@time Aob and is now -aid B8.:4 -er hour instead of B8.4?. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: 1 RAN%&#: ! ANSWER: c. if the benefit of an acti.ity increases7 -eo-le will engage in more of that acti.ity. !"E: # $E!1: % SE) *&N: 1 &'(E) *+E: 4 RAN%&#: ! ANSWER: b. both 'angladesh and (a-an will both be better@off with trade. !"E: # $E!1: ) SE) *&N: , &'(E) *+E: 8 RAN%&#: ! ANSWER: c. can benefit by trading with any other country. !"E: # $E!1: ) SE) *&N: , &'(E) *+E: 8 RAN%&#: ! ANSWER: b. the free mar0et system. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: ! ANSWER: c. mar0et economy.

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ANSWER: d. mar0et failure !"E: # $E!1: ) SE) *&N: , &'(E) *+E: : RAN%&#: ! ANSWER: a. A construction com-any remodels se.eral run@down7 .acant homes in a low@ income -art of town7 im-ro.ing -ro-erty .alues. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: ! ANSWER: b. externalities and mar0et -ower. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: ! ANSWER: d. cable + -ro.ider in a $ansas )ity suburb. !"E: # $E!1: % SE) *&N: , &'(E) *+E: : RAN%&#: ! ANSWER: b. its ability to -roduce goods and ser.ices !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: ! ANSWER: c. -roducti.ity in 'raDil is higher than in )anada. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: ! ANSWER: a. increase educational o--ortunities for wor0ers. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: ! ANSWER: c. growth in the 3uantity of money. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: ! ANSWER: c. Fermany ex-erienced hy-erinflation. !"E: # $E!1: % SE) *&N: / &'(E) *+E: = RAN%&#: ! ANSWER: d. there is a short@run tradeoff between inflation and unem-loyment. !"E: # $E!1: ) SE) *&N: / &'(E) *+E: = RAN%&#: !

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