True / False
1. Scarcity means that there is less of a good or resource available than people wish to have.
a.
True
b.
False
2. Economics is the study of how evenly goods and services are distributed within society.
a.
True
b.
False
3. Economics is the study of how society allocates its unlimited resources.
a.
True
b.
False
4. Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires.
a.
True
b.
False
5. Equality means distributing society’s resources in the most efficient manner.
a.
True
b.
False
6. Economists study how people make decisions.
a.
True
b.
False
7. With careful planning, we can usually get something that we like without having to give up something else that we like.
a.
True
b.
False
8. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.
a.
True
b.
False
9. The classic tradeoff between “guns and butter” states that when a society spends more on national defense, it has less to
spend on consumer goods to raise the standard of living.
a.
True
b.
False
10. Efficiency means everyone in the economy should receive an equal share of the goods and services produced.
a.
True
b.
False
11. Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.
a.
True
b.
False
12. Government policies that improve equality usually increase efficiency at the same time.
a.
True
b.
False
13. Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.
a.
True
b.
False
14. An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs.
a.
True
b.
False
15. The cost of an action is measured in terms of foregone opportunities.
a.
True
b.
False
16. Tuition is the single-largest cost of attending college for most students.
a.
True
b.
False
17. If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost.
a.
True
b.
False
18. A marginal change is a small incremental adjustment to an existing plan of action.
a.
True
b.
False
19. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that
activity.
a.
True
b.
False
20. If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for
the railroad to allow any passenger to ride for less than $75.
a.
True
b.
False
21. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are
willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
a.
True
b.
False
22. A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.
a.
True
b.
False
23. Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises
the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase
in drunk driving. This illustrates the principle that people respond to incentives.
a.
True
b.
False
24. A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.
a.
True
b.
False
25. To say people respond to incentives means that people may alter their decisions when the costs and benefits of an
action change.
a.
True
b.
False
26. One of the effects of gas prices rising from about $2 to about $4 per gallon was airlines ordering new, fuel-efficient
aircraft.
a.
True
b.
False
27. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual’s
productivity.
a.
True
b.
False
28. Trade with any nation can be mutually beneficial.
a.
True
b.
False
29. Trade can make everyone better off except in the case where one person is better at doing everything.
a.
True
b.
False
30. The invisible hand ensures that economic prosperity is distributed equally.
a.
True
b.
False
31. A market economy cannot produce a socially desirable outcome because individuals are motivated by their own
selfish interests.
a.
True
b.
False
32. Communist countries worked on the premise that government officials were in the best position to allocate the
economy’s scarce resources.
a.
True
b.
False
33. The government can potentially improve market outcomes if market inequalities or market failure exists.
a.
True
b.
False
34. One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise
control over their scarce resources.
a.
True
b.
False
35. Market failure refers to a situation in which the market does not allocate resources efficiently.
a.
True
b.
False
36. Market power and externalities are two possible causes of market failure.
a.
True
b.
False
37. Market failure occurs when no individual has the ability to substantially influence market prices.
a.
True
b.
False
38. Productivity is defined as the quantity of goods and services produced from each unit of labor input.
a.
True
b.
False
39. Inflation is the primary determinant of a country’s living standards.
a.
True
b.
False
40. Inflation increases the value of money.
a.
True
b.
False
41. Inflation measures the increase in the quantity of goods and services produced from each hour of a worker’s time.
a.
True
b.
False
42. The goal of President Obama’s stimulus package and increased government spending following the deep economic
downturn in 2008 and 2009 was to reduce inflation.
a.
True
b.
False
43. Variations in the standard of living across countries is due almost entirely to differences in each nation’s total output
of goods and services.
a.
True
b.
False
44. In the short-run, society faces a tradeoff between inflation and unemployment.
a.
True
b.
False
45. In the long run the primary effect of increasing the quantity of money is higher prices.
a.
True
b.
False
46. The business cycle refers to fluctuations in economic activity such as employment and production.
a.
True
b.
False
47. The opportunity cost of working one hour is the sum of the values you would have received from all other activities
you could have done in that hour.
a.
True
b.
False
48. The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that
hour.
a.
True
b.
False
49. Inflation and unemployment both increase as the money supply increases.
a.
True
b.
False
50. A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost.
a.
True
b.
False
51. The “invisible hand” influences market behavior through trade.
a.
True
b.
False