1. Which of the following is a principle concerning how people interact?
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.
2. Which is the most accurate statement about trade?
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.
3. The principle that “trade can make everyone better off” applies to interactions and trade between
a.
b.
c.
d.
4. The principle that trade can make everyone better off applies to
a.
individuals.
b.
families.
c.
countries.
d.
All of the above
5. Which of the following statements about trade is false?
a.
Trade increases competition.
b.
With trade, one country wins and one country loses.
c.
Bulgaria can benefit, potentially, from trade with any other country.
d.
Trade allows people to buy a greater variety of goods and services at lower cost.
6. Trade between the United States and Guatemala
a.
benefits both the United States and Guatemala.
b.
is a losing proposition for the United States because Guatemalan labor is less expensive than U.S. labor.
c.
is a losing proposition for Guatemala because capital is much more abundant in the U.S. than in Guatemala.
d.
is a losing proposition for Guatemala because U.S. workers are more productive than Guatemalan workers.
7. England can benefit from trade
a.
only with nations that can produce goods England cannot produce.
b.
only with less developed nations.
c.
only with nations outside of Europe.
d.
with any nation.
8. If Switzerland chooses to engage in trade, it
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.
9. If the United States decides to trade with Yemen, we know that
a.
Yemen will benefit, but trade with a less developed country could not benefit the United States.
b.
it will not benefit Yemen because workers in the United States are more productive.
c.
Yemen and the United States can both benefit.
d.
it will not benefit either country because their cultural differences are too vast.
10. Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself.
Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her
landscaper. This scenario is an example of which principle of economics?
a.
Trade can make everyone better off.
b.
Markets are usually a good way to organize economic activity.
c.
Governments can sometimes improve market outcomes.
d.
Prices rise when the government prints too much money.
11. Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie’s
bread and pastries,
a.
only Sam is made better off by trade.
b.
only Annie is made better off by trade.
c.
both Sam and Annie are made better off by trade.
d.
neither Sam nor Annie are made better off by trade.
12. Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence’s daughter to play the guitar in exchange
for Terrence tiling Dale’s kitchen floor,
a.
only Dale is made better off by trade.
b.
only Terrence is made better off by trade.
c.
both Dale and Terrence are made better off by trade.
d.
neither Dale nor Terrence are made better off by trade.
13. 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
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.
14. Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of
output per person. Which country can benefit?
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
15. 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?
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
16. Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low
average wage level and a low level of output per person. Which country can benefit from trade?
a.
Only Country A can benefit.
b.
Only Country B can benefit.
c.
Both Country A and Country B can benefit.
d.
Neither Country A nor Country B can benefit.
17. Trade between countries tends to
a.
reduce both competition and specialization.
b.
reduce competition and increase specialization.
c.
increase competition and reduce specialization.
d.
increase both competition and specialization.
18. Trade
a.
allows specialization, which increases costs.
b.
allows specialization, which reduces costs.
c.
reduces specialization, which increases costs.
d.
reduces specialization, which reduces costs.
19. Trade makes costs
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.
20. When the United States trades with China,
a.
both countries will likely benefit.
b.
only United States will benefit.
c.
only China will benefit.
d.
neither country will benefit.
21. When Ukraine trades with Italy,
a.
both countries are likely made better off.
b.
only Italy benefits since Ukraine can produce all goods at a higher level of quality than Italy.
c.
only Ukraine benefits since Italy’s low wages guarantee that Italian firms will be profitable regardless of trade.
d.
neither country will benefit since Ukraine is more efficient than Italy in the production of all goods.
22. Benefits from trade would not include
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.
23. Central planning refers to
a.
markets guiding economic activity. Today many countries that had this system have abandoned it.
b.
markets guiding economic activity. Today many countries that did not have this system have implemented it.
c.
government guiding economic activity. Today many countries that had this system have abandoned it.
d.
government guiding economic activity. Today many countries that did not have this system have implemented
it.
24. In communism, central planners decide which of the following?
a.
what goods and services will be produced
b.
how much will be produced
c.
who will produce and consume the goods and services
d.
All of the above are correct.
25. One advantage market economies have over centrally-planned economies is that market economies
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.
26. The basic principles of economics suggest that
a.
markets are seldom, if ever, a good way to organize economic activity.
b.
government should become involved in markets when trade between countries is involved.
c.
government should become involved in markets when those markets fail to produce efficient or fair outcomes.
d.
All of the above are correct.
27. Which of the following statements best characterizes a basic difference between market economies and centrally
planned economies?
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.
28. Market economies are distinguished from other types of economies largely on the basis of
a.
the political affiliations of government officials.
b.
the process by which government officials are elected or appointed.
c.
the ways in which scarce resources are allocated.
d.
the number of retail outlets available to consumers.
29. The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the
a.
1960s.
b.
1970s.
c.
1980s.
d.
1990s.
30. The economy of the former Soviet Union is best described as a
a.
primitive economy.
b.
market economy.
c.
hybrid economy.
d.
centrally-planned economy.
31. Communist countries worked under the premise that
a.
people, when left on their own without government intervention, will find the best use of available resources
b.
central planners were in the best position to determine the allocation of scarce resources in the economy.
c.
households and firms, guided by an “invisible hand,” could achieve the most efficient allocation of scarce
resources.
d.
allowing the market forces of supply and demand to operate with no government intervention would achieve
the most efficient allocation of scarce resources.
32. Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be
best attained by
a.
a market economy.
b.
a strong reliance on prices and individuals’ self-interests.
c.
a system of large privately-owned firms.
d.
the actions of government central planners.
33. The failure of communism in a large number of countries is at least partly explained by
a.
the fact that those countries relied absolutely on the invisible hand.
b.
the fact that those countries did little or nothing to restrict trade with other countries.
c.
the lack of information, on the part of central planners in those countries, about tastes and preferences in their
economies.
d.
the lack of information, on the part of central planners in those countries, about how much authority the
government had in affecting economic outcomes.
34. The idea that only the government can organize economic activity in a way that promotes economic well-being for a
country as a whole
a.
is a basic principle regarding individual decisionmaking.
b.
amounts to a denial of one of the basic principles regarding interactions among people.
c.
supports the idea that the “invisible hand” should guide economic activity.
d.
was promoted by the economist Adam Smith in a well-known 1776 book.
35. Which of the following statements about markets is most accurate?
a.
Markets are usually a good way to organize economic activity.
b.
Markets are usually inferior to central planning as a way to organize economic activity.
c.
Markets fail and are therefore not an acceptable way to organize economic activity.
d.
Markets are a good way to organize economic activity in developed nations, but not in less developed nations.
36. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
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.
37. The term “invisible hand” was coined by
a.
Adam Smith.
b.
David Ricardo.
c.
Karl Marx.
d.
Benjamin Franklin.
38. The “invisible hand” refers to
a.
the government.
b.
the free market.
c.
central planners.
d.
large businesses.
39. The famous observation that households and firms interacting in markets act as if they are guided by an “invisible
hand” that leads them to desirable market outcomes comes from whose 1776 book?
a.
David Ricardo
b.
Thorstein Veblen
c.
John Maynard Keynes
d.
Adam Smith
40. Adam Smith’s book The Wealth of Nations was published in
a.
1692.
b.
1776.
c.
1816.
d.
1936.
41. Both The Wealth of Nations and the Declaration of Independence share the point of view that
a.
every person is entitled to life, liberty, and the pursuit of happiness.
b.
individuals are best left to their own devices without the government guiding their actions.
c.
the government plays a central role in organizing a market economy.
d.
because of human nature a strong legal system is necessary for a market system to survive.
42. The “invisible hand” directs economic activity through
a.
advertising.
b.
prices.
c.
central planning.
d.
government regulations.
43. The “invisible hand” refers to
a.
how central planners made economic decisions.
b.
how the decisions of households and firms lead to desirable market outcomes.
c.
the control that large firms have over the economy.
d.
government regulations without which the economy would be less efficient.
44. The invisible hand’s ability to coordinate the decisions of the firms and households in the economy can be hindered by
a.
government actions that distort prices.
b.
increased competition in markets.
c.
enforcement of property rights.
d.
too much attention paid to efficiency.
45. When the “invisible hand” guides economic activity, prices of products reflect
a.
only the values that society places on those products.
b.
only the costs to society of producing those products.
c.
both the values that society places on those products and the costs to society of producing those products.
d.
none of the above; when the “invisible hand” guides economic activity, prices of products are set by the
government in a manner that is thought to be “fair.”
46. The “invisible hand” works to promote general well-being in the economy primarily through
a.
government intervention.
b.
the political process.
c.
people’s pursuit of self-interest.
d.
altruism.
47. According to Adam Smith, the success of decentralized market economies is primarily due to
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.
48. The self-interest of the participants in an economy is guided into promoting general economic self-interest by
a.
the invisible hand.
b.
market power.
c.
government intervention.
d.
oikonomos.
49. In an economy in which decisions are guided by prices and individual self-interest, there is
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.
50. In a market economy, who makes the decisions that guide most economic activity?
a.
firms only
b.
households only
c.
firms and households
d.
government
51. In a market economy, economic activity is guided by
a.
the government.
b.
public-interest groups.
c.
central planners.
d.
self-interest and prices.
52. In a market economy,
a.
households decide which firms to work for and what to buy with their incomes.
b.
firms decide whom to hire and what to make.
c.
a central planner makes decisions about production and consumption.
d.
Both a and b are correct.
53. Which of the following statements does not apply to a market economy?
a.
Firms decide whom to hire and what to produce.
b.
The “invisible hand” usually maximizes the income of society as a whole.
c.
Households decide which firms to work for and what to buy with their incomes.
d.
Government policies are the primary forces that guide the decisions of firms and households.
54. In a market economy, economic activity is guided by
a.
the government.
b.
central planners.
c.
large businesses.
d.
prices and self-interest.
55. Which of the following statements about market economies is correct?
a.
In a market economy, no one is looking out for the economic well-being of society as a whole.
b.
Market economies are characterized by decentralized decision making and self-interested decision makers.
c.
Market economies have proven remarkably successful in promoting overall economic well-being.
d.
All of the above are correct.
56. The decisions of firms and households are guided by prices and self-interest in a
a.
command economy.
b.
centrally-planned economy.
c.
market economy.
d.
All of the above are correct.