The invisible hand directs economic activity through

Remaining:

Remaining:

Question 1. 1. Market economies are distinguished from other types of economies largely on the basis of (Points : 5)

the political affiliations of government officials. the process by which government officials are elected or appointed. the ways in which scarce resources are allocated. the number of retail outlets available to consumers.

Question 2. 2. The phrase “no such thing as a free lunch” means (Points : 5)

people must face tradeoffs. rational people think at the margin. people respond to incentives. trade can make everyone better off.

Question 3. 3. Which of the following is a correct statement about production possibilities frontiers? (Points : 5)

An economy can produce only on the production possibilities frontier. An economy can produce at any point inside or outside a production possibilities frontier. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier.

Question 4. 4. In the simple circular-flow diagram, the participants in the economy are (Points : 5)

firms and government. households and firms. households and government. households, firms, and government.

Question 5. 5. US citizens have better nutrition, better healthcare, and a longer life expectancy than citizens of Ghana. Which of the following conclusions can be drawn from this statement? (Points : 5)

Average income in the US is higher than the average income in Ghana. The US has a higher standard of living than Ghana. Productivity in the US is higher than productivity in Ghana. All of the above are correct.

Question 6. 6. Table 2-5

Cookies (in dozens)

Coffee (in pounds)

1000

0

800

350

600

650

400

800

200

1000

0

1150

Refer to Table 2-5. Table 2-5 shows one set of production possibilities. Which of the following statements is correct? (Points : 5)

The opportunity cost of a dozen cookies does not depend on how many pounds of coffee are being produced. The opportunity cost of a dozen cookies increases as more cookies are produced. The opportunity cost of a dozen cookies decreases as more cookies are produced. The opportunity cost of a pound of coffee decreases as more coffee is produced.

Question 7. 7. Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial (Points : 5)

only if it allows us to obtain things that we couldn't make for ourselves. because it allows specialization, which increases total output. to us if we can gain and the others involved in the trade lose. in only a limited number of circumstances because others are typically self-interested.

Question 8. 8. Factors of production are (Points : 5)

the mathematical calculations firms make in determining their optimal production levels. social and political conditions that affect production. the physical relationships between economic inputs and outputs. inputs into the production process.

Question 9. 9. The production possibilities frontier is used to illustrate some basic economic ideas, including (Points : 5)

scarcity. opportunity cost. economic growth. All of the above are correct.

Question 10. 10. One of the 20th century’s worst episodes of inflation occurred in (Points : 5)

the United States in the 1960s Italy in the 1950s. Russia in the 1930s. Germany in the 1920s.

Question 11. 11. Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calcula-tion of your opportunity cost? (Points : 5)

the cost of tuition and books to attend the graduate program the $30,000 salary that you could have earned if you retained your job at the bank the $45,000 salary that you will be able to earn after having completed your graduate program the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

Question 12. 12. Figure 2-4 Refer to Figure 2-4 Suppose this economy is producing at point W. Which of the following statements would best explain this situation? (Points : 5)

The economy lacks the resources to produce at a more desirable point. The economy’s available technology prevents it from producing at a more desirable point. There is widespread unemployment in the economy. Any of the above statements would be a legitimate explanation for this situation.

Question 13. 13. Market power refers to the (Points : 5)

power of a single person or small group to influence market prices. ability of a person or small group to successfully market new products. power of the government to regulate a market. importance of a certain market in relation to the overall economy.

Question 14. 14. Which of the following examples does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"? (Points : 5)

Joe needs to pay his rent and his electric bill. Pete must choose between buying a new flat screen television and buying his textbooks for this semester. Kevin must decide between studying for his economics exam and working at his part-time job. Lisa can spend her money on a new sweater or a pair of jeans.

Question 15. 15. The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the (Points : 5)

amount of the other good that must be given up. market price of the additional amount produced. amount of resources that must be devoted to its production. number of dollars that must be spent to produce it.

Question 16. 16. The circular-flow diagram is a (Points : 5)

visual model of the economy. visual model of the relationships among money, prices, and businesses. model that shows the effects of government on the economy. mathematical model of how the economy works.

Question 17. 17. A rational decisionmaker (Points : 5)

ignores marginal changes and focuses instead on “the big picture.” ignores the likely effects of government policies when he or she makes choices. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

Question 18. 18. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations? (Points : 5)

There is no such thing as a free lunch. People buy more when prices are low than when prices are high. No matter how much people earn, they tend to spend more than they earn. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Question 19. 19. When computing the opportunity cost of attending a concert you should include (Points : 5)

the price you pay for the ticket and the value of your time. the price you pay for the ticket, but not the value of your time. the value of your time, but not the price you pay for the ticket. neither the price of the ticket nor the value of your time.

Question 20. 20. The "invisible hand" directs economic activity through (Points : 5)

advertising. prices. central planning. government regulations.

Question 21. 21. Irregular fluctuations in economic activity are known as the (Points : 5)

business cycle. broken window fallacy. tradeoff between inflation and unemployment. ten principles of economics.

Question 22. 22. When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included? (Points : 5)

Your full room-and-board expenses should always be included. None of your room-and-board expenses should ever be included. You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college. You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.

Question 23. 23. Macroeconomics is the study of (Points : 5)

individual decision makers. international trade. economy-wide phenomena. markets for large products.

Question 24. 24. The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that (Points : 5)

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs.

Question 25. 25. 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 (Points : 5)

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

26. The famous observation that households and firms interacting in markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes comes from whose 1776 book? (Points : 5)

David Ricardo Thorstein Veblen John Maynard Keynes Adam Smith

Question 27. 27. For a college student who wishes to calculate the true costs of going to college, the costs of room and board (Points : 5)

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

Question 28. 28. The term "market failure" (Points : 5)

means the same thing as "market power." refers to the dissolution of a market when firms decide to quit producing a certain product. refers to the failure of a market to produce an efficient allocation of resources. refers to government's failure to enforce the property rights of households or firms that participate in a certain market.

Question 29. 29. Which of the following is an example of an externality? (Points : 5)

Annie purchases a handbag. Bob’s dog barks loudly during the night waking his neighbors. Clark sells a book to Calvin. David watches a scary movie.

Question 30. 30. Which of the following is not an example of the opportunity cost of going to school? (Points : 5)

The money a student could have earned by working if he had not gone to college. The nap a student could have enjoyed if he had not attended class. The party a student could have enjoyed if he had not stayed in to study for his exam. The money a student spends on rent for his apartment while attending school.

Question 31. 31. Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is in-tended to reduce (Points : 5)

efficiency. equality. externalities. productivity.

Question 32. 32. As a result of a successful attempt by government to cut the economic pie into more equal slices, (Points : 5)

the pie gets larger, and there will be more pie overall. the pie gets smaller, and there will be less pie overall. it increases the reward for working hard, resulting in people producing more goods and services. those who earn more income pay less in taxes.

Question 33. 33. An increase in the overall level of prices in an economy is referred to as (Points : 5)

the income effect. inflation. deflation. the substitution effect.

Question 34. 34. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should (Points : 5)

rent the room because the marginal benefit exceeds the marginal cost. rent the room because the marginal benefit exceeds the average cost. not rent the room because the marginal benefit is less than the marginal cost. not rent the room because the marginal benefit is less than the average cost.

Question 35. 35. You go to the movieplex where movies ordinarily cost $10. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new re-lease with your friend, what is your opportunity cost? (Points : 5)

the amount you value the first movie + $3 the amount you value the first movie + $10 $3 $10

Question 36. 36. In the circular-flow diagram, (Points : 5)

taxes flow from households to firms, and transfer payments flow from firms to households. income payments flow from firms to households, and sales revenue flows from households to firms. resources flow from firms to households, and goods and services flow from households to firms. inputs and outputs flow in the same direction as the flow of dollars, from firms to households.

Question 37. 37. Both The Wealth of Nations and the Declaration of Independence share the point of view that (Points : 5)

every person is entitled to life, liberty, and the pursuit of happiness. individuals are best left to their own devices without the government guiding their actions. the government plays a central role in organizing a market economy. because of human nature a strong legal system is necessary for a market system to survive.

Question 38. 38. The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vac-cinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citi-zens is known as (Points : 5)

productivity. an externality. market power. property rights.

Question 39. 39. A model that shows how dollars flow through markets among households and firms is called the (Points : 5)

production possibilities frontier. circular-flow diagram. demand and supply diagram. comparative advantage model.

Question 40. 40. Figure 2-4 Refer to Figure 2-4 The opportunity cost of this economy moving from point Z to point Y is (Points : 5)

0 lamps. 10 lamps. 10 notepads. 20 lamps.

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