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88. The willingness of citizens to pay for vaccinations does not include the benefit society receives
from having vaccinated citizens who cannot transmit an illness to others. This extra benefit
society gets from vaccinating its citizens is known as
a. productivity.
b. an externality.
c. market power.
d. property rights.
89. If an electric power plant does not bear the entire cost of the pollution it emits, it will
a. not emit any pollution so as to avoid the entire cost of the pollution.
b. emit lower levels of pollution.
c. emit an acceptable level of pollution.
d. emit too much pollution.
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90. Laws that restrict the smoking of cigarettes in public places are examples of government
intervention that is intended to reduce
a. efficiency.
b. equality.
c. externalities.
d. productivity.
91. Which of the following is an example of an externality?
a. A paper mill dumps waste into the river.
b. A neighbor’s loud music disrupts sleep.
c. A drunk driver causes an accident that injures another person.
d. All of the above are correct.
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92. Which of these activities will most likely impose an external cost?
a. An athlete works out at a gym.
b. A secretary smokes a cigarette in a crowded break room.
c. A young mother pushes her baby in a stroller.
d. A construction worker eats a hotdog during his lunch break.
93. Which of these activities will most likely impose an external cost?
a. Betty plants flowers in her garden.
b. Bonnie gets a flu vaccine.
c. Bridget drives her car after having too much alcohol to drink.
d. Becky buys a new flat screen television.
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94. Which of these activities will most likely result in an external benefit?
a. A college student buys a deck of cards to play solitaire in her dorm room.
b. An elderly woman plants a flower garden on the vacant lot next to her house.
c. An executive purchases a book to read on a business trip.
d. A ten-year-old uses his allowance to buy new Nike shoes.
95. Which of these activities will most likely result in an external benefit?
a. Ted purchases a dilapidated house and cleans up the yard and exterior of the house.
b. Tim purchases an iPhone and downloads new apps.
c. Terri purchases a new SUV and drives it to work every day.
d. Thomas purchases a suit and wears it on his interviews.
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96. When a single person (or small group) has the ability to influence market prices, there is
a. competition.
b. market power.
c. an externality.
d. a lack of property rights.
97. Market power refers to the
a. power of a single person or small group to influence market prices.
b. ability of a person or small group to successfully market new products.
c. power of the government to regulate a market.
d. importance of a certain market in relation to the overall economy.
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98. Which of the following firms is likely to have the greatest market power?
a. an electric company
b. a farmer
c. a grocery store
d. a local electronics retailer
99. Which of the following firms is most likely to have market power?
a. a grocery store in a metropolitan area
b. a convenience store in a suburb
c. a pub in a college town
d. the only gasoline station in a rural area
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100. An example of a firm with market power is a
a. delicatessen in New York.
b. cable TV provider in Tulsa.
c. clothing store in Chicago.
d. family farm in Kansas.
101. The price of diamonds is high, in part because the majority of the world’s diamonds are
controlled by a single firm. This is an example of
a. a market failure caused by an externality.
b. a market failure caused by market power.
c. a market failure caused by equality.
d. There is no market failure in this case.
128 Ten Principles of Economics
102. Air pollution from burning fossil fuels causes damages to crops and public health. This is an
example of
a. a market failure caused by an externality.
b. a market failure caused by market power.
c. a market failure caused by equality.
d. There is no market failure in this case.
103. Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example
of
a. a market failure caused by an externality.
b. a market failure caused by market power.
c. a market failure caused by equality.
d. There is no market failure in this case.
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Multiple Choice – Section 03: How the Economy as a Whole Works
1. In 2011, the average American earned about $48,000 while the average Nigerian earned about
$1,200. Which of the following statements is likely?
a. The average American purchases more televisions than the average Nigerian.
b. The average American has better nutrition and healthcare than the average Nigerian.
c. The average American has a longer life expectancy than the average Nigerian.
d. All of the above are correct.
2. In the United States, incomes historically have grown about 2 percent per year. At this rate,
average income doubles every
a. 15 years.
b. 25 years.
c. 35 years.
d. 45 years.
130 Ten Principles of Economics
3. In the United States, incomes have historically grown
a. about 0.5 percent per year.
b. about 2 percent per year.
c. about 4 percent per year.
d. about 6 percent per year.
4. Over the past century, the average income in the United States has risen about
a. twofold.
b. fivefold.
c. eightfold.
d. tenfold.
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5. The term “productivity”
a. means the same thing as “efficiency.”
b. is seldom used by economists, as its meaning is not precise.
c. refers to the quantity of goods and services produced from each unit of labor input.
d. refers to the variety of goods and services from which households can choose when they shop.
6. Productivity is defined as the
a. amount of goods and services produced from each unit of labor input.
b. number of workers required to produce a given amount of goods and services.
c. amount of labor that can be saved by replacing workers with machines.
d. actual amount of effort workers put into an hour of working time.
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7. The amount of goods and services produced from each unit of labor input is called
a. opportunity cost.
b. productivity.
c. externality.
d. marginal benefit.
8. What is the most important factor that explains differences in living standards across countries?
a. the quantity of money
b. the level of unemployment
c. productivity
d. equality
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9. Almost all variation in living standards is attributable to differences in countries’
a. population growth rates.
b. productivity.
c. systems of public education.
d. taxes.
10. The income of a typical worker in a country is most closely linked to which of the following?
a. population
b. productivity
c. market power
d. government policies
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11. A direct or positive relationship exists between a country’s
a. productivity and its standard of living.
b. amount of government spending and its productivity.
c. total population and its average citizen’s income.
d. rate of population growth and the extent of its trade with other countries.
12. The primary determinant of a country‘s standard of living is
a. the country’s ability to prevail over foreign competition.
b. the country’s ability to produce goods and services.
c. the total supply of money in the economy.
d. the average age of the country’s labor force.
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13. The historical rise in living standards of American workers is primarily a result of
a. the influence of labor unions in America.
b. tariff protection imposed by the American government.
c. the enactment of minimum-wage laws in America.
d. the rise in American productivity.
14. The fact that different countries experience different standards of living is largely explained by
differences in those countries’
a. populations.
b. productivity levels.
c. locations.
d. None of the above is correct. Economists are puzzled by differences in standards of living
around the world.
136 Ten Principles of Economics
15. Suppose the average income of a citizen of Poland is higher than the average income of a citizen
of Romania. You might conclude that
a. Polish firms are faced with stricter government regulations than Romanian firms.
b. total income is divided among fewer workers in Poland since it has a smaller labor force than
Romania.
c. Romania’s climate allows for longer growing seasons and therefore Romania can produce large
quantities of grain and other crops.
d. productivity in Poland is higher than in Romania.
16. The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by
a. unstable economic conditions in Eastern Europe.
b. increased competition from abroad.
c. a decline in the rate of increase in U.S. productivity.
d. a strong U.S. dollar abroad, hurting U.S. exports.
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17. Slow growth in US incomes during the 1970s and 1980s was primarily due to
a. slow productivity growth in the US.
b. increased competition from Japan.
c. increased competition from European countries.
d. a rapid decrease in the quantity of money in the economy.
18. Suppose a typical worker in India can produce 32 units of product in an eight–hour day, while a
typical worker in Bangladesh can produce 30 units of product in a 10-hour day. We can conclude
that
a. worker productivity in Bangladesh is higher than in India.
b. the standard of living will likely be higher in India than in Bangladesh.
c. productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for the
worker in India.
d. there will be no difference between the standard of living in India and Bangladesh.
138 Ten Principles of Economics
19. Suppose that in Brazil total annual output is worth $600 million and people work 30 million hours.
In Peru total annual output is worth $800 million and people work 50 million hours. Productivity is
higher
a. in Brazil. Most variation in the standard of living across countries is due to differences in
productivity.
b. in Brazil. Differences in productivity explain very little of the variation in the standard of living
across countries.
c. in Peru. Most variation in the standard of living across countries is due to differences in
productivity.
d. in Peru. Differences in productivity explain very little of the variation in the standard of living
across countries.
20. US citizens have better nutrition, better healthcare, and a longer life expectancy than citizens of
Ghana. Which of the following conclusions can be drawn from this statement?
a. Average income in the US is higher than the average income in Ghana.
b. The US has a higher standard of living than Ghana.
c. Productivity in the US is higher than productivity in Ghana.
d. All of the above are correct.
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21. In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units
of output. In that same country in 2008, the average worker needed to work 40 hours to produce
68 units of output. In that country, the productivity of the average worker
a. decreased by 1.7 percent between 1998 and 2008.
b. remained unchanged between 1998 and 2008.
c. increased by 4.75 percent between 1998 and 2008.
d. increased by 6.25 percent between 1998 and 2008.
22. In a particular country in 2000, the average worker needed to work 40 hours to produce 55 units
of output. In that same country in 2008, the average worker needed to work 30 hours to produce
45 units of output. In that country, the productivity of the average worker
a. decreased by about 6 percent between 2000 and 2008.
b. remained unchanged between 2000 and 2008.
c. increased by about 9 percent between 2000 and 2008.
d. increased by about 18 percent between 2000 and 2008.
140 Ten Principles of Economics
23. In a particular country in 1998, the average worker needed to work 40 hours to produce 100 units
of output. In that same country in 2008, the average worker needed to work 36 hours to produce
72 units of output. In that country, the productivity of the average worker
a. decreased between 1998 and 2008, so we would expect the standard of living to have
decreased accordingly.
b. increased between 1998 and 2008, so we would expect the standard of living to have increased
accordingly.
c. decreased between 1998 and 2008, so we would expect inflation to have decreased
accordingly.
d. increased between 1998 and 2008, so we would expect inflation to have increased accordingly.
24. In a particular country in 1999, the average worker had to work 20 hours to produce 55 units of
output. In that same country in 2009, the average worker needed to work 28 hours to produce 77
units of output. In that country, the productivity of the average worker
a. increased by 2 percent between 1999 and 2009.
b. increased by 5 percent between 1999 and 2009.
c. remained unchanged between 1999 and 2009.
d. decreased by 3 percent between 1999 and 2009.