Question 1

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?

Accepted Answer

A)   Melissa can attend the concert only if she takes her sister with her.
B)   Greg is hungry and homeless.
C)   Brian must repair the tire on his bike before he can ride it to class.
D)   Kendra must decide between going to Colorado or Cancun for spring break.E) All of the above
F) A) and B)

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) None of the above
F) All of the above

Question 3

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Accepted Answer

A)   government actions that distort prices.
B)   increased competition in markets.
C)   enforcement of property rights.
D)   too much attention paid to efficiency.E) All of the above
F) A) and B)

Question 4

Catherine buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Catherine purchased. As a result of the city's announced plan, Catherine is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should

Accepted Answer

A)   keep the house and live in it.
B)   go ahead with the $50,000 in repairs and sell the house for $290,000.
C)   forgo the repairs and sell the house as it is for $250,000.
D)   move the house from Pine Street to a more desirable location, regardless of the cost of doing so.E) A) and B)
F) A) and C)

Question 5

Suppose that the average income of a Costa Rican is higher than the average income of a Guatemalan. You might conclude that

Accepted Answer

A)   Costa Rican firms are faced with stricter government regulations than Guatemalan firms.
B)   total income is divided among fewer workers in Costa Rica since it has a smaller labor force than Guatemala.
C)   Guatemala's climate allows for longer growing seasons and therefore Guatemala can produce large quantities of grain and other crops.
D)   productivity in Costa Rica is higher than in Guatemala.E) B) and D)
F) B) and C)

Question 6

The word "economy" comes from the Greek word oikonomos, which means

Accepted Answer

A)   "environment."
B)   "production."
C)   "one who manages a household."
D)   "one who makes decisions."E) None of the above
F) C) and D)

Question 7

The government can potentially improve market outcomes if market inequalities or market failure exists.

Accepted Answer

A) True 
 B)False

Question 8

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Accepted Answer

A) True 
 B)False

Question 9

A direct or positive relationship exists between a country's

Accepted Answer

A)   productivity and its standard of living.
B)   amount of government spending and its productivity.
C)   total population and its average citizen's income.
D)   rate of population growth and the extent of its trade with other countries.E) None of the above
F) B) and C)

Question 10

Resources are

Accepted Answer

A)   scarce for households but plentiful for economies.
B)   plentiful for households but scarce for economies.
C)   scarce for households and scarce for economies.
D)   plentiful for households and plentiful for economies.E) None of the above
F) B) and C)

Question 11

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. 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) None of the above
F) C) and D)

Question 12

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The marginal cost per room per night

Accepted Answer

A)   is $40.
B)   is $80.
C)   is $120.
D)   cannot be determined from the information given.E) C) and D)
F) B) and D)

Question 13

Which of the following is correct?

Accepted Answer

A)   The word economy comes from the Greek word for "rational thinker."
B)   Economists study the management of scarce resources.
C)   Because economists believe that people pursue their best interests, they are not interested in how people interact.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 14

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Accepted Answer

A)   is a basic principle regarding individual decisionmaking.
B)   amounts to a denial of one of the basic principles regarding interactions among people.
C)   supports the idea that the "invisible hand" should guide economic activity.
D)   was promoted by the economist Adam Smith in a well-known 1776 book.E) None of the above
F) A) and D)

Question 15

People are willing to pay more for a diamond than for a bottle of water because

Accepted Answer

A)   the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
B)   the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
C)   producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
D)   water prices are held artificially low by governments, since water is necessary for life.E) B) and C)
F) B) and D)

Question 16

Which of these activities will most likely result in an external benefit?

Accepted Answer

A)   A college student buys a deck of cards to play solitaire in her dorm room.
B)   An elderly woman plants a flower garden on the vacant lot next to her house.
C)   An executive purchases a book to read on a business trip.
D)   A ten-year-old uses his allowance to buy new Nike shoes.E) None of the above
F) B) and C)

Question 17

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

Accepted Answer

A)   productivity.
B)   an externality.
C)   market power.
D)   property rights.E) A) and D)
F) B) and D)

Question 18

Inflation increases the value of money.

Accepted Answer

A) True 
 B)False

Question 19

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

Accepted Answer

A)   the $30 she earns working.
B)   the $30 minus the enjoyment she would have received from watching the video.
C)   the enjoyment she would have received had she watched the video.
D)   nothing, since she would have received less than $30 of enjoyment from the video.E) None of the above
F) B) and D)

Question 20

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

Accepted Answer

A)   the same as the total benefit of purchasing three pairs of flip-flops.
B)   more than the marginal cost of purchasing the third pair of flip-flops.
C)   the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops.
D)   the total benefit Claire gets from purchasing four pairs of flip-flops minus the total benefit she gets from purchasing three pairs of flip-flops.E) B) and C)
F) All of the above

Exam 1: Ten Principles of Economics

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

Correct Answer
verified

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The marginal cost per room per night

Correct Answer
verified

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?

Correct Answer
verified

The government can potentially improve market outcomes if market inequalities or market failure exists.

Correct Answer
verified

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Correct Answer
verified

Suppose that the average income of a Costa Rican is higher than the average income of a Guatemalan. You might conclude that

Correct Answer
verified

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

Correct Answer
verified

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

Correct Answer
verified

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

Correct Answer
verified

Inflation increases the value of money.

Correct Answer
verified

People are willing to pay more for a diamond than for a bottle of water because

Correct Answer
verified

Resources are

Correct Answer
verified

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

Correct Answer
verified

The word "economy" comes from the Greek word oikonomos, which means

Correct Answer
verified

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Correct Answer
verified

A direct or positive relationship exists between a country's

Correct Answer
verified

Correct Answer
verified

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Which of these activities will most likely result in an external benefit?

Correct Answer
verified

Exam 1: Ten Principles of Economics

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

Correct AnswerverifiedShow Answer

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The marginal cost per room per night

Correct AnswerverifiedShow Answer

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?

Correct AnswerverifiedShow Answer

The government can potentially improve market outcomes if market inequalities or market failure exists.

Correct AnswerverifiedShow Answer

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Correct AnswerverifiedShow Answer

Suppose that the average income of a Costa Rican is higher than the average income of a Guatemalan. You might conclude that

Correct AnswerverifiedShow Answer

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

Correct AnswerverifiedShow Answer

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

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

Correct AnswerverifiedShow Answer

Inflation increases the value of money.

Correct AnswerverifiedShow Answer

People are willing to pay more for a diamond than for a bottle of water because

Correct AnswerverifiedShow Answer

Resources are

Correct AnswerverifiedShow Answer

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

Correct AnswerverifiedShow Answer

The word "economy" comes from the Greek word oikonomos, which means

Correct AnswerverifiedShow Answer

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Correct AnswerverifiedShow Answer

A direct or positive relationship exists between a country's

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Which of these activities will most likely result in an external benefit?

Correct AnswerverifiedShow Answer

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