Ten Principles of Economics
Multiple Choice – Section 00: Introduction
1. The English word that comes from the Greek word for “one who manages a household” is
a. market.
b. consumer.
c. producer.
d. economy.
2. The word “economy” comes from the Greek word oikonomos, which means
a. “environment.”
b. “production.”
c. “one who manages a household.”
d. “one who makes decisions.”
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3. Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
4. In considering how to allocate its scarce resources among its various members, a household
considers
a. each member’s abilities.
b. each member’s efforts.
c. each member’s desires.
d. All of the above are correct.
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5. Economics deals primarily with the concept of
a. scarcity.
b. money.
c. poverty.
d. banking.
6. Which of the following is correct?
a. The word economy comes from the Greek word for “rational thinker.”
b. Economists study the management of scarce resources.
c. Because economists believe that people pursue their best interests, they are not interested in how
people interact.
d. All of the above are correct.
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7. The overriding reason why households and societies face many decisions is that
a. resources are scarce.
b. goods and services are not scarce.
c. incomes fluctuate with business cycles.
d. people, by nature, tend to disagree.
8. A society allocates its scarce resources to various jobs. These scarce resources include
a. land.
b. people.
c. machines.
d. All of the above are correct.
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9. The phenomenon of scarcity stems from the fact that
a. most economies’ production methods are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and services.
c. governments restrict production of too many goods and services.
d. resources are limited.
10. Approximately what percentage of the world‘s economies experience scarcity?
a. 10%
b. 40%
c. 85%
d. 100%
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11. When a society cannot produce all the goods and services people wish to have, it is said that the
economy is experiencing
a. scarcity.
b. surpluses.
c. inefficiencies.
d. inequalities.
12. Which of the following products would be considered scarce?
a. bread
b. baseballs autographed by Babe Ruth
c. motorcycles
d. All of the above are correct.
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13. Economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
14. The study of how society manages its scarce resources is most closely associated with which
field of study?
a. environmental studies
b. economics
c. management
d. accounting
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15. In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
16. Coal is considered to be a non-renewable energy source. Which of the following statements is
correct?
a. Coal is an unlimited resource.
b. Coal is a scarce resource.
c. Coal is a non-productive resource.
d. Coal is not a resource.
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17. Which of the following is not an example of scarcity?
a. Only some people can afford to buy a BMW automobile.
b. Every individual in society cannot attain the highest standard of living to which he or she might
aspire.
c. Miranda has an unlimited supply of oranges in her orchard.
d. Each member of a household cannot get everything he or she wants.
18. Economics is the study of how society manages its
a. limited wants and unlimited resources.
b. unlimited wants and unlimited resources.
c. limited wants and limited resources.
d. unlimited wants and limited resources.
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19. Which of the following is a decision that economists study?
a. how much people work
b. what people buy
c. how much money people save
d. All of the above are correct.
20. Which of the following is an example of something economists study?
a. Mitch chooses to work overtime to earn extra income for his family.
b. Megan sells her physics textbook from last semester to her roommate for half the price of a
new textbook.
c. The unemployment rate in the United States has fallen by two percentage points in the last few
years.
d. All of the above are correct.
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21. What term refers to the property that society has limited resources and therefore cannot produce
all the goods and services people wish to have?
a. inefficiency
b. inequality
c. scarcity
d. market failure
22. Which of the following is a subject that economists study?
a. the growth in average income
b. the fraction of the population that cannot find work
c. the rate at which prices are rising
d. All of the above are correct.
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Multiple Choice – Section 01: How People Make Decisions
1. The adage, “There is no such thing as a free lunch,” means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. people face tradeoffs.
d. all costs are included in the price of a product.
2. The adage, “There is no such thing as a free lunch,” is used to illustrate the principle that
a. goods are scarce.
b. people face tradeoffs.
c. income must be earned.
d. households face many decisions.
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3. The phrase “no such thing as a free lunch” means
a. people must face tradeoffs.
b. rational people think at the margin.
c. people respond to incentives.
d. trade can make everyone better off.
4. Which of the following statements best represents the principle represented by the adage, “There is
no such thing as a free lunch”?
a. Michelle can attend the concert only if she takes her sister with her.
b. Michael is hungry and homeless.
c. Andrea must repair the tire on her bike before she can ride it to class.
d. Dani must decide between going to Florida or Brazil for spring break.
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5. Which of the following examples does not illustrate the principle represented by the adage, “There
is no such thing as a free lunch”?
a. Melissa needs to pay her rent and her electric bill.
b. Kevin must choose between buying a new flat screen television and buying his textbooks for this
semester.
c. Robert must decide between studying for his psychology exam and working at his part-time job.
d. Lisa can spend her money on a new smart phone or on a weekend trip.
6. The principle that “people face tradeoffs” applies to
a. individuals.
b. families.
c. societies.
d. All of the above are correct.
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7. Candice is planning her activities for a hot summer day. She would like to go to the local swimming
pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the
same time that the pool is open she can only choose one activity. This illustrates the basic principle
that
a. people respond to incentives.
b. rational people think at the margin.
c. people face tradeoffs.
d. improvements in efficiency sometimes come at the expense of equality.
8. Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3
player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she
can only buy one. This illustrates the basic concept that
a. trade can make everyone better off.
b. people face trade-offs.
c. rational people think at the margin.
d. decisions made at the margin are not particularly important.
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9. John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new
running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one.
This illustrates the principle that
a. trade can make everyone better off.
b. people face trade-offs.
c. rational people think at the margin.
d. people respond to incentives.
10. Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for his camera
or a new tripod. Both the flash and tripod cost $230, so he can only buy one. This illustrates the
principle that
a. trade can make everyone better off.
b. people face trade-offs.
c. rational people think at the margin.
d. people respond to incentives.
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11. Guns and butter are used to represent the classic societal tradeoff between spending on
a. durable and nondurable goods.
b. imports and exports.
c. national defense and consumer goods.
d. law enforcement and agriculture.
12. A tradeoff exists between a clean environment and a higher level of income in that
a. studies show that individuals with higher levels of income pollute less than low-income
individuals.
b. efforts to reduce pollution typically are not completely successful.
c. laws that reduce pollution raise costs of production and reduce incomes.
d. employing individuals to clean up pollution causes increases in employment and income.
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13. While pollution regulations yield the benefit of a cleaner environment and the improved health that
comes with it, the regulations come at the cost of reducing the incomes of the regulated firms’
owners, workers, and customers. This statement illustrates the principle that
a. trade can make everyone better off.
b. rational people think at the margin.
c. people face tradeoffs.
d. people respond to incentives.
14. When society requires that firms reduce pollution, there is
a. a tradeoff because of reduced incomes to the firms‘ owners and workers.
b. a tradeoff only if some firms are forced to close.
c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the
requirements.
d. no tradeoff, since everyone benefits from reduced pollution.
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15. Economists use the word equality to describe a situation in which
a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services, regardless of
his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. society’s resources are used efficiently.
16. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society’s goods and services are distributed equally among society’s members.
c. society’s goods and services are distributed fairly, though not necessarily equally, among
society’s members.
d. society is getting the maximum benefits from its scarce resources.
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17. The property of society getting the most it can from its scarce resources is called
a. efficiency.
b. equality.
c. externality.
d. productivity.
18. Efficiency
a. and equality both refer to how much a society can produce with its resources.
b. and equality both refer to how fairly the benefits from using resources are distributed between
members of a society.
c. refers to how much a society can produce with its resources. Equality refers to how evenly the
benefits from using resources are distributed among members of society.
d. refers to how evenly the benefits from using resources are distributed between members of
society. Equality refers to how much a society can produce with its resources