Question 1

During the period of dramatic inflation in Zimbabwe, if you had one trillion Zimbabwean dollars, you still were not very rich.

Accepted Answer

A) True 
 B)False

Question 2

The Great Depression:

Accepted Answer

A)   was the normal response of an economy to changing economic conditions.
B)   could not have been lessened with appropriate monetary policy.
C)   generated unemployment rates of more than 20 percent.
D)   was not an important economic event.

Question 3

If the FDA enacts more stringent pharmaceutical drug tests, two costs of this policy would be:

Accepted Answer

A)   drug lag and drug lapse.
B)   drug lapse and drug misallocation.
C)   drug loss and drug lag.
D)   drug misallocation and drug loss.

Question 4

Economists believe that people are self-interested all the time.

Accepted Answer

A) True 
 B)False

Question 5

Modern economic understanding allows us to avoid economic booms and busts, although political constraints prevent the needed policies from being implemented.

Accepted Answer

A) True 
 B)False

Question 6

Economists think that noone is ever self-interested.

Accepted Answer

A) True 
 B)False

Question 7

A student at a party deciding whether to stay a few more minutes is:

Accepted Answer

A)   thinking on the margin.
B)   increasing the rate of unemployment.
C)   aligning her self-interest with the social interest.
D)   paying high interest rates.

Question 8

You are given a ticket to a Bob Dylan concert with a face value of $50. You only value the ticket at $40, sell it to a friend for $40, and attend a U2 concert priced at $60. The opportunity cost of attending the U2 concert is:

Accepted Answer

A)   $20 worth of alternative goods and services.
B)   $40 worth of alternative goods and services.
C)   $50 worth of alternative goods and services.
D)   $60 worth of alternative goods and services.

Question 9

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

Accepted Answer

A)   A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
B)   A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge.
C)   A government regulates a firm to clean up the pollutants the firm has released as part of its production process.
D)   An apartment building that provides much-needed housing is built on the site of the only playground for children in that town.

Question 10

Suppose that you study hard, master the principles of economics, and earn a good grade in your economics class. This is an example of a good institution because:

Accepted Answer

A)   your school is selective; not everyone can get in.
B)   your self-interest in getting good grades aligns with the social interest of having people who understand economics.
C)   everybody gets good grades.
D)   sometimes the invisible hand is absent, not just invisible.

Question 11

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees) . One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs?

Accepted Answer

A)   An ant suffers a large initial cost to find food.
B)   Because an ant starves if it does not find food, it has a strong incentive to search.
C)   Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill.
D)   Searching for food in one direction means an ant cannot search in another direction.

Question 12

A high-school graduate deciding to go to college makes that decision by:

Accepted Answer

A)   comparing the total income earned per year after graduating from college with the total cost of going to college.
B)   comparing the additional income earned per year after graduating from college with the additional cost of going to college.
C)   thinking about the benefit to society if she goes to college.
D)   following what her friends do.

Question 13

Trade increases production partly by taking advantage of:

Accepted Answer

A)   specialization.
B)   mercantilism.
C)   idealism.
D)   internalization.

Question 14

In the market for pharmaceuticals, the issue of "drug loss" illustrates which of the following ideas?

Accepted Answer

A)   The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
B)   If a drug is not tested for safety, it might kill more people.
C)   Because of the higher the cost of testing a drug, fewer drugs are made, and more lives are lost.
D)   Lives are being lost because safe drugs that are still in the testing stage have not been approved.

Question 15

If there was no ______, the "invisible hand" would not function as Adam Smith describes.

Accepted Answer

A)   money
B)   self-interest
C)   trade
D)   inflation

Question 16

While trade has many benefits, the division of knowledge is a negative outcome of trade.

Accepted Answer

A) True 
 B)False

Question 17

Most economists believe the Federal Reserve does more good for than harm to the United States economy.

Accepted Answer

A) True 
 B)False

Question 18

Self-sufficiency:

Accepted Answer

A)   is the key to prosperity.
B)   is not a popular idea.
C)   results in poverty and death.
D)   means being able and willing to trade.

Question 19

What are the institutions that help foster the appropriate incentives for economic growth?

Accepted Answer

A)   regulated labor and credit markets; and unions
B)   communal property rights and absence of a profit-loss system
C)   a dependable legal system, property rights, and competitive and open markets
D)   production and export quotas; and supply and demand

Question 20

Which statement is correct regarding the Federal Reserve?

Accepted Answer

A)   Most economists believe that the Federal Reserve does more harm than good.
B)   The Federal Reserve has developed the ability to manage the economy with great precision.
C)   Its control of the money supply is not connected to the performance of the economy.
D)   The Federal Reserve's decisions usually have an immediate effect on the economy's unemployment rate.

Exam 1: The Big Ideas

While trade has many benefits, the division of knowledge is a negative outcome of trade.

Correct AnswerverifiedShow Answer

Economists believe that people are self-interested all the time.

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Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

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Trade increases production partly by taking advantage of:

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Which statement is correct regarding the Federal Reserve?

Correct AnswerverifiedShow Answer

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees) . One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs?

Correct AnswerverifiedShow Answer

The Great Depression:

Correct AnswerverifiedShow Answer

Most economists believe the Federal Reserve does more good for than harm to the United States economy.

Correct AnswerverifiedShow Answer

Economists think that noone is ever self-interested.

Correct AnswerverifiedShow Answer

If there was no ______, the "invisible hand" would not function as Adam Smith describes.

Correct AnswerverifiedShow Answer

In the market for pharmaceuticals, the issue of "drug loss" illustrates which of the following ideas?

Correct AnswerverifiedShow Answer

Suppose that you study hard, master the principles of economics, and earn a good grade in your economics class. This is an example of a good institution because:

Correct AnswerverifiedShow Answer

During the period of dramatic inflation in Zimbabwe, if you had one trillion Zimbabwean dollars, you still were not very rich.

Correct AnswerverifiedShow Answer

If the FDA enacts more stringent pharmaceutical drug tests, two costs of this policy would be:

Correct AnswerverifiedShow Answer

You are given a ticket to a Bob Dylan concert with a face value of $50. You only value the ticket at $40, sell it to a friend for $40, and attend a U2 concert priced at $60. The opportunity cost of attending the U2 concert is:

Correct AnswerverifiedShow Answer

A student at a party deciding whether to stay a few more minutes is:

Correct AnswerverifiedShow Answer

A high-school graduate deciding to go to college makes that decision by:

Correct AnswerverifiedShow Answer

What are the institutions that help foster the appropriate incentives for economic growth?

Correct AnswerverifiedShow Answer

Modern economic understanding allows us to avoid economic booms and busts, although political constraints prevent the needed policies from being implemented.

Correct AnswerverifiedShow Answer

Self-sufficiency:

Correct AnswerverifiedShow Answer

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