True/False
Indicate whether the
sentence or statement is true or false.
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1.
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When the government redistributes income with taxes
and welfare, the economy becomes more efficient.
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2.
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When economists say, "There is no such thing
as a free lunch," they mean that all economic decisions involve trade-offs.
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3.
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Adam Smith's “invisible hand”
concept describes how corporate business reaches into the pockets of consumers like an
“invisible hand.”
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4.
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Rational people act only when the marginal benefit
of the action exceeds the marginal cost.
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5.
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The European Union will benefit economically if we
eliminate trade with Asian countries because its citizens will be forced to produce more of their own
cars and clothes.
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6.
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When a jet flies overhead, the noise it generates
is an externality.
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7.
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A tax on alcoholic drinks raises the price of
alcoholic drinks and provides an incentive for consumers to drink more.
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8.
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An unintended consequence of public support for
higher education is that low tuition provides an incentive for many people to attend state
universities even if they have no desire to learn anything.
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9.
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Sue is better at cleaning and Bob is better at
cooking. It will take fewer hours to eat and clean if Bob specializes in cooking and Sue specializes
in cleaning than if they share the household duties evenly.
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10.
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High and persistent inflation is caused by
excessive growth in the quantity of money in the economy.
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11.
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In the short run, a reduction in inflation tends to
cause a reduction in unemployment.
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12.
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A car manufacturer should continue to produce
additional cars as long as the firm is profitable, even if the cost of the additional units exceeds
the price received.
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13.
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An individual farmer is likely to have market power
in the market for wheat.
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14.
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To a student, the opportunity cost of going to a
football match would include the price of the ticket and the value of the time that could have been
spent studying.
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15.
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Workers in the countries of Western Europe have a
relatively high standard of living because those countries have relatively high minimum wage
rates.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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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 |
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17.
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Trade-offs are required because wants are unlimited
and resources are
a. | economical. | b. | unlimited. | c. | efficient. | d. | marginal. | e. | scarce. |
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18.
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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. |
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19.
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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. |
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20.
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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. |
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21.
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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 |
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22.
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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. |
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23.
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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. |
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24.
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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. |
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25.
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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 |
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26.
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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 |
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27.
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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. |
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28.
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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. |
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29.
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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. |
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30.
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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. |
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31.
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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. |
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32.
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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. |
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33.
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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 |
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34.
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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 |
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35.
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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. |
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