Question 1

Trade makes costs

Accepted Answer

A)  higher and reduces the variety of goods and services available.
B)  higher but raises the variety of goods and services available.
C)  lower but reduces the variety of goods and services available.
D)  lower and raises the variety of goods and services available.

Question 2

Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level.Which country can benefit?

Accepted Answer

A)  only the one with a low level of output per person.
B)  only the one with a high level of output per person.
C)  both
D)  neither

Question 3

According to Adam Smith,the success of decentralized market economies is primarily due to

Accepted Answer

A)  the basic benevolence of society.
B)  society's legal system.
C)  individuals' pursuit of self-interest.
D)  partnerships that are forged between business and government.

Question 4

One advantage market economies have over centrally-planned economies is that market economies

Accepted Answer

A)  provide an equal distribution of goods and services to households.
B)  establish a significant role for government in the allocation of resources.
C)  solve the problem of scarcity.
D)  are more efficient.

Question 5

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Accepted Answer

A)  government actions that distort prices.
B)  increased competition in markets.
C)  enforcement of property rights.
D)  too much attention paid to efficiency.

Question 6

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 7

Which of the following statements best characterizes a basic difference between market economies and centrally planned economies?

Accepted Answer

A)  Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based.
B)  The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy.
C)  Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally planned economy.
D)  None of the above are correct.

Question 8

Which of the following is a principle concerning how people interact?

Accepted Answer

A)  Markets are usually a good way to organize economic activity.
B)  Rational people think at the margin.
C)  People respond to incentives.
D)  All of the above are correct.

Question 9

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

A)  There is no such thing as a free lunch.
B)  People buy more when prices are low than when prices are high.
C)  No matter how much people earn,they tend to spend more than they earn.
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Question 10

The ability of an individual to own and exercise control over scarce resources is called

Accepted Answer

A)  market failure.
B)  property rights.
C)  externality.
D)  market power.

Question 11

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

Accepted Answer

A)  only if it allows us to obtain things that we couldn't make for ourselves.
B)  because it allows specialization,which increases total output.
C)  to us if we can gain and the others involved in the trade lose.
D)  in only a limited number of circumstances because others are typically self-interested.

Question 12

Benefits from trade would not include

Accepted Answer

A)  the ability of people and nations to specialize.
B)  a greater variety of goods and services becoming available.
C)  less competition.
D)  lower prices.

Question 13

If the government were to intervene and set a wage for unskilled labor above the market wage,then we would expect,relative to the market outcome,

Accepted Answer

A)  an increase in the number of unskilled jobs available.
B)  a decrease in the number of unskilled jobs available.
C)  a decrease in the number of workers wanting unskilled jobs.
D)  None of the above is correct.

Question 14

Trade

Accepted Answer

A)  allows specialization,which increases costs.
B)  allows specialization,which reduces costs.
C)  reduces specialization,which increases costs.
D)  reduces specialization,which reduces costs.

Question 15

Which is the most accurate statement about trade?

Accepted Answer

A)  Trade can make every nation better off.
B)  Trade makes some nations better off and others worse off.
C)  Trading for a good can make a nation better off only if the nation cannot produce that good itself.
D)  Trade helps rich nations and hurts poor nations.

Question 16

In an economy in which decisions are guided by prices and individual self-interest,there is

Accepted Answer

A)  the potential to achieve efficiency in production.
B)  a strong need for government intervention in the market.
C)  less efficiency than would be observed in a centrally-planned economy.
D)  more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.

Question 17

If the government were to intervene and set the rent for apartments in New York City below the market rent,then we would expect,relative to the market outcome,

Accepted Answer

A)  an increase in the number of people wanting to live in apartments in New York City.
B)  a decrease in the number of people wanting to live in apartments in New York City.
C)  an increase in the number of apartments available for rent in New York City.
D)  None of the above is correct.

Question 18

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price,then we would expect,relative to the market outcome,

Accepted Answer

A)  an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
B)  an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
C)  a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
D)  a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

Question 19

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?

Accepted Answer

A)  to promote efficiency
B)  to promote equality
C)  to enforce property rights
D)  to protect an industry from foreign competition

Question 20

A company that formerly produced music CDs went out of business because too many potential customers bought illegally-produced copies of the CDs instead of buying the product directly from the company.This instance serves as an example of

Accepted Answer

A)  market power.
B)  inefficient trade.
C)  inadequate enforcement of property rights.
D)  the invisible hand at work.

Exam 1: Ten Principles of Economics: How People Interact

A company that formerly produced music CDs went out of business because too many potential customers bought illegally-produced copies of the CDs instead of buying the product directly from the company.This instance serves as an example of

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Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

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One advantage market economies have over centrally-planned economies is that market economies

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In an economy in which decisions are guided by prices and individual self-interest,there is

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If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price,then we would expect,relative to the market outcome,

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Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?

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Which of the following statements best characterizes a basic difference between market economies and centrally planned economies?

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Which of the following is a principle concerning how people interact?

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If the government were to intervene and set a wage for unskilled labor above the market wage,then we would expect,relative to the market outcome,

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Which is the most accurate statement about trade?

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The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

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Trade makes costs

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

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Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level.Which country can benefit?

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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

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Benefits from trade would not include

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The ability of an individual to own and exercise control over scarce resources is called

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According to Adam Smith,the success of decentralized market economies is primarily due to

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If the government were to intervene and set the rent for apartments in New York City below the market rent,then we would expect,relative to the market outcome,

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Trade

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