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


A) They provide an equal distribution of goods and services to consumers.
B) They establish government economic control.
C) They solve the problem of scarcity.
D) They are more efficient.

E) All of the above
F) A) and B)

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How does the invisible hand direct economic activity?


A) through advertising
B) through prices
C) through central planning
D) through government regulations

E) A) and B)
F) A) and C)

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What is an economy experiencing when a society cannot produce all the goods and services people wish to have?


A) scarcity
B) economic growth
C) competition
D) market failure

E) B) and C)
F) A) and B)

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When was Adam Smith's book The Wealth of Nations published?


A) 1494
B) 1776
C) 1812
D) 1936

E) B) and C)
F) A) and D)

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Aimee decides to spend the last two hours of the night before her economics exam studying instead of sleeping. For Aimee, what would her tradeoff be?


A) nothing, because no dollar value can be put on sleep
B) nothing, because studying would be more beneficial than sleep
C) the six hours of sleep she could have had if she had gone to bed before midnight
D) the two hours of rest she would have gotten

E) All of the above
F) None of the above

Correct Answer

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Which good best meets the definition of scarcity?


A) air
B) water in the ocean
C) electricity in a city
D) wood in a forest

E) B) and C)
F) A) and D)

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What does efficiency mean?


A) Society is conserving resources in order to save them for the future.
B) Society's goods and services are distributed fairly among society's members.
C) Society has lessened its dependence on non-renewable energy sources.
D) Society is getting the most it can from its scarce resources.

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

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The tenth principle of economics shows the short-run tradeoff between inflation and economic growth.

A) True
B) False

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With careful planning, we can usually get something that we like without having to give up something else that we like.

A) True
B) False

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When the government redistributes income from the rich to the poor, what is the result?


A) Efficiency is improved, but equity is not.
B) Both rich people and poor people benefit directly.
C) People work less and produce fewer goods and services.
D) Rich people consume fewer goods, but poor people consume more goods, resulting in no real change.

E) A) and B)
F) A) and C)

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What is the opportunity cost of an item?


A) the number of hours needed to earn money to buy it
B) what you give up to get that item
C) usually more than the dollar value of the item
D) the value of the resources needed to produce the item

E) None of the above
F) C) and D)

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


A) an executive plays a vigorous game of golf
B) a student in a dorm plays a YouTube video at 120 decibels late at night
C) a young mother exercises to a yoga video
D) a construction worker eats a sandwich during his lunch break

E) All of the above
F) C) and D)

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A carpenter maker currently produces 50 cabinets per week and sells them for a profit. She is considering expanding her operation in order to make more cabinets. Should she expand?


A) Yes, because making cabinets is profitable.
B) No, because she may not be able to sell the additional cabinets.
C) It depends on the marginal cost of producing more cabinets and the marginal revenue she will earn from selling more cabinets.
D) It depends on the average cost of producing more cabinets and the average revenue she will earn from selling more cabinets.

E) A) and C)
F) B) and D)

Correct Answer

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How do people make decisions at the margin?


A) by following the business cycle
B) by experience
C) by calculating dollar costs
D) by comparing costs and benefits

E) A) and D)
F) A) and B)

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Jay has spent $2400 purchasing and repairing an old tractor, which he expects to sell for $4000. He discovers that he needs an additional repair, which will cost $600. He can sell the tractor as it is now for $1200. What should he do?


A) He should take the $1200.
B) He should never sell something for less than it cost.
C) He should complete the repairs and sell the tractor.
D) It doesn't matter which action he takes; the outcome is the same either way.

E) A) and B)
F) A) and C)

Correct Answer

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When does scarcity exist?


A) when there is less than an infinite amount of a resource or good
B) when society can meet the wants of every individual
C) when there is less of a good or resource available than people wish to have
D) when the government fails to produce goods

E) All of the above
F) None of the above

Correct Answer

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What does economics study?


A) how society manages its scarce resources
B) the government's role in society
C) how to increase production
D) how firms make profits

E) A) and D)
F) B) and C)

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How does a market economy reward people?


A) according to their need for goods and services
B) according to their willingness to work
C) according to their ability to produce things that other people are willing to pay for
D) according to their ability to produce things of cultural importance

E) B) and C)
F) A) and C)

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Who coined the term "invisible hand"?


A) Adam Smith
B) David Ricardo
C) John Maynard Keynes
D) Milton Friedman

E) C) and D)
F) A) and B)

Correct Answer

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Suppose you have your own pizza delivery business and receive a call to deliver to a remote client. You need to decide whether to take the call. If you don't, there are no consequences, since someone else will. Based on the distance to the client, you calculate that it would cost you $5 to deliver and expect to receive $6 for the service. You also pay monthly rent for the car, which on average, based on past experience, comes down to about $2 per trip. Your time doesn't matter, as you have nothing more enjoyable or useful to do for the time being. How do you make this decision? What economic principle is at work in your decision process?

Correct Answer

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The benefit from the trip is $6 and the ...

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