quiz

Chapter 1

1. Economics is best defined as the study of a. how society manages its scarce resources. b. how to run a business most profitably. c. how to predict inflation, unemployment, and stock

prices. d. how the government can stop the harm from

unchecked self-interest.

2. Your opportunity cost of going to a movie is a. the price of the ticket. b. the price of the ticket plus the cost of any soda

and popcorn you buy at the theater. c. the total cash expenditure needed to go to the

movie plus the value of your time. d. zero, as long as you enjoy the movie and consider

it a worthwhile use of time and money.

3. A marginal change is one that

a. b. c. d.

is not important for public policy. incrementally alters an existing plan. makes an outcome inefficient. does not influence incentives.

4. Adam Smith’s “invisible hand” refers to a. the subtle and often hidden methods that busi-

nesses use to profit at consumers’ expense. b. the ability of free markets to reach desirable

outcomes, despite the self-interest of market

participants. c. the ability of government regulation to benefit con-

sumers, even if the consumers are unaware of the

regulations. d. the way in which producers or consumers in

unregulated markets impose costs on innocent bystanders.

5. Governments may intervene in a market economy in order to

a. protect property rights. b. correct a market failure due to externalities. c. achieve a more equal distribution of income. d. All of the above.

6. If a nation has high and persistent inflation, the most likely explanation is a. the central bank creating excessive amounts of

money. b. unions bargaining for excessively high wages. c. the government imposing excessive levels of taxation. d. firms using their monopoly power to enforce exces-

sive price hikes.

Chapter 2

1. An economic model is a. a mechanical machine that replicates the

functioning of the economy. b. a fully detailed, realistic description of the

economy. c. a simplified representation of some aspect of the

economy. d. a computer program that predicts the future of the

economy.

2. The circular-flow diagram illustrates that, in markets for the factors of production, a. households are sellers, and firms are buyers. b. households are buyers, and firms are sellers.

c. households and firms are both buyers. d. households and firms are both sellers.

3. A point inside the production possibilities frontier is a. efficient but not feasible. b. feasible but not efficient. c. both efficient and feasible.

d. neither efficient nor feasible.

4. An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers’ preferences, it would a. expand the production possibilities frontier.

b. contract the production possibilities frontier. c. move the economy along the production

possibilities frontier. d. move the economy inside the production

possibilities frontier.

5. All of the following topics fall within the study of microeconomics EXCEPT a. the impact of cigarette taxes on the smoking

behavior of teenagers. b. the role of Microsoft’s market power in the pricing

of software. c. the effectiveness of antipoverty programs in

reducing homelessness. d. the influence of the government budget deficit on

economic growth.

6. Which of the following is a positive, rather than a normative, statement? a. Law X will reduce national income. b. Law X is a good piece of legislation.

c. Congress ought to pass law X. d. The president should veto law X

chapter 3

1. In an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?

a. Mateo in washing, Tyler in mowing. b. Tyler in washing, Mateo in mowing. c. Mateo in washing, neither in mowing. d. Tyler in washing, neither in mowing.

2. Once again, in an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing? a. Mateo in washing, Tyler in mowing.

b. Tyler in washing, Mateo in mowing. c. Mateo in washing, neither in mowing. d. Tyler in washing, neither in mowing.

3. When two individuals produce efficiently and then make a mutually beneficial trade based on compara- tive advantage, a. they both obtain consumption outside their pro-

duction possibilities frontier. b. they both obtain consumption inside their produc-

tion possibilities frontier. c. one individual consumes inside her production

possibilities frontier, while the other consumes

outside hers. d. each individual consumes a point on her own

production possibilities frontier.

4. Which goods will a nation typically import? a. those goods in which the nation has an absolute

advantage b. those goods in which the nation has a comparative

advantage c. those goods in which other nations have an abso-

lute advantage d. those goods in which other nations have a compar-

ative advantage

5. Suppose that in the United States, producing an air- craft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade? a. China will export aircraft, and the United States

will export shirts. b. China will export shirts, and the United States will

export aircraft. c. Both nations will export shirts. d. There are no gains from trade in this situation.

6. Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes half as long to do each task. How should the roommates allo- cate the work?

a. Kayla should do more of the cooking based on her comparative advantage.

b. Kayla should do more of the washing based on her comparative advantage.

c. Kayla should do more of the washing based on her absolute advantage.

d. There are no gains from trade in this situation.

Chapter 4

1. A change in which of the following will NOT shift the demand curve for hamburgers? a. the price of hot dogs b. the price of hamburgers

c. the price of hamburger buns d. the income of hamburger consumers

2. An increase in ________ will cause a movement along a given demand curve, which is called a change in ________. a. supply, demand

b. supply, quantity demanded c. demand, supply d. demand, quantity supplied

3. Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets? a. The supply curve shifts to the left. b. The supply curve shifts to the right. c. The demand curve shifts to the left. d. The demand curve shifts to the right.

4. The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price. a. supply, higher

b. supply, lower c. demand, higher d. demand, lower

5. If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. Prices and quantities both rise.

b. Prices and quantities both fall. c. Prices rise and quantities fall. d. Prices fall and quantities rise.

6. Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. an increase in the price of peanut better,

a complement to jelly b. an increase in the price of Marshmallow Fluff,

a substitute for jelly c. an increase in the price of grapes, an input into jelly d. an increase in consumers’ incomes,

as long as jelly is a normal good