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 becaus ...

1. 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.

2. 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

3. 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.

4. 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 2-4Refer to Figure 2-4 Suppose this
economy is producing at point W. Which of the following

5. 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.

6. 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

7. 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.

8. 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

9. 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

10. 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

11. 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.

12. 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

13. 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 2-4Refer 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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