1. Choices must be made
in the use of resources
a. because they are in
finite supply.
b. because they are in
finite demand.
c. only if the
resources are nonrenewable.
d. because they are in
infinite supply.
2. The cost to an
airline of letting its employees fly at no charge
a. is zero.
b. will depend on the
value employees place upon travel.
c. is greater during
the Christmas holidays than at most other times.
d. depends on the
alternatives open to the employees.
3. Social security
programs are aimed at making the distribution of resources in an economy more
a. efficient.
b. inefficient.
c. equitable.
d. inequitable.
4. The opportunity cost
of building an additional parking lot at your school is
a. the cost of
concrete, labor, etc. used to build the lot.
b. the value of the
property and resources used at their next-best alternative use.
c. the value of the
property and resources used at all of their alternative uses.
d. infinite; we cannot
estimate it.
5. Suppose you are
considering going to the movies, and you place a $12 value on your anticipated
enjoyment of the movie. The ticket price is $6 and you would be giving up two
hours of work, where you earn $5 per hour. You would go to
a. work; the opportunity
cost of the movies exceeds the expected benefit.
b. the movies; your
incentive is the $6 excess expected benefit.
c. the movies; your
enjoyment will exceed the lost wages by $2.
d. the movies; the
benefit of $18 exceeds the lost wages.
6. Metro North Railway
is trying to decide whether or not to run an additional train into New York
City from New Haven, Connecticut at 8:15 a.m. The total cost of running trains
between 8:00 a.m. and 9:00 a.m. is $45,000 and the expected revenues on any
given day are $100,000 during this time period. The cost of running the
additional train is $4,000 and it is expected that revenues will rise to
$103,500. Metro North should
a. run the train
because the total revenues are greater than the total costs.
b. run the train
because the firm’s revenues will rise.
c. not run the train
because the total costs are already too high.
d. not run the train
because the marginal cost of $4000 is greater than the marginal revenue of
$3,500.
7. A proposed
regulation to require infants traveling in airplanes to sit in approved safety
seats has never been adopted. If we think about how people respond to
incentives, the most likely reason is that
a. people would switch
from flying to driving, so the death rate would rise.
b. the airline
industry is a powerful lobby in Washington.
c. it would require
every seat in airplanes to be made wider so the infant seats would fit.
d. the airlines
threatened to bring a lawsuit against the government.
8. A nation’s standard
of living can be increased by
a. improvements in
technology and international trade.
b. improvements in
technology but not international trade.
c. international trade
but not improvements in technology.
d. neither
international trade nor improvements in technology.
9. In a market economy,
the economic well being of society is the responsibility of
a. central planners.
b. central bankers.
c. government
policymakers.
d. no one; self-interested individuals bring about the well-being of society.
d. no one; self-interested individuals bring about the well-being of society.
10. An important element
of the market process is that
a. although people
trade voluntarily, one party “wins” and the other party “loses.”
b. the government
determines the extent of market activity in order for all parties to benefit.
c. people are better
off if they are self-sufficient than if they trade with others in the market.
d. people trade
voluntarily and all parties expect to benefit.
11. Adam Smith argues
in the Wealth of Nations that an economy will produce more goods and services
if
a. people act in the
public interest than if they act selfishly.
b. people act
selfishly, than if the government directs economic activity.
c. the government
controls the use of the nation’s scarce resources.
d. people ignore their
own interests and contribute to national wealth as a whole.
12. If there is a way
to change a situation so that at least some people gain while no one in the
economy loses, the situation is
a. economically
inefficient.
b. economically
efficient.
c. providing an
inequitable distribution of resources to the community.
d. neither equitable
nor efficient.
13. Assume that there
are spillover benefits associated with keeping cars in good mechanical
conditions. Without government intervention (i.e., with a free market), we
would expect people to
a. give their cars too
much maintenance.
b. stop driving and
start walking.
c. subsidize each
other’s car maintenance bills.
d. not maintain their
cars as much as they should.
14. Suppose that
Rebecca throws her soda bottle out the car window and it smashes on the road.
Jim drives over the broken glass and gets a flat tire. Rebecca’s soda
consumption has resulted in
a. the production of a
public good.
b. an externality.
c. monopoly power for
Rebecca.
d. greater efficiency
in consumption.
15. The market power
that your school’s bookstore has is now limited by
a. new federal antitrust laws.
b. public goods
provided by the government.
c. university policies
against monopoly power.
d. increased access to
other booksellers provided by the internet.
16. The Department of
Justice recently brought a suit against Microsoft for
a. generating external
costs.
b. generating external
benefits.
c. creating excess
market power for itself.
d. providing public
goods to the marketplace.
17. The poor in the
United States are disproportionately people who
a. have less than a
high school education.
b. have incomes that
are essentially nonwage incomes.
c. have families with
over five children.
d. live in cities.
18. According to
economists who emphasize the connection between productive contribution and
economic reward, a more equal income distribution
a. is fundamental to
economic growth.
b. always helps the
poor in the long run.
c. creates
inefficiency.
d. generates greater
productivity.
19. Inflation reduces
a. the price level.
b. employment.
c. the money supply.
d. the purchasing
power of money.
20. The inflation rate
is the
a. price level.
b. average price of
goods and services in an economy.
c. growth rate of the
price level.
d. purchasing power of
money.
21. What caused the
collapse of the German economy after World War I?
a. hyperinflation due
to large amounts of currency printed
b. too many returning
soldiers taking jobs away from other people
c. low interest rates
causing too much investment
d. high business
profits and racketeering
22. The long-run
relationship between inflation and the growth rate of the money supply
a. is unique to the
United States.
b. is a recent
phenomenon.
c. is quite different
for industrialized countries than for LDCs.
d. exists in a wide
variety of countries throughout the world.
23. When we say that
prices are “sticky” in the short run, we mean that
a. prices will not
change without government intervention.
b. prices change
slowly in response to changes in the economy.
c. prices will never
change unless resource costs fall.
d. labor unions will
not make concessions in the short run.
24. Policymakers can
make effective short-term policy actions because
a. prices will
immediately respond to changes in the macroeconomy.
b. central banks
always accommodate changes in the economy by increasing or decreasing the money
supply.
c. prices are sticky
so that changes in the economy occur relatively slowly.
d. the Phillips curve
is downward sloping.
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