Question 1

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

Accepted Answer

A)  Yes, because cutting hair is profitable.
B)  No, because he may not be able to sell more services.
C)  It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
D)  It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

Question 2

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Accepted Answer

A)  For the first 30 houses, the average cost per house was $250,000.
B)  The marginal cost of the 31st house, if it is built, will be $260,000.
C)  If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it.
D)  All of the above are correct.

Question 3

The business cycle refers to fluctuations in economic activity such as employment and production.

Accepted Answer

A) True 
 B)False

Question 4

In most societies, resources are allocated by

Accepted Answer

A)  a single central planner.
B)  a small number of central planners.
C)  those firms that use resources to provide goods and services.
D)  the combined actions of millions of households and firms.

Question 5

If Switzerland chooses to engage in trade, it

Accepted Answer

A)  will only benefit if it trades with countries that produce goods Switzerland cannot produce.
B)  cannot benefit if it trades with less developed countries.
C)  should first attempt to produce the good itself.
D)  can benefit by trading with any other country.

Question 6

Adam Smith's book The Wealth of Nations was published in

Accepted Answer

A)  1692.
B)  1776.
C)  1816.
D)  1936.

Question 7

Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company's cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors.
-Refer to Scenario 1-6. A customer is willing to pay $60 for the 601st heart rate monitor. Should the company produce and sell it? Explain.

Accepted Answer

No, because the marg...

Question 8

Guns and butter are used to represent the classic societal tradeoff between spending on

Accepted Answer

A)  durable and nondurable goods.
B)  imports and exports.
C)  national defense and consumer goods.
D)  law enforcement and agriculture.

Question 9

In which of the following decades was there both high inflation and rapid money supply growth in the US?

Accepted Answer

A)  the 1970's and the 1990's
B)  the 1970's but not the 1990's
C)  the 1990's but not the 1970's
D)  neither the 1970's nor the 1990's

Question 10

The term used to describe a situation in which markets do not allocate resources efficiently is

Accepted Answer

A)  economic meltdown.
B)  market failure.
C)  equilibrium.
D)  the effect of the invisible hand.

Question 11

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

Accepted Answer

A)  The average American purchases more televisions than the average Nigerian.
B)  The average American has better nutrition and healthcare than the average Nigerian.
C)  The average American has a longer life expectancy than the average Nigerian.
D)  All of the above are correct.

Question 12

Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is

Accepted Answer

A)  the improvement in his grades from studying for the hour.
B)  the improvement in his grades from studying minus the enjoyment of watching TV.
C)  the enjoyment he would have received if he had watched TV with his friends.
D)  zero. Since Hamid chose to study rather than to watch TV, the value of studying must have been greater to him than the value of watching TV.

Question 13

When society requires that firms reduce pollution, there is

Accepted Answer

A)  a tradeoff because of reduced incomes to the firms' owners and workers.
B)  a tradeoff only if some firms are forced to close.
C)  no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.
D)  no tradeoff, since everyone benefits from reduced pollution.

Question 14

Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should

Accepted Answer

A)  complete the repairs and sell the car for $13,000.
B)  sell the car now for $10,000.
C)  never try such an expensive project again.
D)  be indifferent between (i)  selling the car now and (ii)  replacing the engine and then selling it.

Question 15

What is another word for "marginal"?

Accepted Answer

incrementa...

Question 16

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

Accepted Answer

A)  The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise.
B)  The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.
C)  Only half of the cost of the parking permit is part of the opportunity cost of attending college.
D)  The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.

Question 17

What is the most important factor that explains differences in living standards among countries?

Accepted Answer

A)  labor unions
B)  minimum wage laws
C)  productivity
D)  efficiency

Question 18

In considering how to allocate its scarce resources among its various members, a household considers

Accepted Answer

A)  each member's abilities.
B)  each member's efforts.
C)  each member's desires.
D)  All of the above are correct.

Question 19

People are willing to pay more for a diamond than for a bottle of water because

Accepted Answer

A)  the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
B)  the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
C)  producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
D)  water prices are held artificially low by governments, since water is necessary for life.

Question 20

Trade can make everyone better off except in the case where one person is better at doing everything.

Accepted Answer

A) True 
 B)False

Exam 1: Ten Principles of Economics

Correct Answer
verified
No, because the marg...
View Answer

Trade can make everyone better off except in the case where one person is better at doing everything.

Correct Answer
verified

Guns and butter are used to represent the classic societal tradeoff between spending on

Correct Answer
verified

What is the most important factor that explains differences in living standards among countries?

Correct Answer
verified

The business cycle refers to fluctuations in economic activity such as employment and production.

Correct Answer
verified

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

Correct Answer
verified

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

Correct Answer
verified

People are willing to pay more for a diamond than for a bottle of water because

Correct Answer
verified

In which of the following decades was there both high inflation and rapid money supply growth in the US?

Correct Answer
verified

In most societies, resources are allocated by

Correct Answer
verified

In considering how to allocate its scarce resources among its various members, a household considers

Correct Answer
verified

What is another word for "marginal"?

Correct Answer
verified
incrementa...
View Answer

If Switzerland chooses to engage in trade, it

Correct Answer
verified

Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is

Correct Answer
verified

Correct Answer
verified

Adam Smith's book The Wealth of Nations was published in

Correct Answer
verified

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31^st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Correct Answer
verified

The term used to describe a situation in which markets do not allocate resources efficiently is

Correct Answer
verified

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

Correct Answer
verified

When society requires that firms reduce pollution, there is

Correct Answer
verified

Exam 1: Ten Principles of Economics

Correct AnswerverifiedNo, because the marg...View AnswerShow Answer

Trade can make everyone better off except in the case where one person is better at doing everything.

Correct AnswerverifiedShow Answer

Guns and butter are used to represent the classic societal tradeoff between spending on

Correct AnswerverifiedShow Answer

What is the most important factor that explains differences in living standards among countries?

Correct AnswerverifiedShow Answer

The business cycle refers to fluctuations in economic activity such as employment and production.

Correct AnswerverifiedShow Answer

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

Correct AnswerverifiedShow Answer

In 2011, the average American earned about $48,000 while the average Nigerian earned about $1,200. Which of the following statements is likely?

Correct AnswerverifiedShow Answer

People are willing to pay more for a diamond than for a bottle of water because

Correct AnswerverifiedShow Answer

In which of the following decades was there both high inflation and rapid money supply growth in the US?

Correct AnswerverifiedShow Answer

In most societies, resources are allocated by

Correct AnswerverifiedShow Answer

In considering how to allocate its scarce resources among its various members, a household considers

Correct AnswerverifiedShow Answer

What is another word for "marginal"?

Correct Answerverifiedincrementa...View AnswerShow Answer

If Switzerland chooses to engage in trade, it

Correct AnswerverifiedShow Answer

Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Adam Smith's book The Wealth of Nations was published in

Correct AnswerverifiedShow Answer

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The term used to describe a situation in which markets do not allocate resources efficiently is

Correct AnswerverifiedShow Answer

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

Correct AnswerverifiedShow Answer

When society requires that firms reduce pollution, there is

Correct AnswerverifiedShow Answer

Correct Answer
verified
No, because the marg...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
incrementa...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31^st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

Correct Answer
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Correct Answer
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Correct Answer
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