Question 1

The term market failure refers to

Accepted Answer

A)   a situation in which the market on its own fails to allocate resources efficiently.
B)   an unsuccessful advertising campaign which reduces demand for a product.
C)   a situation in which competition among firms becomes ruthless.
D)   a firm which is forced out of business because of losses.E) A) and B)
F) A) and C)

Question 2

What are the two reasons for the government to intervene in a market?

Accepted Answer

To promote...

Question 3

A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?

Accepted Answer

A)   U.S. textile workers belong to a union, whereas Vietnamese textile workers do not belong to a union.
B)   There is little demand for cotton cloth in Vietnam and great demand in the U.S.
C)   Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
D)   Vietnam has a low-wage policy to make its textile industry more competitive in world markets.E) A) and C)
F) None of the above

Question 4

If wages for accountants rose, then accountants' leisure time would have a lower opportunity cost.

Accepted Answer

A) True 
 B)False

Question 5

Under what conditions might government intervention in a market economy improve the economy's performance?

Accepted Answer

If there is a market failure, such as an...

Question 6

If the United States decides to trade with Yemen, we know that

Accepted Answer

A)   Yemen will benefit, but trade with a less developed country could not benefit the United States.
B)   it will not benefit Yemen because workers in the United States are more productive.
C)   Yemen and the United States can both benefit.
D)   it will not benefit either country because their cultural differences are too vast.E) B) and D)
F) A) and C)

Question 7

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.

Accepted Answer

A) True 
 B)False

Question 8

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Accepted Answer

A)   efficiency.
B)   equality.
C)   externalities.
D)   productivity.E) B) and C)
F) A) and D)

Question 9

The short-run tradeoff between inflation and unemployment implies that, in the short run,

Accepted Answer

A)   a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
B)   an increase in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
C)   policymakers are able to reduce the inflation rate and, at the same time, reduce the unemployment rate.
D)   policymakers can influence the inflation rate, but not the unemployment rate.E) B) and C)
F) None of the above

Question 10

U.S. laws requiring that drivers wear seat belts have resulted in

Accepted Answer

A)   a reduction in both driver deaths and pedestrian deaths.
B)   fewer accidents and fewer deaths per accident.
C)   fewer driver deaths, fewer accidents and fewer pedestrian deaths.
D)   little change in the number of driver deaths, but more accidents and more pedestrian deaths.E) None of the above
F) A) and B)

Question 11

For most students, the largest single cost of a college education is

Accepted Answer

A)   the wages given up to attend school.
B)   tuition, fees, and books.
C)   room and board.
D)   transportation, parking, and entertainment.E) B) and C)
F) A) and D)

Question 12

Explain the concept of market failure.

Accepted Answer

Market failure is a situation ...

Question 13

Which of the following phrases best captures the notion of efficiency?

Accepted Answer

A)   absolute fairness
B)   equal distribution
C)   minimum waste
D)   equitable outcomeE) C) and D)
F) B) and C)

Question 14

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

Accepted Answer

A)   For the first 24 houses, the average cost per house was $205,000.
B)   The marginal cost of the 25th house, if it is built, will equal $250,000.
C)   If the company can sell the 25th house for at least $202,000, then it should build it.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 15

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A)   government intervention.
B)   a decrease in foreign competition.
C)   fewer market participants.
D)   weaker property rights.E) A) and D)
F) A) and C)

Question 16

A tradeoff exists between a clean environment and a higher level of income in that

Accepted Answer

A)   studies show that individuals with higher levels of income pollute less than low-income individuals.
B)   efforts to reduce pollution typically are not completely successful.
C)   laws that reduce pollution raise costs of production and reduce incomes.
D)   employing individuals to clean up pollution causes increases in employment and income.E) B) and C)
F) B) and D)

Question 17

Making rational decisions "at the margin" means that people

Accepted Answer

A)   make those decisions that do not impose a marginal cost.
B)   evaluate how easily a decision can be reversed if problems arise.
C)   compare the marginal costs and marginal benefits of each decision.
D)   always calculate the dollar costs for each decision.E) None of the above
F) B) and C)

Question 18

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is

Accepted Answer

A)   $0.
B)   $15.
C)   $305.
D)   $315.E) A) and C)
F) A) and D)

Question 19

Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents. As a student of economics, you know that

Accepted Answer

A)   this is a case of the "broken window fallacy."
B)   this is a great use of taxpayer dollars.
C)   this policy diverts money from spending somewhere else in the economy.
D)   Both a and c are correct.E) A) and B)
F) A) and C)

Question 20

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda

Accepted Answer

A)   can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas.
B)   determines Bridget's willingness to pay for the third soda.
C)   is likely different from the marginal benefit provided to Bridget by the second soda.
D)   All of the above are correct.E) None of the above
F) B) and C)

Exam 1: Ten Principles of Economics

Which of the following phrases best captures the notion of efficiency?

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Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Correct AnswerverifiedShow Answer

U.S. laws requiring that drivers wear seat belts have resulted in

Correct AnswerverifiedShow Answer

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents. As a student of economics, you know that

Correct AnswerverifiedShow Answer

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.

Correct AnswerverifiedShow Answer

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is

Correct AnswerverifiedShow Answer

The short-run tradeoff between inflation and unemployment implies that, in the short run,

Correct AnswerverifiedShow Answer

If the United States decides to trade with Yemen, we know that

Correct AnswerverifiedShow Answer

What are the two reasons for the government to intervene in a market?

Correct AnswerverifiedTo promote...View AnswerShow Answer

Explain the concept of market failure.

Correct AnswerverifiedMarket failure is a situation ...View AnswerShow Answer

A tradeoff exists between a clean environment and a higher level of income in that

Correct AnswerverifiedShow Answer

Under what conditions might government intervention in a market economy improve the economy's performance?

Correct AnswerverifiedIf there is a market failure, such as an...View AnswerShow Answer

The term market failure refers to

Correct AnswerverifiedShow Answer

A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?

Correct AnswerverifiedShow Answer

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda

Correct AnswerverifiedShow Answer

For most students, the largest single cost of a college education is

Correct AnswerverifiedShow Answer

If wages for accountants rose, then accountants' leisure time would have a lower opportunity cost.

Correct AnswerverifiedShow Answer

If an externality is present in a market, economic efficiency may be enhanced by

Correct AnswerverifiedShow Answer

Making rational decisions "at the margin" means that people

Correct AnswerverifiedShow Answer

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To promote...
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Market failure is a situation ...
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If there is a market failure, such as an...
View Answer

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Correct Answer
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