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19. The terms equality and efficiency are similar in that they both refer to benefits to society.
However they are different in that
a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing
benefits from scarce resources.
b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform
distribution of those benefits.
c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity
cost of the benefits.
d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing
identical tradeoffs.
20. Which of the following phrases best captures the notion of efficiency?
a. absolute fairness
b. equal distribution
c. minimum waste
d. equitable outcome
22 Ten Principles of Economics
21. Which of the following words and phrases best captures the notion of equality?
a. minimum waste
b. maximum benefit
c. sameness
d. efficiency
22. When society gets the most it can from its scarce resources, then the outcome is called
a. equitable.
b. efficient.
c. normal.
d. efficacious.
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23. A typical society strives to get the most it can from its scarce resources. At the same time, the
society attempts to distribute the benefits of those resources to the members of the society in a
fair manner. In other words, the society faces a tradeoff between
a. guns and butter.
b. efficiency and equality.
c. inflation and unemployment.
d. work and leisure.
24. When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.
b. equality is improved, but efficiency is not.
c. both efficiency and equality are improved.
d. neither efficiency nor equality are improved.
24 Ten Principles of Economics
25. Which of the following is true?
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
b. Government policies usually improve upon both equality and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
26. As a result of a successful attempt by government to cut the economic pie into more equal slices,
a. the pie gets larger, and there will be more pie overall.
b. the pie gets smaller, and there will be less pie overall.
c. it increases the reward for working hard, resulting in people producing more goods and services.
d. those who earn more income pay less in taxes.
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27. When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.
b. both wealthy people and poor people benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
28. When the government attempts to improve equality in an economy the result is often
a. an increase in overall output in the economy.
b. additional government revenue since overall income will increase.
c. a reduction in equality.
d. a reduction in efficiency.
26 Ten Principles of Economics
29. When the government implements programs such as progressive income tax rates, which of the
following is likely to occur?
a. equality is increased and efficiency is increased.
b. equality is increased and efficiency is decreased.
c. equality is decreased and efficiency is increased.
d. equality is decreased and efficiency is decreased.
30. A likely effect of government policies that redistribute income and wealth from the wealthy to the
poor is that those policies
a. enhance equality.
b. reduce efficiency.
c. reduce the reward for working hard.
d. All of the above are correct.
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31. A likely effect of government policies that redistribute income and wealth from the wealthy to the
poor is that those policies
a. enhance equality.
b. enhance efficiency.
c. increase the reward for working hard.
d. All of the above are correct.
32. Government policies designed to equalize the distribution of economic well-being include
(i) the welfare system
(ii) unemployment insurance
(iii) progressive income tax
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i), (ii), and (iii)
28 Ten Principles of Economics
33. Government policies resulting in reduced efficiency include
(i) the welfare system
(ii) unemployment insurance
(iii) progressive income tax
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i), (ii), and (iii)
34. When government policies are enacted,
a. equality can usually be enhanced without an efficiency loss, but efficiency can never be
enhanced without a reduction in equality.
b. efficiency can usually be enhanced without a reduction in equality, but equality can never be
enhanced without an efficiency loss.
c. it is always the case that either efficiency and equality are both enhanced, or efficiency and
equality are both diminished.
d. None of the above are correct.
Ten Principles of Economics 29
35. Senator Brown wants to increase taxes on people with high incomes and use the money to help
the poor. Senator Johnson argues that such a tax will discourage successful people from working
and will therefore make society worse off. An economist would say that
a. we should agree with Senator Brown.
b. we should agree with Senator Johnson.
c. a good decision requires that we recognize both viewpoints.
d. there are no tradeoffs between equity and efficiency.
36. A certain state legislature is considering an increase in the state gasoline tax. Representative
Campbell argues that an increase in the gasoline tax would harm low–income drivers
disproportionately. Representative Richards responds by saying that low-income drivers own
smaller cars that use less gasoline, and that low-income drivers therefore would not be harmed
disproportionately.
a. Representative Campbell’s argument is based primarily on efficiency, while Representative
Richards’ argument is based primarily on equality.
b. Representative Campbell’s argument is based primarily on equality, while Representative
Richards’ argument is based primarily on efficiency.
c. Both representatives’ arguments are based primarily on efficiency.
d. Both representatives’ arguments are based primarily on equality.
30 Ten Principles of Economics
37. Senator Jackson argues that replacing the federal income tax with a national sales tax would
increase the level of output. Senator Feldman objects that this policy would benefit the rich at the
expense of the poor.
a. Both senators’ arguments are primarily about equality.
b. Both senators’ arguments are primarily about efficiency.
c. Senator Jackson’s argument is primarily about equality, while Senator Feldman’s argument is
primarily about efficiency.
d. Senator Jackson’s argument is primarily about efficiency, while Senator Feldman’s argument is
primarily about equality.
38. Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then
develops programs to redistribute the tax revenue from the wealthy to the poor. This
redistribution of wealth
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.
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39. The government has just passed a law requiring that all residents earn the same annual income
regardless of work effort. This law is likely to
a. increase efficiency and increase equality.
b. increase efficiency but decrease equality.
c. decrease efficiency but increase equality.
d. decrease efficiency and decrease equality.
40. The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
32 Ten Principles of Economics
41. In economics, the cost of something is
a. the dollar amount of obtaining it.
b. always measured in units of time given up to get it.
c. what you give up to get it.
d. often impossible to quantify, even in principle.
42. What you give up to obtain an item is called your
a. opportunity cost.
b. explicit cost.
c. monetary cost.
d. direct cost.
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43. Which of the following is correct concerning opportunity cost?
a. Except to the extent that you pay more for them, opportunity costs should not include the cost
of things you would have purchased anyway.
b. To compute opportunity costs, you should subtract benefits from costs.
c. Opportunity costs and the idea of trade-offs are not closely related.
d. Rational people should compare various options without considering opportunity costs.
44. High-school athletes who skip college to become professional athletes
a. obviously do not understand the value of a college education.
b. usually do so because they cannot get into college.
c. understand that the opportunity cost of attending college is very high.
d. are not making a rational decision since the marginal benefits of college outweigh the marginal
costs of college for high-school athletes.
34 Ten Principles of Economics
45. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the
money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending
the money today, in terms of what you could have after one year, is
a. $0.
b. $15.
c. $305.
d. $315.
46. When computing the opportunity cost of attending a basketball game you should include
a. the price you pay for the ticket and the value of your time.
b. the price you pay for the ticket, but not the value of your time.
c. the value of your time, but not the price you pay for the ticket.
d. neither the price of the ticket nor the value of your time.
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47. Melody decides to spend three hours working overtime rather than going to the park with her
friends. She earns $20 per hour for overtime work. Her opportunity cost of working is
a. the $60 she earns working.
b. the $60 minus the enjoyment she would have received from going to the park.
c. the enjoyment she would have received had she gone to the park.
d. nothing, since she would have received less than $60 worth of enjoyment from going to the
park.
48. Ramona decides to spend two hours taking a nap rather than attending her classes. Her
opportunity cost of napping is
a. the value of the knowledge she would have received had she attended class.
b. the $24 she could have earned if she had worked at her job for those two hours.
c. the value of her nap minus the value of attending class.
d. nothing, since she valued sleep more than attendance at class.
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49. Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to
him of studying is
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.
50. For most students, the largest single cost of a college education is
a. the wages given up to attend school.
b. tuition, fees, and books.
c. room and board.
d. transportation, parking, and entertainment.
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51. For most students, the earnings they give up to attend college are
a. a minor cost when compared to the costs of tuition, room and board, and the like.
b. the single largest cost of their education.
c. about equal to the costs of room and board at college.
d. not considered true costs by an economist.
52. The opportunity cost of going to college is
a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
b. the value of the best opportunity a student gives up to attend college.
c. zero for students who are fortunate enough to have all of their college expenses paid by
someone else.
d. zero, since a college education will allow a student to earn a larger income after graduation.
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53. Which of the following is not an example of the opportunity cost of going to school?
a. The money a student could have earned by working if he had not gone to college.
b. The nap a student could have enjoyed if he had not attended class.
c. The party a student could have enjoyed if he had not stayed in to study for his exam.
d. The money a student spends on rent for his apartment while attending school.
54. For a college student who wishes to calculate the true costs of going to college, the costs of room
and board
a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b. should be counted only to the extent that they are more expensive at college than elsewhere.
c. usually exceed the opportunity cost of going to college.
d. plus the cost of tuition, equals the opportunity cost of going to college.
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55. When you calculate your true costs of going to college, what portion of your room-and-board
expenses should be included?
a. Your full room-and-board expenses should always be included.
b. None of your room-and-board expenses should ever be included.
c. You should include only the amount by which your room-and-board expenses exceed the
income you earn while attending college.
d. 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.
56. Consider Frank’s decision to go to college. If he goes to college, he will spend $21,000 on tuition,
$11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000
working in a store and spend $7,200 on room and board. Frank’s cost of going to college is
a. $33,800.
b. $42,600.
c. $49,800.
d. $57,000.
40 Ten Principles of Economics
57. 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 calculation of your opportunity cost?
a. the cost of tuition and books to attend the graduate program
b. the $30,000 salary that you could have earned if you retained your job at the bank
c. the $45,000 salary that you will be able to earn after having completed your graduate program
d. the value of insurance coverage and other employee benefits you would have received if you
retained your job at the bank
58. For which of the following individuals would the opportunity cost of going to college be highest?
a. a promising young mathematician who will command a high salary once she earns her college
degree
b. a student with average grades who has never held a job
c. a famous, highly-paid actor who wants to take time away from show business to finish college
and earn a degree
d. a student who is the best player on his college basketball team, but who lacks the skills
necessary to play professional basketball