Question 1

Suppose that the average income of a Kenyan is higher than the average income of a South African. What might you conclude?

Accepted Answer

A)  South African firms are faced with stricter government regulations than Kenyan firms.
B)  Total income is divided among fewer workers in Kenya since it has a smaller labour force than South Africa.
C)  Kenya's climate allows for longer growing seasons and therefore Kenya can produce large quantities of grain.
D)  Productivity in Kenya is higher than in South Africa.E) All of the above
F) B) and C)

Question 2

What does economics study?

Accepted Answer

A)  how society manages its scarce resources
B)  the government's role in society
C)  how to increase production
D)  How firms make profitsE) B) and C)
F) A) and D)

Question 3

For society, when is a good NOT scarce?

Accepted Answer

A)  if at least one individual in society can obtain all he or she wants of the good
B)  if firms are producing at full capacity
C)  if all members of society can have all they want of it
D)  if those who have enough income can buy all they want of the goodE) A) and C)
F) All of the above

Question 4

The government can potentially improve market outcomes if market inequalities or market failure exists.

Accepted Answer

A) True 
 B)False

Question 5

Mallory decides to spend 3 hours working overtime rather than watching a video with her friends. She earns $8 an hour. What is her opportunity cost of working?

Accepted Answer

A)  the $24 she earns working
B)  the $24 minus the enjoyment she would have received from watching the video
C)  the enjoyment she would have received had she watched the video
D)  nothing, since she would have received less than $24 of enjoyment from the videoE) C) and D)
F) A) and B)

Question 6

Which of the following statements is NOT true? Households and economies both

Accepted Answer

A)  must allocate scarce resources.
B)  face many decisions.
C)  must allocate the goods and services they produce.
D)  must have a central decision maker.E) C) and D)
F) A) and B)

Question 7

For what reason do both households and societies face many decisions?

Accepted Answer

A)  because resources are scarce
B)  because populations may increase or decrease over time
C)  because wages for households and therefore society fluctuate with business cycles
D)  because people, by nature, tend to disagreeE) A) and D)
F) B) and C)

Question 8

A worker in Bangladesh can earn $1 per day making cotton cloth on a hand loom. A worker in Canada can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?

Accepted Answer

A)  Canadian textile workers belong to a union.
B)  There is little demand for cotton cloth in Bangladesh and great demand in Canada.
C)  Labour is more productive making cotton cloth with a mechanical loom than with a hand loom.
D)  Bangladesh has a low-wage policy to make its textile industry more competitive in world markets.E) A) and B)
F) A) and C)

Question 9

What are two causes of market failure?

Accepted Answer

A)  externalities and market power
B)  market power and incorrect forecasts of consumer demand
C)  externalities and foreign competition
D)  incorrect forecasts of consumer demand and foreign competitionE) B) and D)
F) None of the above

Question 10

Suppose your management professor has been offered a corporate job with a 30% pay increase. He has decided not to take the job. What happened for him?

Accepted Answer

A)  The marginal cost of leaving was greater than the marginal benefit.
B)  The marginal benefit of leaving was greater than the marginal cost.
C)  The marginal benefit of leaving was less than the marginal cost.
D)  The marginal benefit of teaching was greater than the marginal cost.E) B) and C)
F) C) and D)

Question 11

Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. He discovers that he needs an additional repair, which will cost $400, in order to complete the repairs. He can sell the boat as it is now for $300. What should he do?

Accepted Answer

A)  He should cut his losses and take the $300.
B)  He should never sell something for less than it cost.
C)  He should complete the repairs and sell the boat.
D)  It doesn't matter which action he takes; the outcome is the same either way.E) All of the above
F) B) and D)

Question 12

When does a rational decision maker take an action?

Accepted Answer

A)  only if the marginal benefit is less than the marginal cost
B)  only if the marginal benefit is greater than the marginal cost
C)  only if the average benefit is greater than the average cost
D)  only if the marginal benefit is greater than both the average cost and the marginal costE) None of the above
F) All of the above

Question 13

What does efficiency mean?

Accepted Answer

A)  Society is conserving resources in order to save them for the future.
B)  Society's goods and services are distributed fairly among society's members.
C)  Society has lessened its dependence on foreign energy sources.
D)  Society is getting the most it can from its scarce resources.E) A) and D)
F) None of the above

Question 14

What happens when the government prevents prices from adjusting naturally to supply and demand?

Accepted Answer

A)  It stabilizes the economy by reducing market uncertainties.
B)  It adversely affects the allocation of resources.
C)  The improvement in equity justifies the reduction in efficiency.
D)  The improvement in efficiency justifies the reduction in equity.E) None of the above
F) C) and D)

Question 15

What does trade between Canada and India do?

Accepted Answer

A)  benefits both Canada and India
B)  is a losing proposition for Canada because India has cheaper labour
C)  is like a sports contest: one side wins and the other side loses
D)  is a losing proposition for India because Canadian workers are more productiveE) All of the above
F) B) and C)

Question 16

Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

Accepted Answer

Whatever must be given up to obtain some...

Question 17

How does the government enforce property rights?

Accepted Answer

A)  by requiring property owners to pay property taxes
B)  by providing police and courts
C)  by allowing people to decide whether or not they wish to own property
D)  by providing a system of recording property deedsE) All of the above
F) A) and B)

Question 18

What happens if Japan chooses to engage in trade?

Accepted Answer

A)  It will only benefit if it trades with countries that produce goods it cannot produce.
B)  It cannot benefit if it trades with less developed countries.
C)  It should first attempt to produce the good itself.
D)  It can benefit by trading with any other country.E) A) and D)
F) None of the above

Question 19

In a market economy, what guides economic activity?

Accepted Answer

A)  the government
B)  corporations
C)  central planners
D)  pricesE) A) and D)
F) C) and D)

Question 20

What does the term market failure refer to?

Accepted Answer

A)  a situation in which the market on its own fails to allocate resources efficiently
B)  an unsuccessful advertising campaign that reduces buyer demand
C)  a situation in which competition among firms becomes ruthless
D)  a firm that is forced out of business because of lossesE) B) and C)
F) A) and B)

Exam 1: Ten Principles of Economics

How does the government enforce property rights?

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What does the term market failure refer to?

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Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

Correct AnswerverifiedWhatever must be given up to obtain some...View AnswerShow Answer

What does trade between Canada and India do?

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When does a rational decision maker take an action?

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What does economics study?

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For what reason do both households and societies face many decisions?

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What happens if Japan chooses to engage in trade?

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What does efficiency mean?

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Which of the following statements is NOT true? Households and economies both

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A worker in Bangladesh can earn $1 per day making cotton cloth on a hand loom. A worker in Canada can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?

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Suppose that the average income of a Kenyan is higher than the average income of a South African. What might you conclude?

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For society, when is a good NOT scarce?

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What happens when the government prevents prices from adjusting naturally to supply and demand?

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Mallory decides to spend 3 hours working overtime rather than watching a video with her friends. She earns $8 an hour. What is her opportunity cost of working?

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What are two causes of market failure?

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In a market economy, what guides economic activity?

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Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. He discovers that he needs an additional repair, which will cost $400, in order to complete the repairs. He can sell the boat as it is now for $300. What should he do?

Correct AnswerverifiedShow Answer

Suppose your management professor has been offered a corporate job with a 30% pay increase. He has decided not to take the job. What happened for him?

Correct AnswerverifiedShow Answer

The government can potentially improve market outcomes if market inequalities or market failure exists.

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Whatever must be given up to obtain some...
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