Multiple Choice (Chapter 1)
Identify the letter of the choice that best completes the statement or answers the question.
1. Which of the following involve a trade-off?
a. Taking a nap
b. All of these answers involve trade-offs.
c. Watching a football game on Saturday afternoon
d. Going to university
e. Buying a new car
B
ANSWER:
2. Trade-offs are required because wants are unlimited and resources are
a. economical.
b. unlimited.
c. efficient.
d. marginal.
e. scarce.
E
ANSWER:
3. Economics is the study of
a. how society manages its unlimited resources.
b. how to reduce our wants until we are satisfied.
c. how society manages its scarce resources.
d. how to fully satisfy our unlimited wants.
e. how to avoid having to make trade-offs.
C
ANSWER:
4. A rational person does not act unless
a. the action is ethical.
b. the action produces marginal costs that exceed marginal benefits.
c. the action produces marginal benefits that exceed marginal costs.
d. the action makes money for the person.
e. none of these answers.
C
ANSWER:
5. Raising taxes and increasing welfare payments
a. reduces market power.
b. proves that there is such a thing as a free lunch.
c. improves efficiency at the expense of equity.
d. none of these answers
e. improves equity at the expense of efficiency.
E
ANSWER:
6. Suppose you find €20. If you choose to use the €20 to go to a football match, your
opportunity cost of going to the game is
a. nothing, because you found the money.
b. €20 (because you could have used the €20 to buy other things) plus the value
of your time spent at the game.
c. €20 (because you could have used the €20 to buy other things) plus the value
of your time spent at the game, plus the cost of the dinner you purchased at the
game.
d. €20 (because you could have used the €20 to buy other things).
e. none of these answers
B
ANSWER:
7. Foreign trade
a. none of these answers.
b. increases the scarcity of resources.
c. makes a country more equitable.
d. allows a country to have a greater variety of products at a lower cost than if it
tried to produce everything at home.
e. allows a country to avoid trade-offs.
D
ANSWER:
8. Since people respond to incentives, we would expect that, if the average salary of
accountants increases by 50% while the average salary of teachers increases by 20%,
then
a. fewer students will take degree courses in accounting and more will take
education courses.
b. fewer students will take degree courses in education and more will take
accounting courses.
c. fewer students will attend university.
d. none of these answers.
B
ANSWER:
9. Which of the following activities is most likely to produce an externality?
a. A student eats a hamburger in the student union.
b. A student reads a novel for pleasure.
c. A student sits at home and watches T.V.
d. A student has a party in her room in the student hall of residence.
D
ANSWER:
10. Which of the following products would be least capable of producing an externality?
a. inoculations against disease
b. cigarettes
c. food
d. education
e. stereo equipment
C
ANSWER:
11. Which of the following situations describes the greatest market power?
a. Subaru’s impact on the price of cars
b. a farmer's impact on the price of corn
c. Microsoft's impact on the price of desktop operating systems
d. a student's impact on college tuition
C
ANSWER:
12. Which of the following statements is true about a market economy?
a. With a large enough computer, central planners could guide production more
efficiently than markets.
b. Market participants act as if guided by an invisible hand to produce outcomes
that maximize social welfare.
c. The strength of a market system is that it tends to distribute resources evenly
across consumers.
d. Taxes help prices communicate costs and benefits to producers and
consumers.
B
ANSWER:
13. Workers in Western Europe enjoy a high standard of living because
a. the countries of Western Europe have set high minimum wage rates.
b. unions in Western Europe keep the wage high.
c. none of these answers.
d. the countries of Western Europe have protected their industries from foreign
competition.
e. workers in the United States are highly productive.
E
ANSWER:
14. High and persistent inflation is caused by
a. unions increasing wages too much.
b. OPEC raising the price of oil too much.
c. governments increasing the quantity of money too much.
d. regulations raising the cost of production too much.
C
ANSWER:
15 The Phillips curve shows that
a. the business cycle has been eliminated.
b. an increase in inflation temporarily increases unemployment.
c. inflation and unemployment are unrelated in the short run.
d. a decrease in inflation temporarily increases unemployment.
e. none of these answers.
D
ANSWER:
16. An increase in the price of beef provides information which
a. provides no information because prices in a market system are managed by
planning boards.
b. tells consumers to buy less pork.
c. tells producers to produce more beef.
d. tells consumers to buy more beef.
C
ANSWER:
17. You are planning to run a hot dog stand during a forthcoming fair. You originally
estimated that you will generate sales revenue of €2000 and you have already spent
€1000 building the hot dog stand. The hot dog stand is nearly completed but now you
estimate total sales to be only €800 because the fair clashes with a major music
festival in a nearby location.. You can complete the hot dog stand for another €300.
Should you complete the hot dog stand? (Assume that there are no other costs - the
hot dogs are costless to you.)
a. There is not enough information to answer this question.
b. Yes.
c. No.
B
ANSWER:
18. You are planning to run a hot dog stand during a forthcoming fair. You originally
estimated that you will generate sales revenue of €2000 and you have already spent
€1000 building the hot dog stand. The hot dog stand is nearly completed but now you
estimate total sales to be only €800 because the fair clashes with a major music
festival in a nearby location.. You can complete the hot dog stand for another €300.
Your decision rule should be to complete the hot dog stand as long as the cost to
complete the stand is less than
a. €300
b. €100
c. €500
d. none of these answers.
e. €800
E
ANSWER:
19. Which of the following is not part of the opportunity cost of going on holiday?
a. the money you spent on a theatre show
b. the money you could have made if you had stayed at home and worked
c. the money you spent on airline tickets
d. the money you spent on food
D
ANSWER:
20. Productivity can be increased by
a. improving the education of workers.
b. raising union wages.
c. raising minimum wages.
d. restricting trade with foreign countries.
A
ANSWER: